GOOD KPIs TO MEASURE IN BUSINESS

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So, which KPIs should you measure?

In this blog, I’ll be looking at some Key Performance Indicators – or KPIs – you could measure. They won’t all be relevant to your business, but there‘ll be some that will work for you and your business.

KPIs have six forms:

  1. Absolute number, for example total sales
  2. Index, for example an internationally used index
  3. Percentage, this could be used to measure satisfied customers
  4. Ranking, such as school performance tables
  5. Rating, maybe on TripAdvisor, TrustPilot or for other customer feedback
  6. Ratio, for example cost compared to income – a typical finance KPI

Before you start the process of identifying and measuring your KPIs, you need to translate your business objectives into measureable goals.

I often refer business owners to an article by ‘Optimize Smart’ – that’s Optimize with a ‘z’. If you’re interested in reading it please search online for ‘Optimize Smart translate business objectives’.

What is it that you want to achieve within your business?

  • Increased turnover?
  • Improved efficiency of your workforce?
  • Quicker handling of customer complaints?

Whatever it is, there is a KPI that you can set, to help you track your performance and help achieve your objectives. These will help you identify when your business or organisation is underperforming and when it’s doing well.

Here are some common approaches used in identifying business KPIs:

  1. Measuring how effective you are at upselling and cross-selling

Here’s the equation: Average Order Value = Turnover ÷ number of orders

  1. Earning more from your existing customers

Percentage of Income from Returning Customers = (Income from returning customers ÷ Total income) × 100

  1. Identifying your profitability

Gross Profit = Income – Direct Costs

  1. Increasing business efficiency, and profit margins

Gross Profit Margin = (Gross Profit ÷ Turnover) × 100

  1. Measuring the percentage increase in sales, over a three, six or 12-month period

Monthly Sales Growth Rate = ((Current months sales – Last month’s sales) ÷ Last month’s sales) × 100

  1. Identifying your Return on Investment or ROI

ROI = (Income gained from making the investment – Cost of making that investment) ÷ Cost of investment  

For example, the value of sales resulting from an advert. You‘ll be able to decide whether this marketing activity is worth repeating.

  1. Understanding your conversion rate

Visitor Purchasing Rate = (Number of visitors purchasing ÷ Number of total visitors) × 100

  1. Measuring customer retention

Customers lost ÷ customers gained × 100

  1. Understanding the sales funnel, and number of quotes required for each sale

Quote Conversion Rate = (Number of quotes accepted by customers ÷ Total number of quotes raised) × 100

  1. Identifying staff efficiency

Labour Productivity Rate = (Number of chargeable hours worked ÷ Number of hours available to work) x 100 

It’s important for every business owner to maximise the number of chargeable or profitable hours.

KPIs are targets for you to use in growing your business. These are targets to beat and can help you to motivate and reward staff.

If you’d like help in setting up your KPIs, or management reporting, then please get in touch.

BUSINESS KPIs – WHAT ARE THEY?

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In this blog, I’ll be looking at KPIs, giving you some definitions, and explaining why they are relevant.

KPI stands for ‘Key Performance Indicator’. You may have also heard of KSIs, which is the same but is short for ‘Key Success Indicators’.

They’re important for every business. They identify what you should be measuring, so that you know whether or not your business is achieving its objectives.

KPIs are an actionable scorecard that helps you keep your strategy on track. They let you manage, control and achieve desired business results.

Here are some definitions of KPIs from other respected experts:

  • Avinash Kaishik refers to: “High-level snapshots of a business or organisation based on specific pre-defined measures”
  • Allan Willie talks of: “Measureable industry, department or task-relevant performance metrics that are evaluated over a specified time period, and compared against acceptable norms, past performance, or targets”
  • For Dennis Mortensen a KPI “i) echoes organisation goals, ii) is decided by management, iii) provides context, iv) creates meaning on all levels of the organisation, v) is based on legitimate data, vi) is easy to understand and vii) leads to action!”
  • And author of ‘What the heck is a KPI?’, Bernard Marr, states it’s “the most important performance information that enables organisations or their stakeholders to understand whether the organisation is on track or not”

The KPI target could be a number, a ratio, or percentage. KPIs can be internal or external. Internal KPIs are used by teams or departments to measure their own performance and may not necessarily be reported to the senior management or clients. These KPIs don’t need to impact on, or be linked to, profit margins.

External KPIs are should be directly linked to your business’s profitability and your bottom line. They are reported to senior management, and potentially clients, as a way of showing the business is performing to plan.

You can have high-level and low-level KPIs. High-level KPIs look at the company’s performance. Low-level KPIs measure departments’ or individuals’ performance.

KPIs should be:

  • Relevant to your business
  • Linked directly to your corporate objectives
  • Designed to improve your business performance
  • Communicated clearly to your staff, so they can act on, and improve, them.

You’ll need to work with key members of staff to identify what needs to be measured, and to put processes in place. It’s also important to ensure that staff members are engaged in the process and take ownership of the KPIs.

I have talked about SMART objectives in other blogs. KPIs have to be Specific, Measureable, Attainable, Relevant and Time-framed. If you expand this to SMARTER criteria then you can add Evaluate and Re-evaluate.

You should revisit your KPIs regularly to check their relevance to your business and whether they need to be changed.

I’ll go into greater detail and give some more examples of good KPIs in another blog.

 

WHICH KPIs SHOULD YOU BE MEASURING?

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Hope you enjoyed the last blog What Are KPIs? It should have got you thinking about what you need be measuring within your business, but you may still be a little confused about what are good and bad KPIs.

This blog will give you examples of some Key Performance Indicators that business can measure. They won’t all be relevant to your business but there will be some that you can start to measure straight away.

