You need to really get to grips with KPIs (key performance indicators) if you want your business to move forward.
Introduction to key performance indicators
To begin with, let’s define key performance indicators. They refer to the goals and measures that you put in place to make sure that you are on track for business success and growth. In essence, they are specific metrics that you will consult to see whether your business is achieving its goals and objectives.
The clue is in the name.
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
Key performance indicators can vary depending on the industry, company size, and goals, but they will typically revolve around revenue, profit margins, customer satisfaction, employee performance, and operational efficiency.
If you’re in business, it’s understandable 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. Using KPIs, you can identify which areas they need to improve in.
Do key performance indicators matter?
Effective use of KPIs can help businesses stay competitive, improve their bottom line, and achieve long-term success. So, yes, they matter!
Moreover, KPIs help make you accountable. Likewise, they reveal the truth about your business performance and can help you make the right decisions to improve it, providing actionable ways 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. What’s more, 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 key performance indicators 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. It is these pieces of information that will be of significant value to you planning your quarters with greater precision.
What KPIs should you measure?
Certainly, what you choose to measure is up to you. That is to say, every business is different. As mentioned above, key performance indicators vary depending on the industry you’re in, and where in your business journey you are at a given time.
However, what I recommend you do is to have your own goal(s), and take into account the things that will help you get there.
So, there are going to be 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 on 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 customer 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 suppliers all matter. Staff turnaround and retention are key, as recruitment is expensive.
How do you use key performance indicators?
Pick around 4-6 KPIs that matter to you that will help get you to your Northern Star i.e. your 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. They should stretch you and your employees to work hard and achieve more. In addition, they should 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.
Managing is just as important as measuring.
Measuring progress is an essential part of running a successful business. But managing your key performance indicators is of equal importance. In other words, if you don’t do anything with the data, there’s no point in having it. Once you have the information, you can act on it. You can improve performance based on that data.
Having the information enables you to drill down and learn more. Ask questions about the numbers, and make a decision based on them. Effective management ensures that you are making the most of your available resources. And also, it enables you to take steps to continuously improve your performance.
In summary, by combining both practices of measuring KPIs and managing and adjusting based on your performance, you can achieve your goals and stay competitive in today’s fast-paced business environment.
Whatever kind of business you have – service, manufacturing, sales, solopreneur – key performance indicator matter. So, don’t skimp in this area.
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