Monitor the health of your business with KPIs

Why? to show how well they are performing, not unlike how GPs use KPIs such as blood pressure and cholesterol to measure the health and wellbeing of their patients. In a business sense, KPIs are the quantifiable, outcome-based statements you'll use to measure whether your business is on track to meet your goals or objectives. 

KPIs will be different for each business, but the basic idea is the same: to measure your business' essential features. Once armed with this information, you can use this knowledge to make effective, strategic decisions.

Moreover, KPIs can address sales goals such as the number of sales your business must close monthly or marketing goals such as the number of leads or blog articles published each month. Examples of operational KPIs might be order fulfilment times, time to market, employee satisfaction ratings and employee churn rates. KPIs should apply to short- and long-term goals.

Where to start with KPIs

When developing KPIs for your business, it is best to start with the business' core goals, then look at the critical success factors affecting those goals. For example, many business owners may say the goal is profit, but you need to consider precisely how that is to be achieved. For instance, if your goal is to grow market share, a KPI might indicate how many customers you expect to service per week. 

All KPIs should be easy to measure and easy to understand.

If your goal is to make the best quality product, a KPI may address the number of returned goods per month. Alternatively, a KPI may address the average cost per unit produced weekly if your goal is to deliver your product or service more efficiently. 

All KPIs should be easy to measure and easy to understand. They should also be specific to a period of time that is appropriate to what is being measured. 

The traps for KPI newbies

Care should be taken when developing KPIs because if poorly implemented, they can be counterproductive. For example, suppose a KPI involves generating ten new customer contacts per month.

In this case, staff are encouraged to increase new business activities, which may be detrimental to servicing existing customers who find themselves ignored by your business. The result is that established customers may take their business elsewhere.

To monitor and improve overall business performance, a range of KPIs for different business functions are usually required. For example, the sales and production managers should have their own KPIs relating to their roles and the SME's overall goals. Similarly, KPIs can be developed concerning staff turnover and absenteeism to assist the human resources department in improving workplace culture. 

KPIs measure performance, but be careful not to take them at face value. A sales dip recorded by a KPI might be due to snap government lockdown, as we have seen regularly over the last 18 months. Unfortunately, there's not much you can do about it, and then drop off in business is not the fault of your sales staff.

Communicating KPIs

Once KPIs are defined, you can set targets for these metrics that are communicated across the organisation. Ensure the targets are realistic because your staff will be less inclined to strive to reach them if they are not obtainable. Communicating KPIs effectively is important.

Once you have a set of KPIs that are right for your business, you will be able to paint a clearer picture of your organisation's strategic performance and empower you to make agile decisions to impact your team's success. 

As part of our accounting and business advisory services at Brentnalls SA, we can assist you in finetuning your KPIs based on the industry you operate in, the size and location of your business, as well as your short and long-term business goals.

Discuss Further?

If you would like to discuss, please get in touch.