What Are Key Performance Indicators In Business?
The growth of your company is determined by your ability to consistently meet your strategic, financial, sales, operational and other goals. Having key performance indicators will give insight into how your company is performing, allowing you to plan better and invest in strategies that work. In this article we'll explore what key performance indicators are and why you should be using them in your business.
What Are Key Performance Indicators In Business?
Key Performance Indicators (KPIs) are a quantifiable measure of how effectively a business is achieving its intended results over time. They provide goals for teams to shoot for, milestones to gauge progress, and a focus for strategic and operational improvement. They help all business areas move forward at a strategic level and are an essential tool giving business owners and directors a clear and concise view of business performance. It's good practice to summarise your KPIs in a simple business dashboard. In the same way that your car dashboard provides vitial driving information at a glance, your KPIs do the same for your business. Set aside time with your management team to regularly review what your KPIs are telling you about your business performance. Take action to correct any areas that are not on target.
Examples Of Key Performance Indicators In Business
There are different types of key performance indicators, but one thing all of them have in common is that they are linked to one or more strategic goals. They include:
Strategic: These KPIs monitor organisational goals. Executives and business owners monitor them to help them see how the company is performing at any given time. Some examples of strategic KPIs include, market share, return on investment and progress against actions from your strategic business plan.
Financial: These reveal the financial strength of the business. Financial KPIs include revenue, gross profit margin, net profit, debtors performance, stock and cashflow. Financial KPIs should always be presented against the forecasted results to reveal deviation from plan and allow corrective action to be taken.
Sales: These show the performance of the sales process through enquiries, quotes, sales orders, conversion rate, order book, sales revenues by sales exec, territory, customer, product etc. Business owners often find it difficult to hold sales people to account but with KPIs in place there is no hiding from the facts!
Operational: These are focused on organisational processes and efficiencies allowing managers to assess the performance of the business in delivering products and services. They measure things like efficiency, productivity, utilisation, on-time delivery, quality, cost per unit, etc.
Other functional units: Depending on the particular structure of the company, KPIs for other business functions may be required including: HR, Marketing, Customer Service, IT, Health & Safety and Sustainability. Functional unit KPIs can also be classified as strategic or operational.
Leading vs. lagging: Leading indicators help predict outcomes while lagging indicators track what has already happened. Organisations use a mixture of both to help them track what is most important to them.
Why Are KPIs Important?
- They Keep Your Teams Aligned
Whether they're measuring employee performance or project success, having KPIs helps your team focus on the desired goal.
- They Encourage Accountability
KPIs ensure that your employees are providing value by tracking their progress. They also help managers and executives set achievable goals for their workers.
- Allows You To Make Adjustments
KPIs give you insight into your company’s performance. This allows you to see what is working and what isn’t so that you can make appropriate adjustments.
How To Develop KPIs
It can be tempting to measure everything in your organisation, but if you want to achieve the best results, here are the best practices for developing the right KPIs:
Set SMART Goals
Your performance indicators should follow the SMART formula. They should be specific, measurable, attainable, realistic, and time-bound. Growing your sales by 5% every quarter is an excellent example of a SMART goal. When setting performance indicators, assign a KPI to an individual or a team and hold them to account for performance.
Plan To Iterate
Customer needs are constantly changing, so you may need to revise your KPIs once in a while. When developing your performance indicators, be sure to create a plan to allow you to evaluate and make changes when necessary.
If you need help setting or measuring your performance against your business KPIs, contact us today and let us help you unlock the potential of your business.
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