KPIs have 6 forms:

1)      Absolute Number – One dimensional. i.e. Total Sales

2)      Index – An internationally used index

3)      Percentage – For example percentage of satisfied customers

4)      Ranking – School performance tables, where do they rank.

5)      Rating – Maybe on internet sites or customer feedback forms

6)      Ratio – Typical finance KPIs. I.e. Costs compared to income.

Before you start the process of finding your KPIs, you need to translate your business objectives into measureable goals. Optimize Smart have a great article which makes this whole process clearer.http://www.optimizesmart.com/translate-business-objectives-measurable-goals/

What is it that you want to achieve within your business? Increase turnover? Improve the efficiency of your workforce? Handle customer complaints quicker? Whatever it is, there is a KPI that will help show you where you are now, and can measure your performance ongoing. Have targets for your KPIs and give them ranges to show when your organisation is underperforming and when it is doing well.

Average Order Value = Turnover ÷ number of orders This allows you to measure how effective you are at upselling and cross selling of your products.

% of Income from Returning Customers = (Income from returning customers ÷ Total income) × 100 This will show you if you could be earning more from your existing customers.

Gross Profit = Income – Direct Costs i.e. your revenue less your direct costs of being able to produce that revenue.

Gross Profit Margin = (Gross Profit ÷ Turnover) × 100 The higher this figure is, the more efficiently your business is performing and the more money to go into covering your overheads.

Monthly Sales Growth Rate = ((Current months sales – Last month’s sales) ÷ Last month’s sales) × 100 The percentage increase of your sales between two time periods. You could measure this for a 3 month period, a 6 month period or a 12 month period as well.

Return on Investment ROI = (Income gained from making the investment – the cost of making that investment) ÷ The cost of the investment.  For example if you place an advertisement in the local paper and you gain some income from this you can see if the advertisement was a worthwhile marketing activity to do again.

Visitor Purchasing Rate = (Number of visitors purchasing ÷ Number of total visitors) × 100 This would give you the percentage of visitors that come to your shop that actually purchase from you. You could use this for visitors to a networking event that eventually joined or visitors to an e-commerce site that actually purchased.

Customer Retention rate = (1-(Customers lost ÷ customers gained)) × 100 How good your organisation is at keeping your customers. You can apply this over many different time periods.

Quote Conversion Rate = (Number of quotes accepted by customers ÷ Total number of quotes raised) × 100 This will tell you what percentage of the quotes you send to customers, actually get accepted. This one can be a real eye opener!

Labour Productivity Rate = (No of chargeable hours worked ÷ No of hours available to work) x 100 How efficient are your workforce? There is obviously sometime in the day when they cannot be doing chargeable work, but you want to keep this to a minimum.

Others could measure market share, stock levels, delivery time, quality control, employee turnover, etc.

KPIs are targets that are there for you to measure against and for you to use to grow your business. They give you targets to beat and will motivate staff.

If you would like help in setting up your KPIs or management reporting then please get in touch. Either email me at tina.parker@nozeyparkers.co.uk or call on 0808 123 1399 or check out the website and our other blogs.

Tina Marie Parker, business advisor, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast.

DO YOU UNDERSTAND KPIs?

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So what are they?

Some of you will know and understand them, but there will be some of you that have heard of them and know you should be measuring them, but don’t know where to start.

Here I want to give as many explanations to you of what KPIs are and why they are relevant. In my next blog I will go a little deeper and give you examples that you might want to incorporate into your business.

KPI stands for Key Performance Indicator. Some people call them KSIs Key Success Indicator. They are important for every business and will let you know if your organisation could be in trouble.

They are a measureable value that show whether a business is reaching its objectives.

A good definition is “KPIs are an actionable scorecard that keeps your strategy on track. They enable you to manage, control and achieve desired business results”.

Here are some others:

High level snapshots of a business or organisation based on specific predefined measures” – Avinash Kaushik

Measureable industry, department or task relevant performance metrics that are evaluated over a specified time period, and compared against acceptable norms, past performance or targets.” – Allan Willie

A KPI i) Echoes organisation goals, ii) is decided by management, iii) provides context, iv) creates meaning on all levels of the organisation, v) is based on legitimate data, vi) is easy to understand and vii) leads to action!” – Dennis Mortensen

“The most important performance information that enables organisations or their stakeholders to understand whether the organisation is on track or not.” – Bernard Marr, author of “What the heck is a KPI?”

The KPI target values could be a number or a ratio. They can also be Internal or External.

Internal KPIs might be used by teams or departments to measure their own performance and may not necessarily be reported to the senior management or clients. These KPIs don’t need to affect the profit margins.

External KPIs will have a massive effect on the bottom-line, and will be reported to clients and senior management as a way of showing the business is under control and performing to plan.

You can have high level KPIs and low level KPIs. High level KPIs look at the whole company’s performance. Low level KPIs look at the performance of departments, or individuals.

They should be relevant to your business, clear and well communicated to your staff, so that staff can help to improve them and act upon them.

First work out what your objectives are. How will you go about achieving those objectives? Who will be able to use the KPIs to improve business performance? You will need to work with key members of staff to work out the processes that need to be measured.

I have talked about SMART before in earlier blogs. Use this to evaluate the relevance if your KPIs:  KPIs have to be Specific, Measureable,Attainable, Relevant and Time framed.

If you expand this to SMARTER criteria then you can add Evaluate andRe-evaluate. You should continuously re visit your KPIs to check their relevance to your business and whether they need to be changed.

I will talk more about how to work out what your KPIs should be and some examples of good KPIs in my next blog.

In the meantime, if you would like help in setting up your KPIs or management reporting then please get in touch. Either email me at tina.parker@nozeyparkers.co.uk or call on 0808 123 1399 or check out the website and our other blogs

Tina Marie Parker, business advisor, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast.