Use Key Performance Indicators to Improve Your Business
A Key Performance Indicator (KPI) system is one of the most important strategies you can implement in your business. A KPI system measures and reports the key activities in your business so that everyone on your staff knows how his or her efforts are either making or breaking the business. KPIs should be related to the goals in your business and monitored weekly, so that pro-active measures can be put in place if things start trending in the wrong direction.
To figure out what KPIs you should be tracking, imagine you have to spend the next few months alone on an island with your cell phone. What numbers would you want to have sent to you each day to give you a clear picture of the performance of the business?
Obvious KPIs are revenue, gross margin, expenses, hours worked vs. hours billed, but these are all reactionary metrics. If you drill down to the activities that drive these metrics, you can establish relevant KPIs to predict performance and make proactive changes for improvement. For instance, revenue is driven by sales and marketing activity. Activity is something you can control - such as marketing initiatives. If you understand your lead generation and sales conversion numbers, you can determine the amount of marketing activity required to hit your sales goal. An appropriate KPI may be the amount of marketing activity such as leads generated, advertising money spent, number of prospect calls, etc.
What are the other goals in your business? Gross margin and fixed cost improvements can have a dramatic effect on bottom line profit. Your team may have good ideas on areas to improve efficiency or trim costs. Use these ideas to establish KPIs that drill down to the activities that will realize performance improvements.
Small Business Strategist