However small or large your business is, and whatever industry you’re in, it’s important to always be looking for ways to improve operational performance. This is particularly essential in today’s commercial environment of rising customer expectations, fiercer competition and ever-tightening margins. Setting good KPIs to improve your business is now more important than ever.
Failure to identify and address business performance issues can result in a host of problems including unsatisfied customers, missed opportunities, weaker competitiveness, cost overruns and diminished profits. And that’s just for starters.
The challenge is to find an meaningful way to assess and manage the health of your business and improve it where possible.
You’re probably familiar with the term Key Performance Indicator (KPI). A reliable method for evaluating your business activity against objective benchmarks, KPIs provide one of the best ways to monitor and measure business performance. Setting performance goals is a must for any business and KPIs allow you to know how well your business is progressing towards those goals. By establishing standards against which performance will be measured, KPIs remove much of the guesswork and subjectivity from the evaluation process, resulting in plenty of benefits including, importantly, better managerial decision-making – which will improve your business.
So what type of KPIs are most useful, and how many should you have? That depends on the type of business you run and the type of performance targets you want to achieve. KPIs can be simple or complex, but as a general rule it’s best to set KPIs that are easy to understand – for example, revenue targets, customer acquisition goals, percentage of orders shipped without incident, etc. In terms of number, if you have too many KPIs you risk over-complicating things and drawing attention away from those that are most important. Too few and you’ll find yourself neglecting core areas of your business.
In terms of a formula for working out which KPIs to use, S.M.A.R.T provides a tried and tested framework:
Specific – what, precisely, do you want to achieve?
Measurable – do you have a method to ensure the accurate measurement of your goal?
Attainable – is your target reasonable and realistic?
Relevant – does the goal align with your overall business strategy and objectives?
Time-based – what is your deadline for the achievement of your identified goal?
How to Set Meaningful KPIS
One thing to avoid is confusing a KPI with a goal, because they’re not the same thing. A goal is an outcome you want to achieve; a KPI is the metric you use to track your progress towards the goal. Without an accompanying target or goal a KPI is almost useless. For example, if one of your goals is to increase online-generated sales by 15% by 31st March 2020, you could use a set of KPIs as a metric to measure the results of your email marketing activities, such as number of conversations, click‑through rates, open rates, bounce rates, etc. By tracking the results of your email marketing strategy you can work out what activities are leading to sales and which are not, and adjust your strategy in whatever ways you need to in order to reach your identified target.
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Finding the right KPIs for your business will take a little bit of practice. What’s important is that you focus on those areas which are most central to the fulfilment of your business vision and strategic goals. After a little trial and error you should arrive at a set of KPIs that both you and your staff members can get enthusiastic about, all with the collective aim of improving operations, increasing customer and employee satisfaction and boosting that all-important bottom line.
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