Key performance indicators, or KPIs, are metrics that help businesses measure their progress towards goals and objectives. While the thought of focusing on and measuring performance indicators may not seem like a novel concept in the modern year, it was not until the early 90’s, thanks to the work of names like Peter Drucker, that businesses began to adopt the concept.
In the current day, any business worth its salt should be fully invested in understanding and learning from their KPIs, and figuring out how they can use them to further improve every aspect of their operations. With that being said, KPIs can cover any single metric you believe to be important and relevant to your workplace, from head office to the warehouse.
Regardless of the department, there will still be numerous constants to consider whenever you are planning KPIs, so let’s take a look at what entrepreneurs and business owners should be focusing on when trying to learn from their key performance indicators.
Understanding Business KPIs
Understanding what your KPIs are for, what they mean, and how to act on them, are all important factors for business owners to get to grips with if they want to make informed decisions for their brand. Through well-presented business data, you can gain valuable insights in understanding how close you and your team are to achieving desired objectives.
Let’s take a look at some key focus areas that businesses should grasp in order to better understand their KPIs, ensuring that each member of the workforce, from shop floor through to management, can use them to collectively improve enterprise performance.
Specificity:
Every key performance indicator needs to be specific, with a clear and definable business objective related to it. It does not matter which department the KPI is relevant to, whether it’s finance, marketing, or operations and even through to HR, the more concise and easy to understand a metric is made, with clear and focused direction, the easier it will be for all team members to grasp and follow.
If your company needs to sell 10% more of a product and is struggling to reach its goals, a range of KPIs can be employed to gauge product quality, management plans, and staff performance, to name but a few, to act upon, and refine to achieve your goals.
Measurability:
The better your business can measure its affairs, the better they can be managed. With well put together numbers, a reliable picture of progress or performance can be constructed. This means assessments can be made with confidence, and potential problem areas can be addressed effectively. Data-driven KPIs allow for measurements of metrics across all sectors of industry, for example, if a shop is consistently selling a product while sales are stagnant, they might introduce a series of advertising campaigns across different media types to push their product, then measure what sales plan worked best. Once data is gathered, KPIs can be drawn up, and a permanent avenue for sales can be established that will see continued revenue growth.
Actionability:
Being able to understand and then act upon a KPI is crucial for any business looking to succeed in its industry. Once actionable insights have been gleaned from the presented data, businesses should aim to plot, adapt and evolve, in efforts to keep up. Calls to action don’t always mean a firm must change, however, if an indicator is demonstrating peak performance, the correct action would simply be to continue on course, or even double down efforts to increase cash flow.
As we can see, KPIs are there to be understood and acted upon, used as advisory points or hints as to when and how certain business aspects can be improved. If data is well presented and easily understood, there is no reason why a business cannot continue to adapt and improve over time, regardless of potential pitfalls or even unusually large spikes in sales that can be just as disruptive to long-term business as slumps.
How Businesses Can Use KPIs
As we continue to cover the importance of KPIs, it is worth delving into some of the specific ways that growing enterprises can use these indicators to drastically improve internal performances, from setting goals to managing risks.
Goal Setting:
KPIs should provide clear and easy to understand targets for all sectors of your business. Regardless of whether you are presenting data to the boardroom, or to warehouse staff, operational data and goals should be quantifiable. The boardroom will likely be interested in how an entire area of a company is performing, while the warehouse might be looking to increase packaging by 10%. By presenting data that backs up performance, and suggests methods of improvement, you can offer positive solutions to any area of your business.
Performance Measurement:
As the term suggests, performance measurements can be used to track anything from product sales to staff activity. Continuing with our theme from goal setting, company directors will likely want to understand how well the departments under their management staff are doing, this can be measured by overall company sales, customer satisfaction feedback, and even staff complacency. In the warehouse, a larger focus on individual staff performance might be assessed, thereby KPIs of team efforts can be produced, having a ripple effect as actions are made from the base up.
Decision Making:
Every KPI is ultimately about finding actionable insights from the data and then acting upon them. While quite self explanatory, if an area of a business is not performing as well as your data-driven indicators suggest it should be, decisions need to be made, and quickly, so you can adapt and avoid your brand sinking as the landscape changes. Figure out what is causing the problems, and work to resolve the issue!
Resource Allocation:
As you continue to gather data and analyse the performance of your enterprise, sooner or later, you will find that certain areas are struggling. KPIs will ideally be able to help highlight these problem areas, and again, the boardroom will need to decide how they resolve them based on actionable insights. Perhaps the warehouse needs more staff to keep up with increasing delivery loads? Maybe management needs more money to purchase new equipment? If the other areas of your business are being sufficiently analysed and their own KPIs being produced, it becomes easier to figure out where expenses can be spared in one part of the business and reallocated to help underperformers. Sometimes it is as simple as figuring out how to allocate enough time and manpower to resolve a problem, however when money is involved and times are tight, it can require some difficult decisions.
Motivation:
KPIs that demonstrate poor performance can suggest a multitude of problems if insufficient data is available. This is why it is vital to be in touch with every area of your business, literally from the ground up. If staff have no motivation there is generally a reason for it, and with KPIs, solutions can be figured out to boost morale and ultimately improve team performance.
