When starting or running a business, it can be easy to focus on the area you are passionate about and not really pay attention to how the business is performing. Setting effective Key Performance Indicators (KPIs) will help you to measure progress towards your goals whilst you focus on what you are passionate about. In this blog, I will be writing about how to set effective business KPIs and why they are important.
What are KPIs?
A Key Performance Indicator (KPI) is a target put in place to measure your progress towards achieving your business goals or Critical Success Factors (CSFs). CSFs are what the business needs to do well in order to succeed. Examples of CSF can include selling a certain number of products, being innovative and staying ahead of the industry, or having necessary resources for a certain industry. Understanding your CSFs will help you to set effective business goals and targets. KPIs should ideally be financial and non-financial. This means that they should not only focus on monetary measures but should also encompass other elements that the business needs to do well. Non-financial KPIs include staff turnover rates, customer satisfaction, product quality etc.
How to set KPIs
You need to look at your business and understand what you need to do to succeed. The question you need to answer is, what does success look like for you and how will you be able to measure it? When initially starting a business there are five areas you need to manage well which are cash, customers, suppliers, staff and products. These five areas are interlinked and will result in a profitable business if managed correctly. Suppliers need to provide products that can be sold to customers for cash. When looking at establishing your CSFs, look at other business in your industry, incorporate the budgeting and marketing strategies.
Examples include
Products
Establishing CSFs (goals)
- What makes your product different from competitors and why will people want to buy it?
- How will you continue to innovate the product?
Possible KPIs (targets)
- Sales (selling a certain number of products in order to make a profit)
- Customer feedback (maintaining a certain rating from customers)
- Ensuring products are delivered to clients in a certain time.
Suppliers
Establishing CSFs (goals)
- Do you have suppliers for the product and are they reliable?
- How will it be made and shipped
Possible KPIs (targets)
- Product quality i.e., damaged or defective products not exceeding a certain amount
- Delivery times should not exceed a certain time.
- Customer feedback
Customers
Establishing CSFs (goals)
- How will new customers find you?
- How will you retain old clients?
Possible KPI (target)
- Marketing measures for example social media engagement and targets for website traffic
- Requesting feedback from clients and maintaining a certain rating
Cash
Establishing CSF (goals)
- How much cash do you need to breakeven?
Possible KPIs
- Monitoring actual activity vs budgeted amounts
- Liquidity ratios
- Debtors days
Staff
Establishing CSF (goals)
- Staff retention
- Improved wellbeing and job satisfaction
Possible KPIs
- Staff turnover
- Employee satisfaction surveys
- Sick days
Setting effective KPIs will help you to measure the progress of the business hence contribute to the overall success. They can be reviewed when suitable, however, it is advisable to do this regularly so that you can see how the business is performing and if any adjustments are required. It is important to ensure that the KPIs are relevant to your business, achievable, controllable and were necessary prioritised.
This can be a daunting task when starting or running a business but our team is available to assist you with setting up effective KPIs for your business. Contact us for a free consultation.