To remain competitive, business owners need to track how company-wide goals are regularly progressing. But many businesses fail to use suitable key performance indicators (KPIs) and monitor them properly with dashboards. This can leave companies in the dark, unable to respond to new opportunities or challenges.
As the saying goes, “You can’t manage what you don’t measure.”
Setting KPIs is crucial to your business success by improving financial performance and business operations, while also serving to incentivise staff.
KPIs are not the same as milestones. Rather KPI’s give a way to measuring a business owners progress towards achieving their milestone and goals. Therefore, the KPI’s that are tracked should be tied to the business’s goals.
In the years that Trinity Advisory has been working with SMEs, we’ve helped hundreds of clients determine the right KPIs for their company. Here are our tips for setting the right metrics for your business:
1. List and review all the metrics you have today
Companies usually keep track of basic financial data such as sales, revenue and profits. But many businesses neglect to develop more sophisticated data as they grow.
The first step is to look at what data you currently use to measure your business today, then from this data, devise suitable KPIs that relate back to your business goals.
2. Consider what other information you’ll need to track
You need to work out what information you need access to in order to make the appropriate decisions for the key areas of your business. The best place to start is by looking at your business goals and then determining what KPIs will best allow you to track and measure your progress towards meeting these goals.
If you are not already reporting on this data, then you’ll need to work out a) what systems or processes will provide you with this data and
b) who will be responsible for capturing and reporting on this data. If you don’t currently have the systems in place to capture and track
this data, then you’ll need to consider what changes you need to make in your business in order to
3. Record & set your new KPIs & targets
Now you should record your KPIs for various areas of the business, set appropriate targets for each KPI and determine appropriate timings to meet those targets. Remember, KPIs should be:
KPIs should always trickle down from the overall strategic goals of the business. As a result, they need to be aligned and not unintentionally undermine each other.
Let’s say your business has a goal of 20 additional clients for the year. If you know your lead-to-sales conversion rate, then you can determine how many quality leads are needed to win 20 new clients. In this case, tracking lead conversion rates and lead generation will be great KPI’s.
On the flip-side, ill-considered KPIs can actually harm your business. Let’s say your goal is to increase profit by 5%, but your KPIs are centred around sales and revenue. Your sales team are driven to get sales at any cost, thus reducing your profit margin to win every sale. You end up in the opposite direction of your goal, with increased revenue but declining profits.
Make sure that KPIs are always supporting the overall strategy of the business.
It’s no use building business KPIs that are unclear or unachievable. Setting unachievable goals can be a big de-motivator for employees. The more realistic the goal of a KPI is, the more likely teams are to reach it.
Instead of setting large, complex goals, a company might want to start small by setting short-term goals that challenge employees but don’t overwhelm them.
Research has shown that 90 days is an effective period for which to set goals and plan projects. 90 Days is a long enough time to get things done, and a short enough time to be tangible and to motivate you to act right away.
It might seem obvious, but a KPI should be tangible and easy to measure.
For example, “I want to increase sales” is not a measurable goal. “I want to increase sales by 30%” is a measurable goal. If the goal is something less tangible, such as, “Improving team morale”, then you could ask staff to provide their feedback on a scale of 1 – 10 about where they feel current morale is at, and then set a specific goal of what you want to increase that by.
You should have KPIs set for every department of your business. These may include:
4. Create dashboard reporting to review regularly with your team
With the right KPIs in hand, it’s important for your team to review and discuss your progress towards your business goals, making small course corrections along the way. Dashboards are key for this.
Visual aids such as graphs and charts can help your team to see patterns more clearly, allowing the business to pivot quickly and manage any issues before they become critical.
Implementing a Business Intelligence (BI) Software can help a business to gather, store, analyse and report on KPIs, transforming complex data into meaningful, actionable information that can be used to support more effective strategic planning, tactical, and operational insights and decision-making.
Of course, underpinning all of this is having access to accurate data and financial reporting. A good accountant can help you develop this reporting, and a good business coach can help you set business goals and develop relevant KPIs.
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Trinity Advisory is not just an accounting firm, we specialise in Business Accounting and Coaching for SME's. If you’re a small business owner who needs help developing your strategic plan, scaling your business and growing your profits, then get in contact today to learn more about our Business Accounting and Advisory Services.