Key Performance Indicators (also known as Key Success Indicators) are a type of performance measurement that an organization can use to evaluate its success and make sure that it is giving sufficient focus to the core activities that will drive that success. Large organizations will certainly have these in place, but they are equally as vital for small businesses who aspire to do great things. And we all want that for our businesses, don’t we?
So what makes a good KPI, how do I know which are the most important for my business, and how should I incorporate KPIs into my ongoing business strategy?
What makes a good KPI?
KPIs are not just financial measurements; they are often more likely to be non-financial in nature (although ultimately most things come back to the bottom line!). And different businesses will have differing KPIs to reflect what is key to their success.
For example, if your business is all about volume selling, then a KPI is likely to be related to the number of interactions you have every month with potential customers (e.g. sales calls, sales visits, or visits to your website). Coupling that with another KPI recording conversion rates, you can see how improving performance in both KPIs will lead to an increase in sales. If your business makes things (manufacturing), then KPIs may be focussing on factors such as reducing production wastage and machine downtime. And for a service business like my own, which relies on referrals from happy customers, then a valid KPI might be monitoring and improving customer satisfaction levels.
Which KPIs are right for my business?
The process in deciding this is, in itself, a really useful exercise, as it requires you to consider the fundamentally key activities which, if you stopped undertaking or monitoring them, would in the end cause a drop in profits. Can you see how it’s less about measuring the results (e.g. monthly turnover, net profit %) and more about measuring core activities (e.g new prospect meetings, average time to complete a project)? If you do more of the really important stuff, and do it better / quicker, then the financial results will take care of themselves.
How do I incorporate KPIs into my strategy?
Define very carefully approx. 5 KPIs that are truly relevant to YOUR business and will be key to driving required behaviour. A strong KPI has to be easily measurable, reliable and readily understood by everyone within the business AND it is vital that it is also consistent with the values and mission of the business. Finally, performance against those KPIs should be reported regularly; where performance falls short of target, there is hopefully the chance to correct things before this goes on to affect the bottom line!