Are you meeting your client's expectations and your financial requirements? These are just two of the questions you should answer when tracking your performance.
If you were once an employee, you probably experienced the anxiety associated with at least one performance review. When I became an independent consultant, that was one of the things I was most glad to rid myself of — both giving and receiving them. However, only a short time later, I began to miss them. When you're on your own, nobody's going to tell you early enough that you're heading for trouble, so it's up to you to monitor your performance and make corrections before things get out of hand. You should track at least the following four dimensions.
Am I meeting my financial requirements?
As part of developing a business plan, you should know how much gross income you expect to make, what your expenses should be, and therefore what net income will result. The best laid plans gang aft agley, so you'll also want to keep track of how well your prognostications hold up.
If you operate as a sole proprietor, you may not need to separate business and personal accounts, but you should anyway — at least in your own accounting. For one thing, you'll need to know what counts as a business expense or income for tax purposes — even though those numbers may differ somewhat from your accounting for purposes of financial performance, because of what your taxing authority denies or allows. Any expense that you wouldn't incur if you weren't in business for yourself you should track as an offset to profitability; this includes purchases, utilities, and services, as well as any interest paid on business loans and any compensation you pay to others or yourself.
Whether you use accounting software, a spreadsheet, or even a shoebox and legal pad doesn't matter as much as that you keep accurate, detailed records. Then, at regular intervals (monthly and annually, perhaps), you should draw up a report of your results. Track those results over time to watch for hopeful or ominous trends.
Am I meeting my client's expectations?
This roughly corresponds to the employee performance review, but you'll probably need to drive it yourself. Make sure you document all of your commitments to clients, as well as when you delivered and how well your clients received them. You should solicit feedback from clients constantly to make sure they see your performance the same way you do.
It's important to be brutally honest with yourself in this evaluation. It's all too easy to say "good enough" as long as things aren't falling apart, but if you wait until they are then it's too late.
Am I a net gain for my clients?
You may do everything your clients ask for, yet still be a net liability. If that's the case, you're a luxury that your client could forego when times get tight. On the other hand, if you make or save more money for your client than it costs to engage you, then it makes sense for your client to keep you even in the direst financial times.
Evaluating this category can be difficult, because the services consultants provide don't always map to specific profits or cost savings. One question can help: what are the client's other options, and what would be the costs associated with those options? You should include in that calculation the potential cost of doing nothing.
Am I keeping my skills up to date?
Even though the most important thing to clients is your ability to solve their problems, you won't be able to continue doing that if your expertise grows stale. On a regular basis, you should grade yourself on how well educated you are in emerging technologies that could benefit or impact your clients. Then identify the most important of those technologies to focus on in your self-education.
How do you track your performance? Can you think of any key indicators that I've missed?