Risk Management:
Possibly one of the most vital uses of KPIs is their ability, if well produced and presented, to help predict and assess risks within a business. Being able to stay on top of upcoming problems such as supply chain issues or signs of stagnating cash flow should raise alarm bells and be a cause for action. KPIs may also prematurely cover issues such as new equipment being installed, and what kind of healthy safety measures should be expected as a result. Risk management can cover any number of potential problems, however as with all KPIs, it is how the data is collected and presented that will make those problems easily solvable, and even put your business operations in a superior place after action has been taken, and certainly better than if no action was taken at all.
Although these examples touch down on just a few areas that can be monitored by performance indicators, it demonstrates what kind of vital information can be gleaned from various areas of a business’s internal affairs. More operations being analysed, with more actionable insights being highlighted, means greater efficiency and productivity can be achieved in every area.
Examples of Common KPIs
Let’s look now at some examples of typical KPIs businesses across all sectors will likely want to adopt if they seek to improve their operations. While industries should aim to tailor their indicators to suit their own needs, there are still a number of KPIs that every company will require.
Financial KPIs:
Gross profit margin, net profit, return on investments (ROIs) – to name just a few. The scope of financial KPIs can seem overwhelming, but being on top of your financial data is always going to be most important. It is a direct indicator of how well your enterprise is performing overall, and takes an intricate role in regards to all other KPIs. The old saying ‘cash is king’ cannot be understated, as it is literally the be all and end of all of any business operation.
Customer KPIs:
Customer KPIs will be based primarily on feedback data and will also feed into marketing data as you try to figure out customer acquisition costs. For returning customers, however, feedback will be the key to ongoing business success. Negative feedback should be openly addressed and hastily fixed. Perhaps a product has a minor fault that can be amended, with a product recall to fix outliers. Meanwhile, positive feedback can be capitalised on to produce an even greater customer experience, whether it be through sale promotions, continued sales of a favoured product, or simply an improvement to customer services.
Sales KPIs:
Sales tie in strongly with finances, however instead of focusing on overall financial metrics, sales KPIs can focus more in-depth on areas like monthly department sales, or individual product sales. This can give a more focused view of potential problem areas to help product sales targets, understand conversion rates and customer behaviour, and improve overall sales tactics.
Marketing KPIs:
Whoever you are, big or small, marketing is always going to be important. Trying out and gathering the data of different campaigns will become essential for growth as your business evolves. Between direct marketing, pay per click, social media engagement and any other marketing methods, data can be collected to first produce the ROI on your campaigns, and then actionable insights can be drawn up from your KPIs to determine which methods are worth pursuing, which should be adjusted, or which should be abandoned altogether.
Regardless of industry, these four types of KPIs will be relevant and should be a starting point for any company looking to use data-driven metrics to produce calls to action.
Implementing KPIs in Business
Once you have established how to set up your KPIs, and to what area of your business you want to focus on, it’s also essential to learn how to implement them. Well presented business data is vital, as well as focusing on the most important pieces of information, and leaving out any unnecessary excess. If your audience can easily grasp the data you are presenting, and you can bring them to well defined actionable insights, everyone in your business will be at a headstart over another firm that has no such structure.
Define Clear Objectives:
Before selecting KPIs, you should be clear about what you want to achieve. Once you have chosen your objectives and selected the relevant data, it is equally important to present it in a clear and concise way so there is no misunderstanding over your objectives. Deliver the data and draw valuable insights from it which can then be resolved or capitalised on.
Choose Relevant KPIs:
Not all KPIs are useful for every business. Choose those that are most relevant to your business objectives, and even then, the data you present should also be relevant to that KPI. Don’t waste time crawling through countless infographics, just present the most vital information in as clear a way as possible.
Monitor Regularly:
KPIs should be monitored regularly (daily, weekly, monthly) to track progress and make necessary adjustments. This is true for all sectors of the workplace, and should not just be done in the boardroom. With every cog of the machine getting regular updates, it can create a sense of community amongst the workforce, from customer service to CEO.
Ensure Data Accuracy:
The insights from KPIs are only as good as the data presented. By ensuring that the data sources used in your presentations are accurate and reliable, there will be less room for mistakes with regards to any of your KPI metrics.
Review and Adjust:
Frequently reviewing and adjusting your KPIs means your business goals remain relevant as the landscape changes. Up-to-date data means more accuracy, and with greater accuracy comes a better ability to adapt to changes. Any actionable insights from KPIs that have been implemented should also be regularly monitored to ensure they have a continued positive effect on business – from sales, through to workforce motivation, and most importantly, to customer satisfaction.
Parting Thoughts
In the current landscape of 2024, KPIs continue to serve as the cornerstone for businesses of all sizes and from all sectors looking for direction towards their desired objectives. As we’ve explored in depth, it’s clear any business looking to make its mark must not only understand, but also effectively implement and act upon these crucial metrics. With the right KPIs in place, businesses can get to complete grips with the complexities of their sector, ensuring they remain on the right path to success.
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