All businesses want to succeed. But success is such a broad subject and can depend on several factors. Narrowing down specific and detailed key performance indicators is a fantastic way to verify you are meeting your strategic business goals.
KPIs or key performance indicators are numbers that determine whether you are attaining your objectives or not. You can think of them as milestones that are part of the overarching goal. KPIs provide actual data points encompassing everything from tracking invoice disputes to the overall company’s performance.
This article will take you through understanding KPIs, the different types you can employ within your organization, as well as the steps to implement them. In the end, you will be well-equipped to create your own KPIs and share these metrics with your stakeholders.
Importance of KPIs
Key Performance Indicators are vital in gauging a business’s successes and failures. KPIs are easily confused with goals; however, they measure goals and targets. If an organization has a sales goal for the month, KPIs will reveal how close you are to attaining this goal.
When a business creates tools to measure its goals, it is easier to adjust to stay on track. For example, use leading indicators to predict and forecast future events. Ensure these indicators are both measurable and adjustable, as this is critical if you need to modify your original plan.
When you evaluate your KPIs repeatedly, you will see patterns and areas for improvement. Managers may not have set achievable goals if goals are not met month after month. KPIs encourage accountability for employees and the business. If a salesperson repeatedly isn’t meeting their quota, the stats will show this information.
Types of KPIs
Measuring the organization’s progress over time can be accomplished with indicators like gross profit, revenue, and the number of employees. Setting these KPIs at the beginning of the year or accounting period and referencing them routinely is essential.
Here are a few common categories to target different areas of your organization.
- Operational – Indicators like equipment utilization and productivity, labor costs, turnover rate, and scheduling are operational indicators and these measure efficiency and span over a shorter time than many other KPIs.
- Customer – Customer indicators convey your business’s relationship with the individuals who use your products or services. Creating tools like customer surveys and satisfaction scores is valuable for isolating customer retention, net promoter score, and customer churn rate indicators.
- Financial – There are hundreds of potential financial metrics you can use in your business, so it is imperative to choose the most impactful indicators as these determine your organization’s financial strength. Numbers such as gross profit, sales revenue, operating cash flow, and working capital are just a few examples to measure how a business uses its resources and creates profit.
- Strategic – Strategic indicators are more big-picture and long-term measurements. Company executives can monitor overall organization progress with just one or two strategic indicators such as overall revenue and sales.
- Marketing – Organic traffic, conversion rates, lead sourcing, e-books, blog articles, and newsletters are among the most common marketing indicators. These metrics show how well a particular web page or campaign is performing. Creating marketing KPIs to optimize for better performance and results continually is vital.
KPIs can target different departments depending on what area you want to change or grow.
Steps to Create KPIs
1. Determine Objectives
Since industries and business positionings will vary, establishing your objectives for your organization is the first step in creating KPIs. If the goal is to increase sales, the KPI objective could be to get more leads around sales/marketing initiatives that would support this goal. Establishing a purpose will help individuals collect the data to understand their context better.
2. Establish Success
If getting more leads is your objective, now you must establish a process to bring more potential customers to the top of the sales funnel. Criteria such as monitoring sales calls, scheduled meetings, or releasing a new campaign will institute a process while observing performance and success.
3. Collect Data
Develop precise and quantitative metric points that you and your team members can easily reference. After determining you want to measure and monitor the number of new sales meetings, it is imperative to reveal these results with the individual salespeople. This visibility will introduce a sense of personal ownership to improve their results.
To efficiently communicate the analytics of your KPIs, you’ll need to translate the data into concise reports. Share this information with management and other team members to stimulate collaboration to brainstorm new strategies.
KPIs are more than numbers you report out weekly or monthly; they reveal whether or not your business is successfully moving towards its goals. This data enables everyone on the team to understand the performance and health of your business so that you can make critical decisions to achieve your business goals.
Business objectives must be well-communicated across an organization. When people know and are responsible for their own KPIs, it ensures that their overarching goals are top of mind. More importantly, every part of the work is assigned intentionally and suitably.
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