We, as humans, naturally like to measure things. We compare salaries to see how well we’re doing financially. When we try to lose weight we’re constantly on the scales, making sure the numbers go down on each visit. Athletes continually record and monitor their progress hoping to see a decline in time as their training and fitness improves. We record football results and league tables, hoping for a continued improvement year after year for our teams – although if you’re a fan of Derby County FC, as I am, you often find this isn’t the case! Measuring and goal setting is in our DNA.
You may be wondering what this has got to do with your business. Well, simply put, if we measure even the most trivial of matters in life in such fine detail, shouldn’t we be doing the same with our businesses? The answer is of course yes and we call these businesses gauges and measurements Key Performance Indicators – KPI’s for short.
KPI’s are quantifiable measurements of business performances used to evaluate activities that reflect the critical factors of business success. By monitoring KPI’s you can spot trends, identify threats and fulfil opportunities. To reach strategic business goals you need to define, measure and track your own unique KPI’s – with each goal being specific and measurable. It is also worthwhile to compare these results to a benchmark, either set by your own results from previous years or from other businesses in your sector, to see your industry standard.
Commonly there are two broad categories of KPI’s: financial and non-financial. Financial deals with the figures; sales, gross margins, working capital etc, while non-financial is the process behind the figures, marketing campaigns, staff turnover, customer satisfaction and conversion rates for example. There are hundreds of KPI’s which a business could get lost in tracking every day, so it’s important to always refer back to your company’s strategic goals to make sure you are focusing on the important matters. Monitoring and tracking your progress doesn’t have to be a time consuming process, it can be done at regular intervals throughout the year, alongside any existing review process you undertake and with the monitoring process in place the next step is to analyse the results.
Businesses often find that deciding which KPIs are the most important to focus on, as one of the more difficult aspects of measuring performance, and as such, never get round to setting any KPIs in the first place. Company management is often cited as being too close to the company to identify which KPI’s are critical for their business and because of these reasons, many businesses are now turning to accountants to provide valuable assistance.
We measure every aspect in our lives so specifically; surely we should apply the same logic to our business. By accurately reading the KPIs for your business you are putting measures in place which are indispensible to your company’s survival and success. To learn more about KPIs or how we could implement these for you, please contact us at firstname.lastname@example.org or call 01332 242257.
Image Sourced from Aussiegal.