Key Performance Indicators or KPIs are a pertinent part of measuring the success or failure of any business organization KPIS facilitates the Business Owner to secure an overview of the business at any given point in time.
Meaning Of KPIs
KPIs stand for a set of quantifiable measures that a company or the industry applies to gauge performance in terms of achieving strategic or operational goals. KPIs depend upon performance or priority criteria.
How To Make KPIs Effective?
KPIs can improve their efficacy by meeting a set of criteria, such as:
- Simple
- Relevant
- Aligned
- Actionable
- Measurable
KPIs should always be set on the pattern of SMART which connotes:
- S- Specific
- M- Measurable
- A- Achievable
- R- Relevant
- T- Time Bound
Benefits Of KPIs
- Can measure target.
- Create an atmosphere of learning.
- Receive important information.
- Encourage accountability.
- Boost morale
“The use of KPI is meant to improve and transform the organizational performance”
(Pearl Zhu)
How to measure the effectiveness of each area of business and its impact on profitability?
Here, we resort to the application of 7 KEY PERFORMANCE INDICATORS.
What are the few important KPIs FOR CORE BUSINESS AREAS for any business?
1. KPIs For Product Or Service Development
To maintain an edge over your competitors, you need to have a plan to constantly develop your product and services.
KPIs to ensure improvement here must be:
- Number of new product or services launched
- Number of R&D projects undertaken
- Number of product failures
- Number of jobs
- Number of Project delays
- Number of Hold-ups
2. KPIs For Marketing
To keep pace with the market you need to keep letting your customers know:
Who you are and that you are ready and willing to help.
KPIs here could be:
- Number of visitors to your website or premises.
- Number of engagements with site e.g., downloads /newsletter signups etc.
- Number of enquiries received from a particular marketing source.
- Cost per enquiry.
- This helps you to gauge the value of all marketing investment made and which method to focus on.
- Number of contacts on database or Customer Relationship Management system (CRM)
- Number of enquires to convert to sales.
3. KPIs For Sales
After receiving interest from the market, you need to convert that interest into sales and ultimately bolster the bottom line.
KPIs here could be:
- Number of quotes provided.
- Number of quotes won.
- Number of quotes lost.
- Sales conversion rate i.e., number of sales calls made compared to those converted.
- Upselling rate i.e., how many add-on products/services were sold to customers.
4. KPIs For Operations
After the sale is made, it’s time to deliver to your customer.
To ensure a consistently high level of service, it’s vital to measure your operational performance.
KPIs here could be:
- Personnel productivity i.e. How many hours have been sold compared to those paid to service staff?
- Work in Progress days i.e., how many days are jobs in progress prior to finishing.
- Rework hours-to fix mistakes on jobs.
- Stock turnover rate
- Number of days for customers to receive orders.
- Number of Product returns/complaints/defects
- Number of Hour’s downtime of staff/equipment
- Number of Overtime hours
5. KPIs For Finance
Happy customers have no reason not to pay on time.
Here vital KPIs could be:
- Account Receivable Days i.e., how many days are customers taking to pay, on average
- Profit by:
- Customer or type of customer
- Product/Service or type of product/service
- Division wise profit
- Accounts Payable Days i.e., how many days are you taking to pay your suppliers.
- Number of price increases or discounts given.
6. KPIs For Human Resources
Happy Staff provides great service to happy customers who are happy to pay.
So how happy are they?
Here, KPIs cover:
- WHS incidents/Hazards
- Staff turnover
- Staff satisfaction
- Ideas for improvements submitted/suggested.
- Staff training hours/events attended.
- Incentive payments made.
- Staff sick leave days
7. KPIs For Customers Service
Once you have customers it is much easier to retain them than it is to get new ones.
KPIs here could be:
- Customer retention rate
- Number of new customers acquired
- Number of major client visits attended
- Customer complaints received
- Testimonials acquired
- Referrals received
In Retrospect
System to track KPIs can be extremely simple and useful…
Enterprise Resources Planning (ERP) systems can be a massive time saver and give great insight into various aspects of business performance.
Help with planning and prioritizing systems implementation is a great investment to ensure it’s done right from the start.
Help from someone who has been involved in using ERP systems and the information from them to review and improve business performance is vital.
A CFO can make better decisions in ‘real-time with the help of ERP.
The benefits of running a business focusing on the key areas and systemizing them create Business Value.
A proactive run and systemized business are worth much more than one that runs out of the owner’s head.
It’s doesn’t rely on one person’s knowledge and can survive if key staff leave.
“If it cannot be measured, it cannot be managed”
(Peter Drucker)
