;Following on from our previous blog in this series, “The Most Important Thing”, the next step is to translate your goals into action. For this, setting your targets and measuring your performance against them is vital to making them happen. The answer is to focus on quantifiable factors that are clearly linked to the drivers of success in your business. These are known as key performance indicators (KPIs).
Understanding how all areas of your business are performing is essential but a good measurement system will also put you in a better position to manage your performance proactively. So how do you know what to measure?
What are KPIs?
In simple terms KPIs refer to the key business numbers you track and measure in order to ensure that continual improvements are being made towards your goals. KPIs are therefore at the heart of any system of target-setting and performance measurement.
KPIs are probably the most powerful management tool available to businesses because they enable you to identify areas of the business where you need to take remedial action.
Identifying the right set of KPIs for your business is a critical step towards ensuring you maintain full and effective control over what is happening in your organisation.
While financial measures of performance (including; gross profit margin, operating profit margin and net profit margin) are among the most widely used KPIs by businesses, non-financial measures are just as important.
Generally speaking, your operational KPIs should be leading indicators for your financial ones in that if your operations (ie sales, marketing, manufacturing etc) are performing badly or deteriorating, your financials won’t be far behind.
You want to catch ‘operational’ problems before they cause you financial ones…
When you have identified the key areas that drive your business performance and identified how to measure them it is important to set performance targets so everyone in your business has a clear understanding of what they should be aiming for.
By breaking your top level business objectives down into a number of smaller targets it will be easier to manage the delivery of them. Therefore, the KPIs and associated targets that you set will become the link between your strategy and day-to-day operations.
Identifying specific KPIs to measure: focus on your key success factors
Once you have identified your key business objectives your priority should be to look for the elements of your performance that will be key to determining your success.
Although the list below is by no means exhaustive, a good way to think about KPIs is from the customer’s perspective – i.e. following a potential customer all the way from ‘lead’ through to ‘happy customer’ and measuring the important steps in that process. As an example, some KPIs you might target, and measure could include things such as:
- Visitors to your website (Google Analytics)
- Number of leads generated by each campaign
- Sales conversion rate
- Average sales value/profitability
- Number of sales per client per year
- Number of customers (gained or lost)
- Manufacturing efficiency
- Order fulfilment times
- Delivery times
- Percentage of product defects
- Customer complaints
- Average debtor days
None of these is necessarily ‘better’ than any other and you may not need all of them. You are, however, almost certain to require several measures to make sure that you have all of the main aspects of your business covered. Don’t fall into the trap of just focusing on a couple and ignoring the rest – your business is only as strong as its weakest link.
The real challenge is to find which specific measures will enable you to manage and improve the key aspects of your business without having so many measures that you drown in information.
Check out our helpful free template designed to assist you in thinking about defining your KPIs and don’t forget to book a free help session to get some outside perspective and help if you need it! If you would like to discuss any of the above with one of our Business Coaches, please call 03333 440517 or email us: firstname.lastname@example.org