Measures that matter
What gets measured, gets managed. And what gets managed gets better.
Key Performance Indicators (KPIs) are intended to measure success and highlight areas that you can act on to improve performance. But without knowing what you are trying to achieve, how can you decide what to measure to see how you are getting on? Here are some steps towards getting it right.
Establish your goals
The first step to working out what to measure is to establish clear business objectives – what are you trying to achieve, and by when? Most business owners measure what they think is right, rather than the metrics that matter the most to their individual circumstances.
By establishing clear, SMART (Specific, Measurable, Achievable, Relevant and Timely) goals you can define exactly what you are trying to achieve. Every business is different, so choose your metrics carefully. Aspects to bear in mind include:
• Your short and long term objectives
• The industry you work within
• Your business size and location
• Any unique circumstances – seasonality, niche markets etc.
Work out your predictors
Exact measurements of the wrong things can drive out good judgements of the right things – select a set of KPIs that will give you a picture of your business performance as a whole. Focusing on just one area can give a ‘tunnel vision’ view of performance. Setting KPIs in each of the four areas below will give you a stronger overall picture of performance across your business.
Customer facing – KPIs focused quality of service, customer satisfaction or speed of delivery. Think about what matters most to your clients and customers?
Sales and marketing – growth of a business relies on new enquiries generated by marketing activity; enquires converted into paying customers are sales. Which metrics best show how well your business does this?
Cash and cost – the costs that dominate the money you spend to run your business; salaries or staff turnover, capital investment, fuel etc.
Key financials – these will come from your accounting system and could include things like net profit percentages, debt ratio, inventory turnover or average margins.
When setting your KPIs seeking advice from your accountant can be valuable in establishing the measures that matter the most. We can help you choose, report on and interpret your KPIs with our detailed KPI reports.
Track your metrics
It is important to select metrics that are easily understood. Everyone in your business should be aware of your KPIs and know why they are important. More isn’t necessarily better – too many measures can complicate the picture. Your accountant can help you select the best ones for you.
Once you have carefully considered the metrics that mean the most to you, ensure they are regularly reviewed. Converting numbers into charts and graphs can making it easier to spot trends in your data. The sooner you can identify anomalies the quicker you can act on them. Choosing a good accounting software can make this easier.
With careful and frequent analysis, your KPIs will help you keep your finger on the pulse of your business performance.
For help identifying which KPIs are important to you, and preparing KPI reports for your business contact Adrian Le Roux.