KPI's, key performance indicators
Most importantly, if you want your business to move forward, you need to really get to grips with KPIs, key performance indicators. Above all, key Performance Indicators refer to goals and measures that you put in place to make sure that you are on track for business success and growth.
If you’re in business it’s easy to assume that you want to make money, have an impact, and thrive. So you need to know what is going on with your business. As the old adage goes, you can’t manage what you don’t measure.
To clarify, the clue is in the name. KPIs are Key – what is important for you; Performance – signs of health and business growth; Indicators – things that show how you are doing and what you can act on as a result.
Do KPI's matter?
Above all, KPIs matter because they help make you accountable. Likewise, they reveal the truth about business performance, and can help you make the right decisions to improve it, providing actionable way to achieve overall business strategies and goals. Based on your KPIs you can make adjustments and stay on track.
As a result, that progression can help you get a competitive advantage, and take strides in your business growth. In the same vein,they help you analyse performance over time, allowing you to spot trends and forecast for the future. In other words, If you measure the same KPIs over time, you can begin to detect patterns in your numbers. For example, you might be able to spot when you are likely to have a downturn, or the best times to run special offers.
What KPI's should you measure?
Certainly, what you choose to measure is up to you. That is to say, every business is different. For instance, you have your own goal, and should take into account the things that will help you get there.
However, there are a few things that you might want to consider. Profitability is crucial. We have spoken about cash flow extensively, and money in the bank is key. What margins are you operating with? Are you getting your payments in time?
It’s not only about the numbers though. Take a balanced approach. Look at the whole ecosystem. Look at what is critical to your customers, encouraging them to spread the word about your business. We should all be aiming for satisfied customers, so one good measure is retention. If customers don’t come back, or reduce their spend, that’s a sign that things are askew.
Don’t forget the people you are working with. Customers, staff and freelancers all matter. You need to know how you are interacting with them, and what they think about you and your business. A good customer experience, engaged employees, and relationships with supplier all matter. Staff turnaround and retention are key, as recruitment is expensive.
How do you use them?
Pick around 4-6 KPI's that matter to you, and will help get you to your ‘north star’ – that end goals. How do you get this insight? Keep those spreadsheets and take down data at regular intervals. Consider doing surveys and questionnaires with your customers. Have a robust financial system in place and make sure you communicate with your accountant regularly. And don’t underestimate the power of observations.
KPI targets need to be achievable yet challenging, stretching you and your employees to work hard and achieve more. They should also be flexible, and adapted as and when you reach them. You might want to have a KPI dashboard, that gives an immediate view of how your business is performing at any one time. They provide a snapshot of the overall health of your company.
The managing is just as important as the measuring. If you don’t do anything with the data, there’s no point having it. Once you have the information, you can act on it. Having the information enables you to drill down and learn more. Ask questions of the numbers, and make a decision based on it.
Whatever kind of business you have – service, manufacturing, sales, solopreneur – KPIs matter.
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