t’s very hard to tell if something is working or not if you don’t pay attention to it.
Why do games have winners and losers; gold, silver and bronze medals; coloured belts, trophies, handicaps?
Why do people keep score on the golf course, in computer games, at little athletics?
There’s a certain thrill in knowing how we are performing – comparing ourselves to others or reaching our personal best; are we getting better, levelling out or dropping the ball?
A Key Performance Indicator (KPI) is a metric you have set up to measure the performance of your business against your business objective. Some businesses use net profit as a KPI, some measure customer retention; some use every step in their marketing system to measure performance: cost of acquiring customers, average spend per customer, conversion rates from lead to sale.
There are literally dozens of metrics you could measure in any business, but the secret to simplicity is to find the ones that matter most, and keep your eye on those.
Think of KPI’s for your business like a scorecard. It is a collection of KPIs that let you know how the business is going.
Keep your KPIs as simple as they need to be to measure the most critical drivers of your business – the things that need to happen to reach a business objective. E.g. are you hitting your financial targets, are you collecting your debts within a specified period, is your marketing bringing you the number of ideal prospective customers you want with a predictable conversion rate to sales?
And just like in sport it is possible to cheat your own system – although I don’t know why you would.
You can falsify KPIs with all sorts of strategies to make the numbers look better than they are. A bit of creative bookkeeping, some juggling of numbers on your phone calls log, customer service ratings – many, many ways.
Sometimes business owners don’t even know they are doing it – paying themselves a set salary each month, kidding themselves the business is doing well when they are really living on a burgeoning overdraft, because they are not paying attention to the financial KPIs.
The trick with KPIs is to find the ones that really matter, and it might only be a few, but when you diligently keep score each day, week or month you will see patterns emerge that will give you an accurate picture of what’s really happening in your business. What’s working, what’s not.
From reading your KPIs regularly you’ll be able to make well informed wise business decisions – your business will be flexible, agile, able to move with the times and you’ll be a much better business person for it.
Want to know how to set up your business KPI scorecard? Book a 15 minute phone call with Pauline Bright here