BY ROBYN GOLDENBERG
It’s no secret that the turn of the calendar usually includes an endless slew of New Year’s resolutions. For business owners in particular, a new year can be a time to reassess and reconfigure company goals and priorities. But do you know just how many people follow through on said resolutions? Why should business owners set up, track, and review key performance indicators, or KPIs, for their businesses?
According to a 2016 study by YouGovAmerica, of the 41 percent of Americans who make resolutions, only 9 percent felt they successfully kept them by the end of the year, although that number has slipped a bit in more recent years. As if that isn’t daunting enough, in one 2014 study, 35 percent of participants who broke their resolutions said they had unrealistic goals. Of those, 33 percent stated they didn’t keep track of their progress.
What if there was a way to keep track of your progress and be able to measure your success with actual data? Surely this would be paramount for success, especially as a business owner. Here is where KPIs come into play. Read on if you want to learn how you can set up, track, and review to keep your business on point to achieve your goals.
What is a KPI?
In short, a KPI is a measure of critical factors in their progress towards an intended goal, objective, or industry standard. You can have KPIs in every facet of your business, including sales, marketing, finance, customer relations, and even employee objectives. They can range from the number of new contracts signed per period to monthly website traffic. Anything that you can measure with data can be a KPI, although it varies based on your individual business needs and your intended goals.
What is a KPI used for?
Since a KPI is measurable data, it can give you objective evidence of progress that can be tracked to make better overall decisions for your company. Some may include:
- Finance: current ratio, gross profit margin, net profit margin
- Customer: satisfaction ratio, number of testimonials, percentage of market share, customer acquisition cost, hours spent working with each customer
- Sales: sales cycle length, conversion rate, funnel leads
- Operational: employee turnover rate, inventory turnover rates, cost per unit, order time, capacity utilization rate
- Marketing: monthly website traffic, social media followers and engagement, number of posts/likes, number of lead conversions from marketing initiatives
- Employee: number of qualified employees, number of hours continuing education, number of PTO days, amount of revenue generated by each employee
Why are KPIs important?
KPIs are essential for several reasons. First, you’re able to see your progress in a quantifiable way. As many business owners will tell you, numbers don’t lie. Second, you can narrow your focus to 10 or fewer company KPIs and get a fast overview of progress monthly. You can monitor things like the company’s health, patterns, and trends, issues that need addressing, measure progress, and offer a benchmark to what is standard for your industry. KPIs are used for high-level business strategic goals as well as tracking employee goals. Overall, it’s a great tool to motivate your team and yourself as an owner.
How do I develop KPIs?
First, you have to set some company or employee goals. From there, you can set KPIs to track the progress and adjust as needed. A KPI must be measurable and relate to what you are looking to achieve. For example, suppose your company received complaints from customers about slow returns for online reservation inquiries. In that case, you create a KPI to measure the time from when the request was placed to when the customer was contacted and provided with the information they need. Is it a matter of hours or minutes? That will assist you in determining the perfect return rate to satisfy your client and help you reach your overall goal.
Most business owners are hands-on managers, and if they can’t touch it, they aren’t comfortable managing it. Learning to work with KPIs, prepared and analyzed by a team of players, can allow an owner to step back from day-to-day involvement in the business. But if you’re unsure how to get started, a business consultant can help you to set up your objectives and walk you through tracking, reading, and modifying your KPIs until you’re ready to tackle in-house.
When should I review KPIs?
Every 30 days is an excellent place to start reviewing your KPIs. You can evaluate them based on your individual needs; more or less often is fine.
How many KPIs should I track?
A good rule of thumb is no more than 10 overall company KPIs. For employees, we would recommend no more than five, although four might be even better. Otherwise, it may get too overwhelming, and tracking too many can lead to disorganization. That’s why it’s crucial to iron out which ones will be the most important to look at for your specific company goals.
Think of KPIs as the lab report on how your business is doing.
Every business is an experiment—an attempt at success, a chance for failure. Most often, it lands somewhere in between. Lab reports communicate essential information about what was implemented, how well it worked, and how those results impacted the overall whole. Turning those reports into graphs and charts makes the data even more digestible. Putting commentary on the charts adds to the knowledge base, which a company can use to help the business leverage forward. Business owners need to know quickly and accurately how their companies are performing, and that starts with what’s working and what’s off track. In short, KPIs are your best friend. The sooner you see symptoms, diagnose the problems, and put corrections in place, the better your company will perform overall.
KPIs can be powerful tools for identifying and acknowledging top performers and weak links. Teams can use KPIs to inform and align. Individuals gain insight into what’s working and what else they need to work on to meet personal, departmental, and companywide goals. It’s time to turn those New Year’s resolutions into a reality by creating a list of KPIs. Utilize this in 2022 and you will find yourself hitting hard on all the metrics of success you’ve ever wanted. [CD0222]
Robyn Goldenberg is Director of Operations and Marketing for Strategy Leaders. She can be reached email@example.com.