As we have mentioned in prior posts, setting goals, and tracking against them is imperative in making sound decisions for your business. Whether in a startup or an established firm, growth happens when companies do more of what works and less of what does not. The only way to know what is working is to set the right Key Performance Indicators (KPIs) and measure them regularly. The question then becomes how to choose the right KPIs.
A KPI (Key Performance Indicator) is a data point used to track progress against a specified objective. They can be measured against the company’s previous performance or against industry standards. KPIs are valuable metrics to help investors, banks, and venture capitalists analyze the growth and financial health of a business.
KPIs can be used to determine whether a business model is working, or if a change in strategy is needed. They help with everything from assisting to reducing wasteful expenditures to clarifying ways to optimize sales and marketing.
To make it easy for your company, here are some best practices to measure what matters.
Select KPIs in line with your business goals!
What is your company’s biggest goal? Is it to increase sales or grow your customer base? Are you focused on reducing churn or minimizing customer acquisition costs? Or are you driven to maximize your net promoter score?
Your KPIs should be determined based on your company’s targets and the direction you want grow. KPIs should be actionable and should measure what matters most to the organization. Whatever they are, the largest goal posts should be used to set your KPIs.
It is important to be laser focused on achieving those goals that will keep your company moving in the right direction.
Lastly, once you select your KPIs, share them with your entire team. Make sure everyone in the organization is aligned with the metrics you are tracking so they know the NorthStar of the company and are clear about how success will be measured.
They should be based on your growth stage.
Startups and legacy businesses will have different goals. The former will be focused on going to market and validating their model while existing businesses will be looking for opportunities to improve margins and grow. Be sure to select the KPIs that align with the near- and medium-term goals for your company.
Be selective in your KPIs.
Once you know your business goals and the growth stage you are in, you should choose KPIs that are relevant and productive. You do not have to record and measure everything, or you will be looking at numbers that do not matter.
With KPIs, more does not mean better. Companies should only focus on those metrics that are important to their strategic goals.
Just as your strategic objectives should influence the KPIs you choose, the inverse is also true. The KPIs that you track will set the strategy of your business. What you measure determines the results your business will achieve.
Your KPIs should be measurable.
Simply put, you should be able to easily gather data on a KPI and analyze it. Whatever the KPI is intended to track, it should be a metric that is easy to calculate and available to all stakeholders so they can make quick decisions.
You do not want to risk burning out through the process of aggregating the data which may cause you to lose sight of the reasoning for tracking the metric in the first. It is imperative to choose metrics that you can calculate quickly and derive meaning from on a regular basis.
Make reporting easy!
It should be easy for all stakeholders in the system to access and analyze the KPIs. You can use a shared spreadsheet or a dynamic dashboard that lets everyone know the firm is performing. It is important to make sure everyone in the organization knows what the benchmarks to help clearly determine success.
In short
KPIs can be used to increase efficiency, productivity, and transparency. Firms that objectively measure their results will find progress and iterations to come naturally. Additionally, banks and investors will feel more comfortable providing capital to those companies who understand their KPIs and speak to them with confidence.
Be sure to set KPIs that are tied to an overall strategy and desired action points. By implementing the right KPI strategy you will empower your company and managers to make the best decisions for your company.
For More Information
At AccountFWD, we help entrepreneurs and business owners rise to the occasion and meet their strategic goals. If you have questions about selecting the right KPIs for your company, our team can help. Send us an online message, schedule a time to talk, or call us at 954-686-8687
