Here at Account Keeping Plus we have seen real-life examples of the results when you focus on Key Performance Indicators (KPIs) and the impact on business growth, but coming up with which KPI numbers can seem difficult when starting out.
In fact it’s as simple as this: Start with a pool of numbers that seem as though they could be important to your overall success, then rule them out one by one until the pool is small enough to count on one hand. Those are your KPIs, or critical numbers.
Here are some ways to generate a pool of possible KPI or “right numbers”:
- Start with your top-level financial goals and targets such as the specific numbers that define success for your company – leads, conversions, visitors, mailing list, % change in these and other numbers in your business etc.
- Look at the things going on in your market and industry. What are the trends for the last few years? What are your customers and employees saying?
- Look at your financial statements. Often times, the “right numbers” will include sales, gross profit and net profit from the income statement (and compared to your industry). Balance sheet numbers might include level of cash, accounts receivable, debt and equity. You may also calculate various ratios such as gross margin percent and current ratio.
- List all the vital areas of focus – customer service, marketing, sales, products and services, production and quality – then drill deeper into each of them. These may be your various departments or they may be workflow functions independent of the department.
- Don’t focus only on just financial measures. Operational numbers (i.e. Web hits, turnaround time, customer satisfaction, etc.) can be especially helpful in analysing the progress toward your most important goals and growth.
- Ask yourself these two questions: what numbers do you and your people currently monitor on a regular basis? How did you choose those numbers?
Now that you have a BUNCH of numbers, start the elimination game, as here is my final piece of advice for determining the metrics you’re going to track:
- Keep the amount of information to a handful of KPI critical numbers so your attention isn’t spread. Just because you CAN measure something doesn’t mean you SHOULD. Sometimes, Less is More. Consider also having key managers taking on some of the KPIs that relate to their area – finance, production, operations, sales, marketing etc.
Once you’ve narrowed down your KPIs, ask yourself and the team – one more question: Are we monitoring the right numbers? Usually time will tell – it sorts out over a period – you’re not going to know your essential and critical numbers right away, and other times you’re spot on.
Finally, it is critical to create a system to organize your numbers. For this, consider starting a dashboard for all to see.
How we help one client of ours using KPIs –
Instead of showing the $, prefers to show Quotes and Invoice quantities as Hours, with minimum targets weekly & monthly for each. So once we have checked all the accounts receivable is reconciled to deposits in his Xero, we run reports on the previous month total Quotes and total Invoiced. In Excel I have created a template to enter this raw data, which is automatically converted to a number called “hours” (which is derived after financial review of the required $ per hour minimum to cover the business costs and wages and super currently).
I then post the numbers – above or below the Min. target in a Dashboard (and soon will be on a white board in the office so all can see).
When targets are met they celebrate, when they aren’t they try to work out what has changed or been missed and make changes to stop the retreat. And it’s engaging all staff and creating a team effort! The KPIs are WORKING!
They are part of the AKPlus service he receives from us, which includes a Business Health Review of other KPIs – Sales, Gross & Net Profit, Current Ratio.
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