Using Key Performance Indicators in Your Business
A Key Performance Indicator (KPI) is a measurable value (metric) that demonstrates how effectively a business is achieving its key objectives. Businesses use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes in specific departments such as sales, marketing, HR, support and others.
But before we get into using KPIs for your business, let’s take a look at how to identify what to measure.
How to define a KPI
Defining key performance indicators can be tricky so here are some simple questions to ask to get you started:
- What is your desired outcome?
- How are you going to measure progress?
- Who is responsible for the business outcome?
- How often will you review progress towards the outcome?
As an example, let’s say your objective is to increase sales revenue this year by 20%. You’re going to call this your Sales Growth KPI. Here’s how you might define the KPI:
- To increase sales revenue by 20% this year
- Progress will be measured as an increase in revenue measured in dollars spent
- The Sales Manager is responsible for this metric.
- This will be reviewed on a monthly basis
Make sure the KPI is actionable
Making your KPIs actionable is a five-step process:
- Review business objectives
- Analyse your current performance
- Set short and long term KPI targets
- Review targets with your team
- Review progress and readjust
Once you’ve set a goal with a timeline that’s further into the future (say the next few quarters, or your financial year) you can then work backwards and identify the milestones you’ll need to hit on the way there.
Let’s say, for example, you want to sign up 300 newsletter subscribers in the first quarter of the year. You’ll want to set monthly, bi-weekly or even weekly targets to get there. That way you’ll be able to continually reassess and change course as needed on your way to achieving the longer-term goal. Whatever it is, make sure you break up your KPI targets to set short-term goals.
Evolve your KPI to fit the changing needs of the business
KPIs that never get updated can quickly become obsolete.
Let’s say, for example, that your organization recently started a new product line or expanded overseas. If you don’t update your KPIs, your team will continue to chase targets that don’t necessarily capture the change in tactical or strategic direction.
You may think, based on your results, that you are continuing to perform at a high level. In reality though, you may be tracking KPIs that fail to capture the impact your efforts are having on underlying strategic goals.
Reviewing your KPIs on a monthly basis will give you a chance to fine tune – or change course entirely. You might even find new and possibly more efficient ways of getting to the same destination.
Bringing it all together
KPIs generally are an essential tool for measuring the success of your business and making the adjustments required to make it successful.
The usefulness of individual KPIs, though, have their limits.
The most important part of any KPI is its utility. Once it has outlived its usefulness, you shouldn’t hesitate to toss it and get started on new ones that better align with your underlying business objectives.
Needing help with setting your KPIs?
Contact us to book a planning meeting to look at the goals and objectives in your business against which we can set clear KPIs with monthly review meetings.