Every business must have key performance indicators (KPIs’) to measure their progress against given objectives.
KPIs’ can measure whatever you want but to make them a really powerful tool in your business, they should measure the key goals you have set yourself for the business. KPIs’ should be SMART – Specific, Measurable, Achievable, Realistic and Timely and of course your goals must also be SMART. If you have prepared a good Business Plan, your business goals would be incorporated within it.
The great thing about KPIs’ are that you are able to benchmark your business to the competition and keep track of these over time. Here are the 3 key tips in setting up KPIs’.
1. Measure the key drivers in your business
Should be agreed by management, measure the key objectives such as net profit margin, sales per employee, profit per employee, number of new customers etc Departments should have their own for e.g. credit control should measure debtor days, debts falling over 90 days etc. At a company level here are some examples of what you should be looking at:
- Net Profit Margin
- Sales per employee
- New customers
- Profit per employee
- Overhead costs to sales
- Staff turnover
- Debtor days
- Working capital ratio
- Customer satisfaction
- Supplier invoice days
There maybe many more or others relevant to your business and some may evolve over time as the business matures or focuses on a particular target it wants to achieve. The frequency of reporting will be up to the data availability and relevance to the person requiring it.
2. Ensure the data is accurate and up to date
To ensure that the KPIs’ are relevant and can be measure over time, the data used must be up to date and accurate. You can then correct any issues as they arise in good time rather than find that a problem indicated by a KPI is already losing you customers and money. It is also easy to get carried away and set up too many indicators which is a waste of time. So ensure there is no information overload. Also automate the production of KPIs’ as much as possible from your accounts system or customer database to the reporting software tool and then ideally to smartphone, laptops or tablets. Trends should be shown in graphic form to ensure instant impact.
3. Get the right KPIs’ to the right people
Make sure the KPIs’ get delivered to the right people who are able to control and manage these drivers. Individual department heads should have a set of KPIs’ they monitor and report on to their managers so that the top team do monitor the business closely. The senior management may use KPIs that are relevant for their areas of responsibility and a CEO may only look at some key indicators or even have a warning system that alerts them to issues as these arise. Over time, trends will emerge that can be addressed so that the business keeps on track.
Setting up KPIs’, monitoring these and taking corrective action is a critical business process and will be important to your business success.