Seven Powerful Ratios to Start Tracking Now

Posted by WABC

By John Warrillow - Founder of The Sellability Score, a tool business coaches use to help their clients understand what drives a company's value.

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth but by the infant mortality rate, a ratio of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios, and the more ratios a company owner can provide to a potential buyer, the better.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

Here are seven ratios to talk about with your clients:

1. Employees per square foot 

By calculating the number of square feet of office space that a business rents and dividing it by the number of employees, the company can judge how efficiently they have designed their space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

2. Ratio of promoters and detractors 

Fred Reichheld and his colleagues at Bain & Company and Satmetrix, developed the Net Promoter Score® methodology, which is based on asking customers a single question that is predictive of both repurchase and referral. Here’s how it works: the business needs to survey their customers and ask them the question: “On a scale of 0 to 10, how likely are you to recommend <insert the company name> to a friend or colleague?” Then they need to figure out what percentage of the people surveyed gave a score of 9 or 10, and label that the ratio of “promoters.” The ratio of detractors is calculated by figuring out the percentage of people surveyed who gave a 0–6 score. The Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters.

The average company in the United States has a Net Promoter Score of between 10 and 15 percent. According to Satmetrix’s 2011 study, the U.S. companies with the highest Net Promoter Score are:

USAA Banking 87%
Trader Joe’s 82%
Wegmans 78%
USAA Homeowner’s Insurance 78%
Costco 77%
USAA Auto Insurance 73%
Apple 72%
Publix 72%
Amazon.com 70%
Kohl’s 70%

3. Sales per square foot 

By measuring annual sales per square foot, the business can get a sense of how efficiently they are translating their real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales the business can generate per square foot of real estate, the more profitable they are likely to be.

Specialty food retailer Trader Joe’s ranks among companies with the highest sales per square foot; Business Week estimates it at $1,750 – more than double that of Whole Foods.

4. Revenue per employee 

Payroll is the number one expense of most businesses, which explains why maximizing revenue per employee can translate quickly to the bottom line. In a 2010 report, Business Insider estimated that Craigslist enjoys one of the highest revenue-per-employee ratios, at $3,300,000 per employee, followed by Google at $1,190,000 per bum in a seat. Amazon was at $1,010,000, Facebook at $920,000, and eBay rounded out the top five at $530,000. More traditional people-dependent companies may struggle to surpass $100,000 per employee.

5. Customers per account manager 

How many customers does the business ask their account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with. It’s hard to say what the right ratio is because it is so highly dependent on the industry. A business should slowly increase the ratio of customers per account manager until they see the first signs of deterioration (slowing sales, drop in customer satisfaction). That’s when they know they have probably pushed it a little too far.

6. Prospects per visitor 

What proportion of the business’s website visitors “opt in” by giving the business permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony on how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate, because so much depends on the source of traffic. They recommend that rather than benchmarking the business against a competitor, benchmark it against itself by carrying out tests to beat the current opt-in rate.

They suggest that the easiest way of increasing opt-in rate is to reward visitors for submitting their e-mail addresses by offering them a gift they’d find valuable. Information products – such as online white papers, videos and calculators – make ideal gifts, because their cost per unit can be almost zero. Using this technique and a few others, Conversion Rate Experts achieved a 66 percent increase in the prospects-per-visitor rate for SOS Worldwide, a broker of office space.

7. Prospects to customers 

Similar to prospects per visitor, another metric to keep an eye on is the efficiency with which the business converts prospects – people who have opted in or expressed an interest in what the business sells – into customers.

Conversion Rate Experts  recommends that businesses monitor the rate at which they are converting qualified prospects into customers and then carry out tests to identify factors that improve that ratio. Conversion Rate Experts more than doubled the revenues of SEOBook.com, the leading community for search marketers, by converting many of SEOBook’s free subscribers into customers. Techniques that were found to be effective included (perhaps counter=intuitively) restricting the number of places available; allowing easier comparison between SEOBook and the alternatives; communicating the company’s value proposition more effectively; and simplifying its sign-up process. The trick is to establish the benchmark and tinker until it improves.

More than just raw numbers, ratios give you a more insightful way to analyze your client’s business.

John WarrillowJohn Warrillow is the founder of The Sellability Score, a tool business coaches use to help their clients understand what drives a company's value. John is the author of Built to Sell: Creating a Business That Can Thrive Without You. Between 1997 and its acquisition by The Corporate Executive Board (NYSE: CEB) in 2008, John Warrillow led Warrillow & Co., an advisory firm providing marketing advice for reaching the Small & Medium Business (SMB) market segment to companies such as American Express, Apple, Bank of America, Dell, eBay, Google, IBM, Microsoft, RBC Royal Bank, Sprint, VISA, and Wells Fargo. John has been recognized by B2B Marketing as one of the top 10 Business-to-Business marketers in the United States.
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Leadership is a Contact Sport

Posted by Marshall Goldsmith

Leadership is a relationship not between the coach and the “coachee,” but between the leader and his or her colleagues. Learn the eight steps to effective leadership development in this series of Marshall Goldmisth's video blog.


