In my time I get to talk to a lot of business owners, and it isn’t unusual for them to say that they can’t tell whether their business is doing well or not, and they don’t know what they have to do to improve it. Quite often, my first question is to ask what KPIs they have in place? What numbers do they have about how their business is performing? And quite often they don’t have any.
The point is, if you don’t know your numbers how can you determine what you need to do to improve them?
Love them or loathe them, KPIs are everywhere. We hear about KPIs in businesses, schools and hospitals and even in sports clubs. And of course most people hate them.
But why? They are part of our lives!
We use KPIs in one way or another unconsciously in everything we do. When we’re driving a car towards a bend in the road, we use a KPI (the speed of the car) to ensure that we get around the bend.
We check our utilities bill to see if we’re using too much electricity; we check our stock of paper or print cartridges to make sure we don’t run out when we need to print that urgent document; we check the weather before we decide to have that barbecue; we check the temperature of the meat to ensure it’s cooked before we serve it.
The point is that KPIs tell us whether we are achieving what we set out to achieve; they give us confidence to move forwards and do the things we want to do.
And so it is in business. If we have decided that we need to make £50,000 (KPI) per year profit, and we know that our net margin is 25% (KPI) then in simple terms that we have to turn over £200,000 (KPI) to achieve that. If our average sale price is £100 (KPI) then we know we have to make 2,000 (KPI) sales, which is 167 (KPI) per month. If our marketing strategy is to cold call, and we know that on average we have a conversion rate of one in every two calls made (KPI) then we know we need to make 334 (KPI) calls per month to achieve our 167 sales. If we don’t make that number of sales, then we haven’t achieved against at least one of those KPIs.
In order to achieve in business you have to do the work, and do it successfully; KPIs simply identify how much work you have to do (quantitative KPI), and how well you have to do it (qualitative KPI); so carefully chosen KPIs will tell you why you’re not achieving.
And of course, KPIs can be at different levels, so:
So, what happens if the sales manager is making 167 sales per month, but we’re not achieving the £50,000 profit? Well it could be because he’s selling at £85 per sale, or that the production team are only delivering 135 per month despite orders for 167.
Correctly chosen KPIs can tell you where the problem might be. They can also be used to celebrate with the staff when things are going well, and to isolate where the problems might be, and therefore where additional investment is needed if things are going not so well.
So, how do I know which KPIs to measure? Well, that depends, as they say. It depends on what you sell, how you sell, how you deliver, what your team structure is like. Each of these things will impact each business differently.
If you’d like to know more about how you can change the shape of your business by implementing KPIs, just contact us for a no-obligation discussion on how you can go about achieving more with what you already have.