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What are KPI’s? (And why EVERY business should have them!)
Every business has goals. And every company tries to achieve those goals. But how does a business know if (or when) their goal has been achieved? Each goal needs to be measured and tracked to see if it has been completed. In the business world, goals tend to be larger than a goal we might set as an individual. Business goals (or objectives) often have steps that lead towards completion. There can be little goals or big goals. And depending on the size of the business, there might be some goals specific to one person’s role and other goals specific to the entire team or staff. This article is going to take a look at how business goals and objectives are measured, and how YOU can utilize these measurements to maximize goal completion.
What exactly is a KPI?
The tracking and measuring of a valuable business objective (or goal) is often called a Key Performance Indicator, or KPI.
Each individual business goal, whether large or small, is a separate KPI.
In order for a business to know whether or not they are successfully completing their objectives, they need to have a way to record and track their KPIs.
So, for example, if you were a small company that sells cell phone cases, you might have the following main KPIs:
- Add 10 new phone cases to inventory each quarter.
- Reduce packaging waste to be more environmentally friendly.
- Enter two new marketplaces by the end of the calendar year.
And since these are all fairly large objectives, you would most likely break these down into actionable steps, or smaller KPIs.
Researching alternative product packaging options, for instance, would be one smaller KPI that you would have to complete before you could complete the above KPI #2.
So, to put it simply, EVERY SINGLE goal or objective your business has would be considered a Key Performance Indicator, or KPI.
How can I make effective KPIs for my business?
Deciding on KPIs for your business can seem overwhelming. But you probably already have at least one, if not several, KPIs.
You can sit down and write out all of the business goals you currently have. And if they have deadlines, you can write down the due dates as well. These would be your KPIs.
When deciding on a new KPI, you want it to be a goal that is in line with your strategic vision plan.
Some examples of small business KPIs could include:
- Sell 700 units this quarter.
- Make $5,000 in sales per month
- Gain 2500 unique monthly visitors to the website
- Reach 25 new customers per month.
Whatever your goals are for your business, you can write them down as your KPIs.
Always make sure your KPIs stay true to your strategic vision (as mentioned above) AND your brand values.
Let’s say you are a vegan and organic shop and set a KPI to gain 25% revenue growth per quarter. You probably wouldn’t want to accomplish this by adding handcrafted leather wallets to your product line. That wouldn’t align with your values, even if it were potentially profitable.
Once you have established your KPIs, you can then decide how you want to measure them.
How do I measure my KPIs and track my business success?
KPI’s need to be something that can be measurable. This means if you have a quality goal, you should be able to measure your goal’s completion.
For instance, if you set a KPI to increase customer satisfaction, you need to add a measurable element. One way to do this would be to increase the average score of customer satisfaction surveys by 15%. Or you can set a KPI to reduce negative product reviews from 3 out of 10 down to 1 out of 10.
Both of these are measurable goals, because they include numbers that you can track clearly.
Without a measurable element in your goal, you won’t know how much progress you are making towards completing the goal.
You also want to avoid measuring the same thing more than once. If you are tracking business growth in sales revenue, you would not need to track the sales profit as well. Just pick one.
It becomes much easier to monitor your KPIs when you keep things simple.
How many KPI’s should a business track?
KPI’s are meant to measure and track your goals, growth or successes. The number of KPIs to monitor depends on what you need to achieve. Some businesses might have 5, some might have 25, depending on their goal complexities and also the size of their organization.
Tracking 50 or more KPI’s is unrealistic, even for most bigger companies. You, as the business owner, can not give each of these goals the attention they need. What if something goes wrong in 30 of them at once? This would be unmanageable for one person, and probably even for a small team.
I like to suggest for small businesses to start with three KPI’s to measure your main strategic goals.
And then keep your smaller ‘stepping-stone’ KPIs also at three. That way, you have only to track 9 or less KPI’s that measure your strategic intent.
For example, let’s look at our main KPI example #3 from above: Enter two new marketplaces by the end of the calendar year.
Your smaller KPIs to measure the progress of this main KPI could be:
- Research new marketplaces for compatible options and decide on two
- Create an account and get products onto the first marketplace
- Create an account and get products onto the second marketplace
After you have determined the KPI’s that best match your strategic vision goals, it is time to use them!
Once I have determined my business KPIs, what do I do next?
This is where the analytics and data-gathering begins- my FAVORITE part! So get your favorite spreadsheet or organizational tool (Trello, Asana, etc) open, and let’s get started!
You will want to set up your spreadsheet or board with each of your main KPIs listed.
Trello, for example, is an easy place to do this, because you can make each main KPI it’s own card, and list your smaller KPIs as a checklist within that card. Then you just mark each KPI completed as you go!
You can do the same thing in a spreadsheet in Google or Excel, by creating columns or rows and organizing your KPIs in a way that looks easiest for you to understand and keep track of.
(And I will go into spectacularly over-rated detail on how to create a spreadsheet that you can turn into a chart for measuring your KPIs in a future article. So stay tuned…)
But let’s assume for a quick second that you’re a spreadsheet enthusiast like me…
Basically, you would enter the KPI information into your spreadsheet and then update it periodically with your progress.
You will want to update your KPI progress weekly, monthly, or quarterly.
These KPIs are now a reporting tool to track your goal completion. Woohoo!
Key Take-Aways From This Article (aka Conclusion):
(Also aka, important things to remember…)
- KPI stands for Key Performance Indicator.
- Key Performance Indicators are MAIN goals and smaller steps to accomplish goals.
- KPIs are used to measure and track the strategic goals of the business.
- The KPI needs to be measurable with a quantity.
- The number of KPIs should be limited to the things that you can give adequate attention to monitoring at any one time.
- A good rule of thumb is to have no more than 3 KPIs per Strategic goal. Less is more.
- Try to update and monitor these KPIs on a routine basis- weekly, monthly, or quarterly.
You want to make sure that your business goals are smart, align with your values, and can actually be accomplished (reasonable, actionable goals), so putting time and effort into establishing relevant KPIs will help your business to be more successful.
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Key Performance Indicator (KPI) FAQ:
What is a KPI?
A KPI, or Key Performance Indicator, is a type of measurement that businesses use to track the progress of strategic objectives
What does KPI stand for?
KPI stands for Key Performance Indicator.
What is the difference between a KPI and a Metric?
A KPI is a metric that measures business strategic objective goals. A metric is a form of measurement that tracks business performance. A KPI is a metric but a metric is not necessarily a KPI.
How many KPI's should I have?
It depends. The amount of KPI's should be at the minimalist necessary to reach objectives. Never have more KPI's then you can monitor. The most encourage amount of KPI's is 3 to 5 at each level of the business structure. They should all be in line with the Strategic goal.