Posted on 24 July, 2017 | 3 mins
How do you know if your business is doing well in the areas that matter most to you? 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 identifying what matters most and defining business success.
Let’s start with the basics: what are KPIs? A KPI (or key performance indicator) is a value you'll measure to find out just how effective you are at achieving your business objectives. Some KPI examples include:
- Customer retention rate
- Net promoter score
- Relative market share
- Revenue growth rate
- Net profit margin
- Employee engagement level
The KPIs you use very much depend on your business, however. 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 are usually ongoing, specific and actionable. Remember, 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.
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.
You can probably tell we're big fans of setting KPIs. However, smallbusiness.co.uk says that half of all SMEs fail to set them, despite the fact that those that do so and track them regularly are twice as likely to hit their targets. So, what else do you need to know about these handy little performance tools?
KPIs and metrics: your business’s health barometer
It's important to remember that while all KPIs are metrics, not all metrics are KPIs. 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.
If your KPIs are the act of shooting towards the goal, metrics tell you where the ball is, the wind direction, and all the finer points that influence your goal-scoring capabilities.
A quick look at your KPIs can indicate the health of your business, and metrics let you dig a bit deeper. When your KPI numbers change in an unexpected way, your metrics will help you figure out what happened and decide what actions to take. That's 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 metrics influence your KPIs at a glance.
How do I get started with KPIs?
Right, let's get to the nitty-gritty: how do you create 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.