Marshall Goldsmith is a proud member of and partner with the WABC.  In both 2011 and 2013 he was ranked as one of the Top Ten Business Thinkers in the World – and the highest ranking executive coach – at the biennial Thinkers 50 ceremony in London.  He was also the recognized in 2011 as the World’s Most Influential Leadership Thinker.  Dr. Goldsmith is the author or editor of 34 books, including the New York Times bestsellers, MOJO and What Got You Here Won’t Get You There.
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Part II: Reinventing a Coaching Firm

Posted by WABC

By Todd Uterstaedt

If you read my last blog you know I talked about focusing on a global online niche. I hope you were energized by the idea and that you’re ready to start thinking about the target group you’d like to serve.

Now what? How do you find your new "ideal client?"  When we launched www.daughtersincharge.com we faced a similar challenge. Our first step was to truly understand the pains and joys of daughters working in family businesses. We worked with a small group of these women for almost a year. We learned the key words that they used to describe their issues and themselves. And we developed a “content marketing strategy.”

Because our daughters have not been “aggregated” by anyone yet, the cost of finding them is higher than if they were already pulled together by someone else. You might find it easier to attract your unique audience members if a trade organization, magazine, LinkedIn Group, or even a Facebook Group is willing to partner with you.

"Content marketing" is still a somewhat broad and evolving term. For us, it is really about building our audience by providing valuable insights that help them with their unique challenges. Tools like www.googlekeywordtool.com, help our daughters find us.  Because the first step to deploying a content marketing strategy is to "own” the key words that will attract your ideal client, once you have your key words, you can collect, curate, and create valuable information products, services, and experiences that serve the people you choose to help. Offering free content through blogs, e-zines, YouTube videos, and now even podcasts, not only helps your audience, but also drives them to your website and your very important “opt-in” email list.

The “opt-in” is key. This is usually a free and valuable e-book, white paper, toolkit, audio product, or even an assessment that you provide to your audience members in exchange for their name and email address. It really is your first opportunity to demonstrate your caring, concern, and competence in helping your audience succeed.

As your email list grows, you’ll have a more direct way to connect and communicate valuable revenue-generating coaching programs, mastermind groups, one-on-one coaching offerings, and more. Cloud-based systems like www.infusionsoft.com and www.webber.com make it easy to automate your content marketing, e-commerce, and customer relationship management all in one platform.

We didn't figure this out for ourselves. We learned from people like Brendon Burchard, Amy Porterfield, Michael Hyatt, and many others. These online experts all serve their own unique global audiences by providing consistent, quality content over multiple internet-based online platforms that foster relationships and create trust. They use social media platforms to attract their ideal clients and accelerate the growth of their "opt-in" email list. When they are ready to launch a group coaching course, for example, their online clients sign up. The trust is there.

You, too, can attract your ideal client. Find your key words. Create compelling content that serves your audience. Launch your “opt-in” gift connected to your email marketing system. Listen to your audience's feedback. Create powerful online courses, coaching programs, etc., that help them go deeper in solving their problems. It's never been easier.

Still not sure? Need a partner to help you? In my next blog, we'll share how YOU can find a partner that understands this new world.

Todd Uterstaedt is President & CEO of Baker & Daboll, LLC, the leading Executive Coaching firm in Cincinnati, OH. He is also co-founder of “Daughters in Charge”, an online community for daughters working in their family’s business.
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Improving Innovation: How Coaches Can Help Companies Turn Ideas into Profits, by Kim Benz and Heidi L. Smith, PhD

Posted by Heidi L. Smith

Innovation needs renovation!

In a recent Boston Consulting Group survey of 940 executives from 68 countries, 90% of respondents agreed that generating growth through innovation is essential to success in their industries, and 74% plan to increase spending on innovation this year. Yet fewer than half the respondents are satisfied with the financial results of their innovation efforts. The survey represented all major industries, including energy, consumer and industrial goods, financial services, technology, telecommunications, and healthcare.

This paradox—plans to increase spending despite growing dissatisfaction—was evident in responses worldwide. While executives from North America were most strongly represented (53% of the sample) executives from Europe (27%), Asia (14%), and Australia/New Zealand (5%) agreed that fierce competition, coupled with a need to demonstrate potential growth to investors, compels them to increase their investment in innovation despite high risk and low rates of return.

