If music is a revenue stream for you, you are in the music business, accent on business.
And whether you’re a retailer, wholesaler, or performer, people are bound to ask, how is business? You might think you know, but unless you are tracking some important numbers, you’re guessing.
Those numbers are called KPIs (key performance indicators), and this article will explain why they are vital to the success of your music business.
What Are KPIs?
KPI.org defines them as:
“The critical (key) quantifiable indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.”
More simply, KPIs are measures of how close a business is coming to its financial, sales and marketing, operational efficiency, employee performance goals. Even more simply, KPIs answer the question, “How is your business doing.”
Why Is Tracking KPIs Important?
“What gets measured, gets done.” That’s why, according to renowned management consultant Peter Drucker.
Let’s look at it from another angle.
Say your doctor recommends you lose 10 pounds.
You set that as a goal that you want to reach within three months and begin tracking your progress by regularly stepping on the scales. If you lost three pounds in the first month, your KPI tells you that you’re making timely progress. At the end of the second month, your KPI should be around be around 6-7 pounds lost.
So, it goes with your business. If you want to cut expenses by $XX in the next quarter, start tracking them on the first day of the reporting period.
Back to your health for a minute. If losing weight is your only goal, then that’s all you have to measure. But if you want to make overall improvements, other KPIs would be blood pressure, body mass index, stress management, and so forth.
The same goes for your business. Cutting costs is one thing that can be measured, but setting revenue goals and tracking progress is an equally important KPI, as are return on advertising and marketing investments, operational efficiency, and social media engagement.
The best time to establish KPIs is when starting your business, but it’s never too late to begin with establishing, tracking, and analyzing KPIs, not to mention adjusting them as you observe a correlation between certain indicators and overall business performance.
In business, there are some major KPIs to which you should pay particular attention.
If you own a music store, set targets for instrument sales, accessory sales, repair fees, and lessons and track progress toward each of those targets.
That data provides insights into a business’s overall and product-line financial performance, indicating the effectiveness of sales and marketing efforts, customer demand, pricing strategies, and overall revenue growth or decline.
If the numbers show you’re on course, good. On the other hand, if they are trending the wrong way, the sooner you spot it, the sooner you can adjust to get back on target.
It’s also important to track ongoing revenue. Some products and services are seasonal; retail sales, for instance, increase significantly during the holidays. By tracking different sales KPIs, you’ll be able to make a better decision about what part or parts of your business you promote at different times. Then, by reviewing year-to-year KPIs, you’ll get a comprehensive picture of what’s working and where improvements can be made.
As a performer, consider other KPIs related to revenue, such as performance attendance and ticket price if applicable. As those increase, so should your revenue. If it’s not, your KPIs will back up your argument for more money.
First, if you’re not on the web and social, you should be. Your customers and fans—and, ergo, your money—is already there. There’s usually a correlation between social media engagement and increased business.
If you’re already there, and particularly if you are spending money on a digital presence, KPIs take on added weight. Numbers that successful businesses track include:
- Traffic/followers: For a website, look at traffic. For social media channels, look at followers/subscribers.
- Reach: The number of unique users who saw your posted content.
- Impressions: The number of times a user sees your content. Note that a social post may reach 100 people but have 500 impressions, which means on average, your post was viewed five times per user. A high rate of impressions generally indicates more compelling content because people view it multiple times.
- Reactions: Are you getting likes? Which type of posts are getting more reactions?
For all of these KPIs, the numbers should trend upward. Now, an instrument wholesaler may not see a dramatic rise in website traffic month over month, but certain sections of the website may increase more noticeably (e.g. the express shipping page) than others, which may provide insights into areas to emphasize when communicating with retail clients or advertising.
As a performer, you’ll want to see your fanbase increasing. Posting videos and sound files will go a long way to helping boost those KPIs. If the KPIs remain stagnant, that’s good feedback. Review comments, respond to them directly, ask what content they’d like to see. If your music is available for purchase through a streaming site like Apple Music, consider posting a free sample of a favorite song on your new album or collection, provided you are in compliance with the royalty agreement.
“You have to spend money to make money.”
You’ve heard that, right? It was coined by the ancient Roman playwright Titus Maccius Plautus who, ironically, was a failed business owner.
That doesn’t mean his advice was bad—it’s a fact of business life—but maybe he should edited the line to read: “You have to spend money wisely to make money.”
If your business has overhead expenses like a storefront or warehouse, be sure to track utilities, rent, maintenance, and other related expenditures. For performers, keep an eye on travel KPIs—hotel costs, plane tickets, etc.
It goes back to the losing-weight analogy. You can’t know where to trim the fat until you know where the fat is. You may have to consider moving to a smaller store to reduce rent or cutting hours to trim utility costs.
Marketing is a must and that means spending money to make money. But do it wisely. It’s very, very easy to waste a ton of money on advertising, which makes setting a return-on-investment target and tracking results against the spend incredibly important.
If you’re considering working with a marketing consultant or agency, make sure their proposal includes those numbers. And be the client! Question their proposed metrics and what they’re going to do to achieve them.
A video of a cat playing a saxophone—quite a feat considering they don’t have thumbs—may get a million views but that won’t necessarily translate into selling saxophones. Also, paid ads may reach a large audience, but is it the right audience?
And even if it’s the right audience, is it the right timing? Selling grand pianos the first week of April may be a lot less effective than advertising them a few weeks later after tax day when people find out how large a refund they’ll receive. If you’re tracking your own KPIs, compare those to the marketing KPIs to see if indeed marketing is driving sales over time.
Running your music business by the numbers is not only the right way to do it, but the only way to do it well. Still, KPIs and other metrics are just tools. High-quality wrenches may help mechanics do a better job but only if they know how to use them. You are the mechanic of your business, and when things need to be fixed, the responsibility falls on you. By having the critical KPIs in your toolbox and using them regularly, you will be able to employ processes, practices, and strategies that will help conserve or reduce expenses, and increase revenue. In short, you’ll be running your business like a well-oiled machine.