Key Performance Indicators: Why They Matter
Key performance indicators (KPIs), sometimes referred to as key success indicators (KSIs), are measurements that a company uses to evaluate their success at reaching targets. They help leaders and employees gauge the effectiveness of various functions, processes, and other areas important to achieving organizational goals. What I find interesting is when I mention KPIs or KSIs to people in leadership they often give me a blank stare and have no idea what I am talking about.
One of my favorite expressions, coined by a colleague, is “know the score, report the score, the score gets better”. I can’t stress enough the truth of this statement. When I ask a sales manager or sales team what numbers they find significant and track I am amazed at what I hear, or rather what I don’t hear. What do you imagine I hear? Of course total sales and revenue, maybe average deal size (though less often than you would think), new customers captured…basically not much. How can you measure performance with just a few metrics? As a sales manager what do you use to evaluate performance of individual sales people (other than closed deals)?
Too often as leaders we put our attention on the end number…have our sales increased, are we more profitable, are we in line with our budget, did we spend less on (marketing, staff, etc.) and still increase revenue? The end number, while important, is kinda like using a thermometer. It might be interesting to know if the temperature is going up or down, but it’s more critical to know if a storm is looming. This is where KPIs become important.
Now that we have discussed what KPIs are, let’s talk about some examples, and then how you can use them to be intentional and grow your future.
- Sales: It will depend on your business and what you sell, but a few ideas are: number of new customers, number of referral and repeat customers, and dollar value for each. What about how you evaluate performance of the sales people themselves? I like to use ratios because they tell me where things are improving. Total number of calls made to completed calls (where they spoke to someone); completed calls to appointments set; appointments to next appointment (or next step); closing ratio… there are many other metrics to consider. Each metric provides different information, but if you won’t know the score (what indicators to track), you can’t report the score.
- Financial/Accounting: I don’t need to say much here. Ask yourself: what information do I need to make good business decisions? Once you know this you can back into the specifics.
- Marketing: How do you know if the dollars you are spending and the resources you are using are providing enough ROI? Consider everything in your marketing area…advertising, promotions, website costs, personnel, etc. Before you begin this process, though, determine what you want as a goal for the marketing function.
- Every other department or area: Ideally, what you want to do is take each functional area of your business or department and determine what information you need that will tell you not only if things are improving or not (the temperature going up or down), but is there something bit out there you need to know about. What data points do you need that will assist you in evaluating the results and the efforts put in to achieve the results?
There are many objective KPIs companies create. So often what is missing are the more subjective, softer KPIs that are important. In fact, in my opinion, these subjective KPIs are what ensures your objective KPIs can and will be met. Think about your company or department. What makes it work really well, and conversely what gets in the way? Here’s my bet. That most of what works or doesn’t is around communication.
Here’s what I’m thinking:
- Development of the team — how do you know the team is developing both cohesively as a group, and as individuals within the group? Consider indicators such as: increased frequency of deadlines being met; reduced re-dos; the line at your door is shorter… you have to know what you are going to measure, and then you have to track it.
- Culture — of course you have to begin with knowing what type of culture you want and once you know that what might indicate changes? Do you notice productivity increases or decreases, are people clock watching, do you hear more or fewer complaints? You get the picture.
- Leadership — this is much more than are projects getting completed on time. What can you use to measure leadership? Consider areas such as turnover, individuals within the team developing new skills and getting promoted, and maybe how often there is a problem that is due to communication.
Very few businesses or individuals I work with actually have identified KPIs other than sales and financial goals. Yet, I sincerely believe if we focus on the areas that are purely objective we are missing opportunities to learn about our business. What other areas within your business might you measure that are more subjective?
KPIs provide you with a more complete picture of your business or department. They help you make better business decisions. While the end score in a baseball game is important, who won and who lost, what matters is knowing, measuring, and assessing along the way. You can win a game or two by luck, but you won’t keep winning without understanding what’s working, or not. The same is true in business.
As a reminder of where we started this article…know the score, report the score, the score gets better. What are the key performance indicators you want to measure in all aspects of your business?
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