Key Performance Indicators
If you don’t have many (or any) Key Performance Indicators in place, firstly let me say “you’re not alone!” Many businesses I speak to don’t have KPIs. However that doesn’t mean that you’re off the hook from having performance indicators in place. Having KPIs are the way that you as the business owner can keep your finger on the pulse of your business.
As a first step, it’s important to know where you want your business to end up, I call this the business’s destination. Where you want your business to end up will influence which performance indicators are key for your business. And hence these indicators become your key performance indicators.
As a a business owner it’s too easy to be distracted by the day-to-day demands of your business. There are times when you need to make fast decisions – which may have big implications for the business and the employees. Therefore continually tracking important performance indicators gives you more factual information on which to base more strategic decision making.
Your (car) dashboard
In some respects KPIs are very much like the dashboard of a car – you don’t need to know what every nut, bolt and piston is doing in the engine. However there are some indicators on your dashboard which give even the least mechanical minded of driver important information as to what’s happening under the covers. For example: How much fuel is in the tank, what temperature’s the engine, your current speed – these are the KPIs for your car.
What are the KPIs for your business? Have a think about the performance information that it’s useful for you to know on a daily / weekly / monthly business. These indicators will enable you to run your business better.
What is a KPI?
A KPI is a Key Performance Indicator, is a measure of something tangible which indicates whether your business is moving in the direction you want to go in. A KPI looks at the things that drive your business which have a major impact on the performance of the business. Of course you have to have at least a rough idea of what you’re aiming for as the KPIs could be very different depending on where you’d like the business to be in 5 years time.
A while ago, one of my new clients was describing the importance of increasing footfall in his retail business. I asked how this had changed over the past 12 months – he said that his gut instinct was that it was “about the same”, but would like to increase it. “Gut instinct?” I asked … would you drive your car based on “gut instinct” to the amount of the fuel in the tank?
Another client in the IT sector told me his primary goal is to increase the number of maintenance contracts he sold. This was a savvy direction for his business as he had the IT support staff available to provide on-going support. This direction would also give him a more predictable cash flow. I asked him how many of these support contracts he had currently – and he looked at me blankly. He didn’t know. He had no idea how he was doing in terms of achieving his primary goal. This would be a KPI for his business. A current, a pipeline, and a target.
5 reasons to have KPIs
These indicators are no more than a handful of numbers they give you:
- an “at a glance” view of the business so you don’t have to know “everything”.
- information for you to can keep your finger on the pulse of the business – even if you’re away from the business for a couple of days, if you wanted to “check-in” with the team, they should be able to provide you with the KPIs – which will give you all the information you need.
- you can quickly identify hot spots, or areas of your business that need attention, you’ll know whether your attention needs to to to speed up payment from clients – or gaining new clients.
- knowing hot-spots means that you can take action quickly. As the saying goes, “you don’t drown in water by falling in, but by staying there”.
- making continual small adjustments and drive your business forward. Remember – no growth is equivalent to stagnation.
There are some key things to track:
Every business is different. It’s therefore likely that you’ll want to track different things. If your business is retail, you may want to track how many people walk through your door, and then how many people actually buy from you. This will give you your conversion rate, and you can see how well the sales training and motivational talks you have with your team positively impacts the conversion rate. You might be interested in the average spend – and look for ways to increase it “would you like fries with that?”.
Generally speaking, there are for main areas to consider when thinking about the KPIs to include in your business:
- Customer: Marketing and Sales
- Internal business processes: Operations and Suppliers
- Learning and growth
- Vision & leadership
- Knowledge & skills (yours and your employees’)
- Innovation: new products and services
I will describe more in a future blog, if you have an area you would like me to start with – please post a comment.
In the meantime, if you would like to set KPIs for your business, attend the Numbers for Business workshop, or if you can’t wait until the next event or would like a personalised session – book a complementary coaching session with me. Contact 07973 288043.
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