The importance of KPIs for your business.
By Jess Chapman
One of the most important and most challenging aspects of running any organization is making sound business decisions.
Over my career as a strategic facilitator and business coach, I’ve met many entrepreneurs who lacked the data they needed to make informed decisions about their organization. The acronym KPI is an abbreviation of “key performance indicator,” a term used to denote important metrics and numbers for an organization. Without these metrics you are operating on guesswork and increasing the risk of making a decision that will negatively impact your business.
The right set of KPIs will help you
monitor organizational health
measure progress against goals and objectives
spot patterns and trends over time
identify problems and opportunities
What KPIs should you have?
The KPIs we tend to think of are financials, like revenue and profit, but other numbers will also be relevant. Consider a business that wants to grow. Revenue and profit are critical, but indicators like customer satisfaction rates, or margin by product line, can inform growth plans and ensure you stay on track. Perhaps your organization would benefit from measuring client satisfaction, repeat business, or referral rates. Perhaps you need to track payment times or delivery times or need a handle on cancellation rates. Different businesses with different products and services, business models, and strategies, will need different KPIs.
If this is all making sense to you, fabulous. If not, don’t panic. I have met a lot of entrepreneurs who aren’t immediately comfortable with the concept. Here are some suggestions to get you thinking about KPIs.
1. Align KPIs to your strategy.
This is the most common approach, as your KPIs ensure you are going in the right direction, aligned to your vision. Consider your strategic plan: how can you measure progress against your organizational goals?
No strategic plan? No problem, but we do suggest you build one! In the meantime, you can still develop KPIs to help you steer the ship.
2. Consider what is most important.
Beyond money, what fuels your business? Is it number of appointments per week? How much time it takes to serve a client? Minimizing waste and defects? Identify three or four things (beyond the financials) that fuel your organization and establish a way to measure them.
3. Check out the Balanced Scorecard.
Robert Kaplan and David Norton proposed the Balanced Scorecard—a framework for performance measures—in the Harvard Business Review in 1992. It’s still widely used today and can give you both ideas and a framework for creating KPIs.
4. Consider what you wish you’d known.
Sometimes the best insights come from when we get stuck. Consider the last couple of big decisions you made. What information would have made those decisions easier? How often would that information be useful? How can you capture that data?
Don’t boil the ocean. To avoid getting overwhelmed, pick two or three metrics as a starting point. There are plenty of organizations out there with established and published KPIs that you can review for ideas. Remember, though: your business is unique, so don’t be afraid to change any KPIs that aren’t working for you.
What gets measured gets managed. To manage businesses successfully, we need relevant and clear KPIs. It’s not about data for data’s sake. Rather, it’s about having the right information at your fingertips to help you make great decisions that drive your business success.
We’ve helped many entrepreneurs get a handle on running their businesses effectively, from setting a vision to building a strategic plan to determining KPIs. If you’re looking for help with yours, give us a call.
As Principal of ethree Consulting, Jess specializes in helping organizations unlock the power of people to drive exceptional business results.
With a background in HR, organizational performance, learning and development and training in neuroscience, and over a decade of experience working in different countries, a variety of industries, and with some of the largest organizations in the world, Jess has a unique combination of skills and experience that is hard to beat.
Jess is known for her ability to “read minds,” deliver creative yet practical solutions and “just get it,” and working with ethree is an all-round “phenomenal experience,” according to their clients.