Imagine driving a car that has no speedometer or fuel gauges. This car has broken headlights and no indicators.
Or what if your car dashboard displayed the temperature outside and how often the car stopped and started?
Is this information helpful to understand the performance of your vehicle and steer you in the right direction?
Key performance indicators (KPI’s) are similar to the dashboard in your car, giving you a balanced view of your business.
KPI’s should be a mix of financial and non-financial markers that are linked to your strategy and goals whilst being relevant to your market. Depending on the business and its level of maturity, KPI’s can cover different areas such as Innovation and Growth (eg product market share), Customer Satisfaction (eg complaints or delivery performance), Human Resources (eg employee absenteeism or turnover).
If your business invests significantly in marketing campaigns, you may want to measure the effectiveness of these campaigns at generating leads for each dollar spent on that campaign. Alternatively, a not for profit organisation will focus on program efficiency to determine how much of every dollar is spent directly on programs.
KPI’s are the metrics that should alert business owners immediately, so it’s important to take ample time to devise ones that indicate the health of your business.
- Define the critical activities and behaviors that need to be measured within your business.
- Ensure they are measured regularly, that they remain relevant, actionable, reliable, and practical to measure.
- Set targets that are clear and realistic to accomplish. They should represent best practice for your business.
- Report results using a simple dashboard, showing trending and analysis to provide clarity and context.
- Communicate to ensure progress is visible to all staff. They will feel motivated and understand what is happening to make better decisions. KPI performance should also be built into staff remuneration.
KPI’s are a tool to manage business performance, ensuring you focus on the right areas and work smarter.