KPIs in your business

Hamish Mexted Accounting & Compliance, Increasing Profit, Managing Cash

Key performance indicators (KPIs) are a great tool for measuring the progress of your business.  Through the measurement of certain indicators, you can establish whether or not you’re meeting expected targets and see how you’re tracking against previous periods.

As with so many things, the KPIs for your business will be completely different from those of the next business.  A retailer might look at the average spend per customer, while a travel agent might look at the number of travel insurance policies sold.  You need to identify what drives your business and then come up with a way of measuring it.

These indicators don’t necessarily need to be financial.  They could for example measure the effectiveness of your marketing by setting targets for the number of new customer contacts from each promotional activity run.  From there you could look at average sale volumes before and after each promotion.  Alternatively a manufacturer could measure production efficiencies through examining the average number of deficiencies per thousand units manufactured, or by measuring production-line down time.

The first step is measuring your KPIs.  However measurement alone is not enough.  You need to use the captured information to make tangible changes to your business.  Take the travel agent mentioned earlier.  If they see travel insurance policies sales being higher than expected, it could suggest that customers are willing to buy add-ons to their holiday.  They could look at pushing sales of stopovers or day trips harder.  Conversely if the sale of travel insurance policies is lower than expected, a script could be given to employees to help them with the sales process.

It’s not enough to simply measure your KPIs.  To take full advantage you need to analyse what they’re telling you and make the appropriate changes to your business.  How do you use KPIs in your business?