Posted on 24 July, 2017 | 3 mins
You love your business, but how do you know if your business is doing well? You’ve probably heard the term KPI before, but maybe you think it’s just something for large businesses and corporations. Regardless of the size of your business, setting KPIs is vital for business success.
Let’s start with the basics: what are KPIs? A KPI (or key performance indicator, for long) is a measurable value that tells you just how effective you are at achieving your business objectives.
Think of KPIs as a planning tool and a way of measuring how your business is doing. It must be a measurable value, or a metric, and they're usually ongoing, specific and actionable. The term "key" is subjective: what is a priority for one business might not be to another. It’s up to you to decide your business’s priorities and focus. These are your KPIs, after all.
We're big fans of setting KPIs. The main purpose of using KPIs is to enable you to make better decisions by using data to drive specific actions. Data that you can ‘act on’ are called actionable metrics, and your KPIs should usually be as actionable as possible.
However, smallbusiness.co.uk says that half of all SMEs fail to set KPIs. However, those that do so and track their KPIs regularly are twice as likely to hit their targets. So, what else do you need to know about these handy little performance tools?
KPIs: your business’s health barometer
It is important to remember that while all KPIs are metrics, not all metrics are KPIs. However, your other, non-KPI metrics will help you better understand what is going right or wrong with your performance indicators. Your KPI might be business growth, while the metrics that can help you track that include revenue growth and weekly sales performance.
The tl;dr version is that KPIs help you focus on the essential areas of your business that matter the most, while metrics as a whole can act as an alert system.
A quick look at your KPIs can indicate the health of your business. When your KPI numbers change in an unexpected way, your other data will help you figure out what happened and tell you what actions to take. This is why it’s critical to keep an eye on a variety of metrics as well as your KPIs.
With your 9 Spokes data dashboard, interactive visualisations help you easily understand how your KPI metrics relate to your other metrics.
Let’s say your KPI is to increase your sales by 15% in the next month. Things are on track and then one day, you check in on your data (by looking at your Sales by Week Widget on 9 Spokes) and see that your sales are decreasing by 3%. Your KPI is telling you that something is wrong. You could check your other metrics such as your e-mail campaign performance (using our Campaign Performance Widget) or your staffing (using our Sales Staff Performance widget) to see what has changed over time. With the supporting data, you’ll be able to see what actions to take to get your KPI back on track. That’s why your KPIs should be actionable metrics—that is, data that is impacted by actions and have clear cause and effect.
How do I get started with KPIs?
Right, let's get to the nitty-gritty: how do you write your KPIs? We have a few tips:
- Think big
- Define success
Start by thinking big: what do you want most for your business? More revenue? More customers? Reduced costs? Better cash flow? Set KPIs by identifying the most important areas of improvement to your business, and then prioritise them so you know which come first and which you'll focus the most of your time on.
Another tip is to keep your KPIs simple. If you can’t describe the metric in 5–7 words, it’s probably not a good KPI. Similarly, you should limit the number of your KPIs. These are your key business priorities, not just everything you can measure. Be sure to define the parameters of your KPI; each one should have an ideal target with a high and low number so you can determine what defines success, failure and under-and over-achievement.
And finally, manage your KPIs and supporting metrics with the 9 Spokes dashboard. Your personalised, free data dashboard brings all your cloud-app data to life so you can see your business more clearly. You’ll be able to keep an eye on your key information, react quickly and make smart, data-driven decisions.
If you need some help with creating your own indicators, we've listed a few KPI examples in a recent blog post. Some of the most popular types of indicator include financial KPIs, operational KPIs, growth KPIs and customer KPIs. Although we stress that your KPIs should always be yours, and tailored to your business, a few tips rarely go amiss, either.