Money Talk

KPIs - How they work and why they're important!

Posted by Michael Youssef on Jan 2, 2020 9:00:00 AM
Michael Youssef

You may think Key Performance Indicators (KPIs) are tools used only by the biggest businesses, however even the smallest business can benefit from implementing even some basic KPIs into their business. In fact, the way you manage your team, you may already have a few KPIs in place without even realising it.

Hand with marker writing KPI

The KPIs for one company will always differ from another, and that is because the KPI metric is largely subjective. The performance indicators I want to measure in my business will be different to what you want to measure in your business. Even between other accounting firms what we measure may be different to one another. However there is still so much value in establishing some base KPI metrics that you and your team can follow.

What Are Key Performance Indicators?

KPIs are the measurement metrics that a business uses to measure the performance within a particular area of work. They provide a tangible metric for a business to determine whether they are on track to achieving a goal. Some common KPIs to measure include:

  • Financial Performance
  • Customer Service
  • Marketing
  • Sales
  • Employee Productivity

Financial Performance

At the end of the day, the bottom line is why we are all in business and understanding how well your financials are doing is the equivalent of knowing what is going on in the center of your car’s engine when it’s rolling down the road.

For instance, if you are losing sleep at night over whether or not your latest marketing plan was worth the check you signed at the bank on Monday, you will want to explore your Return-on-Investments (ROI) with a detailed ROI KPI.  Conversely, a KPI can highlight under-performing net profit margins, or lackluster revenue growth rates, and the information obtained can present valuable information to ensure the meeting of the company’s original financial goals.

Customer Relations

As noted, a profitable bottom line is the ultimate goal of businesses, and customers are the key to achieving enviable sales numbers.  As such, understanding what motivates your clients provides inestimable advantages to the entrepreneur who knows what they are looking for.  Utilizing customer relation-focused KPIs, merchants can track levels of customer engagement and subsequent retention rates.  If customer satisfaction scores are sagging or turnover rates are high, the worried business owner can target their reports to help develop meaningful responses to address these lapses.

Marketing Efforts

Without a viable marketing plan, few businesses can expect to prosper.  With KPIs designed to highlight marketing performance, you can break down your cost per lead, brand equity positions, conversion rates, social networking footprint, and more.  Get the most of every marketing dollar by discovering what is working and what is not moving you towards your sales goals.

Employee Productivity

While your marketing functions are designed to drive in the customers that you are hoping will add to your bottom line, your employees are typically tasked with closing the deal.  So using KPIs to measure employee performance just makes sense.  Savvy entrepreneurs use KPI to monitor the average revenue per employee, engagement level, and average employee tenure to name just a few of the reports that can be tailored to get a feeling for the pulse of your workforce.

Fundamentally, structures create outcomes and KPIs act as a way of structuring the right behaviour you want to cultivate within your business, and they also support the business owner in making key business decisions that continue to drive growth.

Topics: small business, revenue, marketing, sales, business success, contractors, employees, processes, systems, mindset, Success