In these trying times, intense pressure to generate profit through increasingly fast-paced innovation cycles will likely lead some executives to seek expert assistance. Business coaches can help companies improve the innovation process by understanding where this complex process most often stalls or breaks down completely. Opportunities abound for business coaches to improve innovation worldwide in small and large, product- and service-oriented companies from every industry.

First, coaches must understand that innovation is more than creativity. While creativity involves the production of new and valuable ideas, innovation is turning ideas into profits—innovation impacts the financial bottom line. A simple diagram describing the innovation process is provided below.

At each stage of the process, creativity must be directed towards the tasks that are appropriate to that particular stage. Coaches can assist in this effort by more explicitly defining each stage, suitably aligning the team to facilitate the process, and assessing progress and results.

Innovation begins with idea generation. At this stage, coaches can help direct creativity toward the generation of a volume of novel and diverse ideas, including helping companies identify and cultivate both internal and external sources of ideas. While small companies may be focused on internally generated ideas, they may benefit from systematically tapping into external sources, such as market trends, customer needs, and supplier-identified innovations. Larger companies may be focused on their competitors and customers, and may benefit from building a process for employee involvement at this stage.

Often, companies have more than enough new ideas, but struggle with transforming those ideas into profits. They may have difficulty evaluating and selecting ideas for further development. When executives have difficulty deciding which ideas to pursue, they may pursue all ideas simultaneously. This "shotgun approach" decreases time and resources allocated to development of any one idea which, in turn, decreases the chance that the project will be successful. In this high-risk, low-return environment, coaches may help companies identify criteria and adopt decision-making strategies to determine which projects are pursued and how they are resourced.

Once a company decides to develop an idea, concept variations must be iteratively refined and tested until the innovation is ready to be introduced in the marketplace. At this stage, coaches can help direct creativity towards solving problems in development or execution—moving from a focus on divergent thinking to a focus on convergent thinking. Truly creative minds can figure out how to solve extremely challenging executional problems, thus keeping the innovation process from breaking down.

In small companies, parts of the development, testing, or marketing process may require outsourcing if internal expertise is lacking. Large companies may leverage business allies to outsource tasks such as statistical analysis of consumer data or parts manufacturing and assembly. Identifying necessary expertise is crucial, and business coaches may facilitate critical business-to-business connections. While companies may be most comfortable keeping innovation "in-house," outsourcing only after initial testing and development, companies that outsource earlier and smarter may benefit tremendously by reducing time to market and slashing costs.

Regardless of company size, coaches can help define and manage the stages of the idea-to-cash process to facilitate efficiency and effectiveness. There is no "one-size fits all" innovation process. Rather, the process depends on the type of innovation (industry/product vs. service vs. application) and the functional organization of the people involved.

Aligning people around the innovation process is critical. Regardless of the company's structure (flat, matrixed or hierarchical), communication is key to successful innovation. Conscious effort to increase communication quality and timeliness is especially important in organizations with complex structures and complicated functional relations. Coaches can help companies build cross-functional project teams or strategies for sharing and evaluating project progress across functions (e.g., supply chain, R&D, customer service, marketing, and operations). Successful innovation requires interaction, and coaches can facilitate connections and exchange of information.

Ultimately, executives' dissatisfaction with innovation may stem from inadequate assessment. In fact, fewer than half the executives surveyed carefully track return on innovation efforts. Assumptions about the causes of process derailment may be inaccurate. It is difficult to identify problems without good measurements, and meaningful metrics are hard to find.

Although companies can measure time-to-initial-sales, number of new product launches, development costs, and overall revenue increases, they have difficulty tracking specific costs of innovation and tying them to resulting profits. When projects start and stop, costs are shared across functional units with separate budgets and different executive leadership. The time frame for measuring financial success is not obvious, so metrics are hard to come by. Smaller companies may have an advantage here; the relationship between innovation expenses and profits may be easier to evaluate when efforts are focused around only one or a few projects and a simpler organizational structure facilitates information flow.

Few creative ideas make it from concept to marketplace, and fewer still produce significant, sustainable, bottom-line results. Companies must continually re-evaluate the expected project returns to decide wisely whether to continue development, effect a product launch, or abandon a project and shift resources to more promising projects. Business coaches may assist executives by building skills needed to identify important sources of information, articulate decision-making criteria, and deal with inherent uncertainty.

Even expert coaching will not eliminate the anxiety and frustration associated with trying to predict the next big breakthrough and get it to market faster and more cheaply than the competition. However, innovation offers opportunities for business coaches to make significant contributions to business people and business profits.

Andrew, James P. "Innovation 2005." March 25, 2005. Boston Consulting Group. Available at http://www.bcg.com/publications/publications_search_results.jsp?PUBID=1312.

Copyright © 2011 WABC Coaches Inc. All rights reserved.

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