How to Measure KPI for your Business
Whether you are running a small business or a big business, keeping track of its performance is essential. The more closely you monitor your business' performance, the better you understand which strategies work and which don't.
KPIs or Key Performance Indicators is a metric that will assist you in monitoring your business' performance. Business KPIs help you track the performance of the strategies you use in your business and tell you whether you have achieved your goals.
What are Key Performance Indicators (KPI)?
A KPI is a performance indicator tool used to monitor the metrics and analyze the performance of your business against its goals. A high-level KPI concentrates on the overall performance of a company, whereas a low-level KPI concentrates on procedure, products, and efficiency. A business does not need to measure more than 10 KPI, as measuring everything muddles the picture of the most critical factor for the company.
There are various kinds of KPIs such as financial performance metrics to track net profit gap and revenue growth, customer satisfaction metrics to concentrate on your customers, to focus on operations like return on investment and market time, and others that focus on the talent or employee management metrics like employee retention and turnover.
Why KPIs matter?
Compelling KPIs are crucial metrics to ensure that your business can achieve any goal. However, KPIs are more than just numbers and weekly stats - it helps you understand your business' performance and growth to create or tweak the strategies to achieve your business goals. KPIs offer several insights. Some of them are:
1. Monitor company health.
KPIs are a report card of a company's health. You require only a few KPIs to observe your company's signals. Therefore, it is essential to measure some KPIs in each category: Customers, Employees, Procedure, and Revenue. Customer satisfaction, human resources, business processes, and business strategy departments.
2. Measure progress over time.
As the name suggests, KPIs are responsible for measuring a company's progress on its business objective over time. For example, if a company's target is to grow annual sales by 20%, then KPI like monthly sales booking and sales growth can assist it in measuring progress towards the goal.
3. Make adjustments & stay on track.
Before choosing KPIs for your company, you must establish the goals. But remember, circumstances may change. KPIs will help you understand how realistic your objective is or aligned with your business' growth. It will also provide insights into the potential dangers of missing deadlines or targets.
4. Solve problems or tackle opportunities.
KPI analysis can discover the problems that might go undiscovered otherwise. For example, you have an idea for a new product or service and test it with a few clients. You can use KPIs to track the number of customers interested in your product or service or support your new idea, the number of faults, and more.
5. Analyze patterns over time.
If you continue using the same KPIs quarter over quarter, you will notice a pattern in your numbers. The ways that KPIs show can tell which month or quarter your sales business didn't perform well or which of your employees have constantly been underperforming. These patterns can help you make informed decisions.
Types of Key Performance Indicators
KPIs can be set on department bases like sales and HR. The KPIs of these will be different from each other. Some common KPIs are:
- With an input KPI, the assets, time, and resources required to perform a specific operation or project are measured. "Employee count, budget," for example.
- A lagging KPI represents previous outcomes. "Turnover rate," fr example.
- A leading KPI can forecast future results "Website traffic," for example. More visitors can result in more conversions, leads, and income.
- A process KPI examines the company's efficiency and productivity. "Average sales call time," for example.
- A qualitative KPI examines data based on a person's opinion or feeling. "Sentiment toward a certain brand," for example.
- A quantitative KPI can be used to measure progress relies on figures. "Every month, the sales team will create 100 sales-qualified leads," for example.
How to Choose The Right KPI For Your Business?
What makes a key performance indicator truly "critical" for your company? Your objectives determine it. Less is more, according to best practices. Essential questions to ask when choosing KPIs include:
1. Have a clear goal in mind.
Because KPIs help progress toward your business goals, you must be very clear about what you truly want to achieve. Only by setting specific goals for yourself will you define your KPIs. Thus, when setting goals for your business, you must focus on rigid or solid figures. Aside from business goals, you must also establish clear objectives for teams and individuals. It motivates your employees to work harder to meet the exact figures in a given time frame.
2. Pick the KPIs that are attainable.
It's pointless to choose a KPI for your company if the data behind it can't be acquired and surfaced to stakeholders or if doing so would be prohibitively expensive. When weighing the cost/benefit of implementing a specific KPI, consider the following:
- What data points will I need to track this KPI?
- What processes and technologies do I need to put in place to have regular access to this data?
- What technologies and techniques will I require to present this KPI to critical investors and corporate operators?
- What will all this cost, and what are the potential profits
3. Consider the consequences of choosing particular KPIs.
When selecting KPIs, it is critical to take a systematic approach. Choosing KPIs without thinking through the consequences is a bad idea. A specific KPI, for example, may help you assess the performance of a particular activity, but it may indirectly affect other dimensions of performance and thus must be avoided. When shortlisting performance metrics, a well-planned and investigated approach must be used.
4. Keep the list concise.
Your summary of KPIs should be concise and compelling. Having several metrics can complicate action assessment and confuse your employees. Only collect data relevant to your organization and assist you in making improvements. Remember that narrowing down your indicators options may take some time, but it will be worthwhile. The ideal number of KPIs to have is between 5 and 9. Anything more will cause you to lose focus on more critical variables. As a result, get rid of any metrics that aren't necessary.
5. Know where your money is going.
Another thing to consider when picking the correct KPIs for your company is where your money is going. It is a wise idea to identify the areas where you are continuing to spend your money and, after that, find out if these areas are associated with the objectives of your business. Then, check whether a KPI can be linked to these objectives. The main idea behind understanding the direction of money flow is to select only those KPIs that can help you keep track of your expenses.
Whenever you set a goal for ourself, you require a system to track your performance. For example, when you set a goal of walking 15,000 steps a day, you install a step counter application on your smartphone to keep track of the number of steps you walk. It is a reliable way of tracking your progress. Similarly, business KPI is a reliable way to track your business' performance and see if you have achieved your goal or not.
Various business KPIs can be used to track, based on the type of business that you own. The basic ones will give a general overview of the direction you are going. After monitoring the KPIs, you can efficiently make strategies to boost your business.