At the end of each month, you should be able to articulate not just whether or not you met your KPIs, but exactly how you got there.

In other words, just checking your financial statements and calling it a “good” or “bad” month isn’t going to cut it.

Because stopping there tells you nothing.

At best, doing so leaves the good months up to chance. At worst, it’ll lead you to believe that there’s little you can do to turn the tide when your business takes a dip.

How to Ask the Tough Questions

Start with your financial statements and calculate the month-over-month change in your core set of KPIs.

Now this is where the real work begins.

For each KPI that you met, keep digging until you know exactly why that is. If Revenue is up, was it lead gen or lower churn that brought you over the finish line? How repeatable is that success going forward?

Often, you’ll need to break down each KPI by the component processes that feed into the final measurement. This Is because success in one KPI typically comes from multiple sources.

Doing so also allows you to identify any potential headwinds for the business that would otherwise be masked by a good-looking top-line result.

Once you’ve pinpointed what works, double, then triple down on it.

And now, it’s time to move on to what didn’t go well.

For every KPI that you missed, break down its components until you arrive at not just a specific, 1-sentence summary of what went wrong, but also a controllable answer as to what needs to be done about it next month.

Asking the Tough Questions in Practice

Lumpiness in gross margin is a pretty common problem that I see in the SMBs we serve.

My team and I once worked with an HVAC business that would record seemingly random fluctuations in their gross margin to the tune of 25% month to month. From there, we started to dig in and ask why.

At a project level, we knew that gross margins were actually improving. Consequently, gross margins for the business overall should have been improving month over month.

At that point, we knew we had a reporting issue.

In this particular case, there were two issues at play. The first was how WIP was being recorded at the end of each month. The second was due to a mismatch in revenue recognition and the timing of Marketing spend.

No matter the underlying cause of a “good” or “bad” month, it’s about asking why until you arrive at a specific and controllable answer.

Sometimes, as was the case for this HVAC business, it comes down to a reporting issue. Other times, you need to overhaul your processes and strengthen your value proposition.

But you’ll never take the right steps unless you get comfortable asking the tough questions.

Putting It All Together

Here are your top takeaways from this week’s post.

1. Knowing whether or not you met your KPIs each month is not enough. Don’t stop until you understand how you got there.

2. Start with your financial statements, but don’t stop digging until you’ve broken down each KPI into its component processes.

3. When you’re not seeing the results you want, your goal should be to summarize where the business fell short in one sentence. The next sentence out of your mouth should be what you can do about it next month—in as much detail as possible.

Hungry for More?

1. Follow me on Twitter and LinkedIn for daily content to take your business to the next level.

2. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor