Key Performance Indicators – what does that mean?
Why should business owners set up, track, and review Key Performance Indicators – also known as KPIs for their business? It’s no secret that with a new year on the horizon comes an endless slew of New Year’s resolutions. For many business owners especially, a new year can be a time to re-assess and reconfigure company goals and priorities. But do you know just how many people follow through on said resolutions?
According to a 2016 study, of the 41% of Americans who make New Year’s resolutions, only 9% feel they successfully keep them by the end of the year. As if that isn’t daunting enough, in one 2014 study, 35% of participants who failed their New Year’s Resolutions said they had unrealistic goals. Of those, 33% of participants who died stated they didn’t keep track of their progress.
What if there was a way to keep track of your progress and measure your success with actual data? Surely this would be paramount for success, especially as a business owner. Here is where KPIs come into play: Key Performance Indicators.
Read on to find out what a KPI is and how tracking it can keep you honest and updated with your goals.
1. What is a KPI?
As mentioned before, KPI stands for Key Performance Indicators. In short, it is a measure of critical factors in their progress towards an intended goal, objective, or industry standard. You can have Key Performance Indicators in every facet of your business, from sales, marketing, finance, customer relations, and even employee objectives. They can range from the number of new contracts signed per period to monthly website traffic. Anything that you can measure with data can be a KPI. It varies from industry to industry based on your individual business needs and your intended goals.
2. What is a KPI used for?
Since a KPI is measurable data, it can give you objective evidence of progress that can be tracked to make better overall decisions for your company. Some may include:
- Finance: current ratio, Gross profit margin, Net profit margin
- Customer: satisfaction ratio, number of testimonials, percentage of market share, customer acquisition cost, hours spent working with each customer
- Sales: sales cycle length, sales conversion rate, sales funnel leads
- Operational: employee turnover rate, inventory turnover rates, cost per unit, order time, capacity utilization rate
- Marketing: monthly website traffic, social media followers and engagement, number of posts/likes, number of lead conversions from marketing initiatives
- Employee: number of qualified employees, number of hours continuing education, number of PTO days, number of revenue generated by each employee
In our upcoming article, we’ll take a deep dive into some of these KPIs, including how to track them and what they mean.
3. Why are they important?
They are essential for several reasons. First, you’re able to see your progress in a quantifiable way. As many business owners will tell you: numbers don’t lie. Second, you can narrow your focus to 10 or fewer company KPIs and get a fast overview of progress monthly. You can monitor things like the company’s health, patterns, and trends, issues that need addressing, measure progress, and compare yourself to what is standard for your industry. KPIs are used for high-level business strategic goals and for tracking employee progress towards their goals. Overall, it’s a great tool to motivate employees and yourself.
4. How do I develop KPIs?
First, you have to set some company or employee goals. At Strategy Leaders, we help business owners create plans all of the time. From these goals and objectives, you can set KPIs to track the progress towards reaching those goals. A KPI must be measurable and relate to the goals you are developing. Suppose your company has gotten complaints from customers about slow delivery times and damaged goods. In that case, once orders arrive, you create a KPI to measure order fulfillment time and perfect order rate to help you reach your overall goal.
5. When should I review KPIs?
Every 30 days is an excellent place to start reviewing your KPIs. You can check them based on your individual needs; more or less often is fine.
6. How many KPIs should I track?
A good rule of thumb is no more than ten overall company KPIs. For employees, we would recommend no more than 4-5. Otherwise, it may get too overwhelming, and tracking too many can lead to disorganization. That’s why it’s crucial to iron out which ones will be the most important to look at for your specific company goals.
Think of KPIs as the lab report on how your business is doing.
Every business is an experiment – an attempt at success, a chance for failure. Most often, it results in that land somewhere in between. Lab reports communicate essential information about what was implemented, how well it worked, and how those results impacted the overall whole. Turning those reports into graphs and charts makes the data even more digestible. Putting commentary on the charts adds to the knowledge base, which a company can use to help the business leverage forward. Business owners need to know quickly and accurately how their businesses are performing – what’s working and what’s off track. KPIs are your best friend. The sooner they can see symptoms and diagnose and correct problems, the better their companies perform.
KPIs can provide valuable insights and show owners and managers where to focus their time and attention.
KPIs can be powerful tools for identifying and acknowledging top performers and weak links. Teams can use KPIs to inform and align. Individuals gain insight into what’s working and what else they need to work on to meet personal, department, and company-wide goals.
Whether you’re looking for an entire-blown dashboard or a simplified report on specific metrics that relate to meeting your company’s goals, Strategy Leaders can provide the tools.
Our proprietary dashboard platform addresses the reporting challenges of privately held small businesses. With the help and suggestions of over 500 companies, we’ve created a tool that can scale up or be simplified to meet the needs of business owners and managers. We help owners and managers quickly know what’s on track and what needs fixing. We help them implement KPIs into their overall tracking.
Most business owners are hands-on managers, and if they can’t touch it, they aren’t comfortable managing it. Learning to work with Key Performance Indicators, prepared and analyzed by a team of players, can allow an owner to step back from day-to-day involvement in the business.
It’s time to turn those New Years’ resolutions into a reality – by creating a list of KPIs. Utilize this in 2022, and you will find yourself hitting hard on all the metrics of success you’ve ever wanted.
Are you interested in setting up KPIs for your business? Contact us.