The famous business management consultant Peter Drucker gave us the quote, “what gets measured, gets managed”. In your nanny agency, are your management activities focusing on what matters? What are the nanny agency metrics or measurements that DO matter?
#1 – 12 Month Trailing Revenue
Investors and savy business managers rely on the trailing 12 month (TTM) for real time representation of a business’ financial performance for a 12-month period. The TTM measurement recognizes that there are seasonal fluctuations in business revenues. Divestopedia explains that “TTM revenue of a (nanny agency) for the month of May would include the revenue from June of the prior year to May of the current year. The trailing twelve months is also sometimes referred to as the Last Twelve Months (LTM).”
A nanny agency that measures 12 month trailing revenue consistently will promptly recognize whether the agency’s revenues are growing or contracting, and whether revenue targets are being met. Often a business will additionally measure the current period’s TTM to that of the same period in the prior year.
#2 – Gross Profit Margin
The formula for Gross Profit Margin is:
TOTAL REVENUES – DIRECT EXPENSES = GROSS PROFIT
TOTAL REVENUES / GROSS PROFIT = GROSS PROFIT MARGIN
Why do you measure gross profit margin? This is a powerful indicator to the business owner of how well direct expenses are being managed.
What are direct expenses for the nanny agency? Direct expenses will include owner’s and staff wages, including payroll taxes and benefits costs, background screening fees, workers’ compensation and staff insurance costs.
#3 – Business Referral Sources
Tracking the leads and revenue attributable to various referral channels is an important measurement, helping the nanny agency to understand the marketing activities and channels that work, and those that do not. We all know there are numerous competing advertising and marketing channels – we get pitched a new ‘opportunity’ every week! When you track referral sources, you will learn which networking activities work (child care fairs or new/expectant parent events for example) and which are duds. Measurement of referral sources needs to balance not just what activities generated referral activity (leads) but also what activity generated revenue (sales).
#4 – Sales Close Ratios
Your nanny agency networking, marketing, and advertising activities may make the phone ring, but how are you doing converting those leads to clients? Consider:
- Inquiry : Family Consultation/Visit Ratios – how many families who called inquiring about your services, fees, etc. actually resulted in a family consultation or home visit?
- Family Consultation : Placement Listings (resulting in payment of the retainer fee) – this measures how often a family consultation results in a job order. Consider carefully what this means. A ratio that is very high or very low may point to different problems. A low ratio may mean your agency is too quick to schedule the family consultation, without fully qualifying the prospect. A high ratio may mean your agency is too particular in the qualification process, and that you are missing opportunities because you are not getting your best closers in front of enough families.
- Inquiry : Placement Completions – This is without a doubt the most important sales close ratio to watch. This measures the success and effectiveness of the entire sales process.
Measurement for measurement’s sake is meaningless – you must act on what you learn. If your nanny agency is brand new or still quite small, you may have additional items that you as the business owner must measure and track, at least periodically.
These nanny agency measurements that matter are critically important, yet they should not crowd out judgment and intuition. These nanny agency measurements are by their nature lagging indicators – they report and measure on what happened historically. You must always keep yourself open to reading and recognizing leading indicators – those early detection systems that allow you to recognize changes in your market, in the industry. Leading indicators can point out problems OR opportunities, and if you are aware you can seize competitive advantages.
Peter Drucker always called for a healthy balance—between short-term needs and long-term sustainability; between profitability and other obligations; between the specific mission of individual organizations and the common good; between freedom and responsibility.
What are the nanny agency metrics that matter to you? Have you uncovered an opportunity or problem as a result of measurement? What was it and how did you act upon it?
A special thank you to INA member Kathleen Webb for contributing this article.
Kathy is the co-founder and President of HomeWork Solutions, a leading household payroll and payroll tax compliance service, and a member of the International Nanny Association since 1993.
Kathy serves on the INA Board of Directors as Co-President and chairs the Governmental Affairs committee.