In case you were wondering, I did name my business after the acronym, Key Performance Indicator. The domain was available, and I thought in my nerdy brain that this was the win of the decade! The reality is most people have no idea what KPI stands for, and that is ok. As long as you know what it stands for after reading this, we will be in good shape. Key Performance Indicators can sound like a bunch of financial analyst mumbo jumbo, but the reality is KPIs can be anything you want them to be to help you achieve a goal in either a qualitative or quantitative value. A quantitative value would be used for analyzing any kind of financial goal regarding income or expenses or anything you can put a number to for performance. A qualitative value would be great for analyzing customer reviews in determining what you want your clients to be most happy with, such as efficiency, returning calls, personality, and overall client care.
KPI examples:
Client or Customer Referrals: Number of referrals that turn into paying clients or guest.
Inventory Turnover: How quickly are your selling your inventory.
Total Collection Rate: Money actually collected/Total amounts billed.
Debt to Equity Ratio: Total Liabilities/Equity in the company.
So why are they so important? KPIs are going to help you achieve your goals; they are goal-setting targets that can be measured. For those of you that don’t like goal setting, KPIs are great because they can be a way of “tricking” you into goal setting whether you realize it or not. Once you write down your KPI, you will subconsciously be finding ways to hit it. It will be your focus in the back of your mind. When you start watching it, you will start finding ways to improve it, and when you start improving a KPI, suddenly other areas of your firm will improve.
How to choose a KPI. Choosing KPIs comes down to you and the vision you have for your business. What does success look like for you? What are your goals? What is your main focus to achieve those goals? Consider your large scope goals. Now, drill down on them. By asking why and how this will help you to quickly determine your KPIs.
How to determine a KPI:
Large Scope Goal: Increase Revenues.
Why: better cash flow, opportunity to grow, better financial security for the business.
How: Get more clients.
KPI: Increase revenue by measuring referrals into new paying clients.
How to Achieve: Be more efficient with client communication, ask happy clients for a Google review, set clear expectations for the client and business relationship. If you just did those three things and got a referral out of that, look what you accomplished. A snowball of better business practices for one metric that will result in more revenue.
So, you may be thinking, easier said than done. Yes, you may be right, but how much more effort is it really? The majority of the effort will be in habit change and enforcement with you and your employees. Write out a standard operating procedure. This is the procedure the whole business will follow for each KPI. Even if you are 100 percent solo, write it out. It won’t take long, For example, what are the procedures, time frame, and standards for client communication? Is that expectation set with both your employees and your clients? If not, write it out, inform, and enforce. Make it easy on yourself, your employees, and your clients. One foot in front of the other and change will begin.
So, I hit my KPI. Now what? There is always room for more. Continue on with what you are doing, but before you move on to a new one, ask yourself: How could I make this easier? In what ways could this be more efficient? If you see progress happening, great! Now figure out how you can better improve the efficiency of that progress once it is achieved, then move on to another KPI. This will make bringing on another KPI easier and get you in the mindset of how you are going to achieve that KPI with better efficiency.
