Setting KPIs, or Key Performance Indicators, is an important part of planning for any business - large or small. If done cleverly, KPIs give insight into the performance and general health of a business without having to dig through pages of reports to get the answers you're after.
Some of the benefits of using KPIs in your business include:
- Giving your team direction
- Defining success for the business
- Identifying potential issues before they become a problem
- Displaying trends
- Saving time not having to read through lengthy reports
So, we know that KPIs are great, but what exactly is a KPI? It says it in the name, they are key performance indicators! This means they are important to what you're trying to achieve and they give an indication of how you are performing against that target. KPIs should be linked to the goals of your business so they can measure the success the business is having at achieving those goals.
A great example is around revenue. Say you want to increase sales to $1M next year. You wouldn't have a KPI that is sales, rather you'd have a bunch of KPIs that support the goal of increasing sales. Some example KPIs might be:
- 50 sales calls per month
- Marketing spend increase 10% month-on-month
- Website visits increase 5% month-on-month
- 10 key referrer meetings per quarter
For any KPI to work it really needs to be well thought out and be directly tied to a goal of the business. There's a simple way to ensure success with your business KPIs and that is to ensure they are SMART. Any KPI that is considered SMART can be broken down as follows:
- SPECIFIC It needs to refer to something specific (e.g. website visits up 5% month-on-month) and not something vague like ‘get more Googles'.
- MEASURABLE The KPI needs to be measurable and obtaining that measurement needs to be easy and transparent. Good accounting and job management software will help here.
- ATTAINABLE Any good target is going to be aspirational, but you want to make sure it can actually be achieved in the real world and not just on a piece of paper.
- RELEVANT The KPI should align with the broader goals of the business.
- TIMELY You need to be able to achieve the set target within a specified timeframe. Best to keep it shorter rather than longer so you don’t lose focus.
Once you've got your KPI you're going to want to identify strategies to help you achieve them and then allocate responsibility amongst your team. Following on from the example above, you might want to increase website visits. This means your social media people need to ramp up activity, blog posts need to go up, you might look at some paid advertising on Google or social media, etc. What's important here is to define the strategies and then regularly review and adjust to ensure success.
Now that you understand what a KPI is and what makes one great, you're ready to define some for your business. From a practical standpoint I'd suggest the following plan of attack:
- Review your business plan and pick out a few key goals
- Define 2-3 KPIs that will support each of those goals
- Outline how you to gather the relevant data (e.g. report X from software Y, etc.) and allocate responsibility for collecting data if relevant (e.g. the sales team needs to record their sales calls)
- Create a report that you'll review monthly to review the KPIs. Software can help here, check out this post
- Identify some strategies to achieve the KPIs
- Allocate responsibilities for the strategies
- On a monthly basis report back on progress, how the strategies are going, adjust, rinse and repeat
One final tip, keep things simple. Having 42 KPIs might sound good in theory, but unless you're running BHP it's probably not necessary. I'd recommend choosing 4 or 5 and sticking with them until they have been achieved and then you can go on to focus on other areas that are weaker. Remember that each KPI will have a range of strategies (i.e. work!) attached to them, so don't create a huge pile of work for yourself that will never get completed.
We work with our Virtual CFO clients to help set and report on KPIs as well as working on strategy to help achieve business goals. If you'd like to have a chat with one of our experienced business advisers about planning and performance in your business, just drop us a line. We'd love to help.