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:
- Absolute number, for example total sales
- Index, for example an internationally used index
- Percentage, this could be used to measure satisfied customers
- Ranking, such as school performance tables
- Rating, maybe on TripAdvisor, TrustPilot or for other customer feedback
- 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:
- Measuring how effective you are at upselling and cross-selling
Here’s the equation: Average Order Value = Turnover ÷ number of orders
- Earning more from your existing customers
Percentage of Income from Returning Customers = (Income from returning customers ÷ Total income) × 100
- Identifying your profitability
Gross Profit = Income – Direct Costs
- Increasing business efficiency, and profit margins
Gross Profit Margin = (Gross Profit ÷ Turnover) × 100
- 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
- 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.
- Understanding your conversion rate
Visitor Purchasing Rate = (Number of visitors purchasing ÷ Number of total visitors) × 100
- Measuring customer retention
Customers lost ÷ customers gained × 100
- 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
- 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.