How and Why KPIs are Critical to Your Business' Success
Q: I’m in the process of making goals for my business in 2020 but I realize that I’m not even sure how to determine how well I did in 2019. What should I look for to determine my financial security and success?
A: How much do I love this question? A lot. A LOT a lot.
As 2019 comes to a close, my clients are looking ahead to the coming year, full of optimism. It’s a wonderful thing. But often, they forget that goals for your business aren’t only ideas. There has to be more. You have to look at numbers and data.
We can’t be afraid of numbers. They’re all around us and the key to staying and growing your organization. Data equals facts, and knowing the truth about our business’ performance is the only way to get ahead.
We are a goal-oriented society, but I want to spend time talking about the part that is often skipped over: the unglamorous details of how you actually hit your financial goals.
Do you measure the KPI in your business? That stands for key performance indicators, and it’s exactly like it sounds. The specific KPIs that are most meaningful are different for every organization, but you must know what’s critical for your company.
When you set your goals, there needs to be a specific plan in place of how you’ll get there. KPIs help you determine those steps.
I love these examples from Quickbooks because they do a great job of outlining the difference between setting a goal and making a plan.
“Instead of setting a goal “to be the best company in the world,” your goal should be something along the lines of, “to be a Fortune 500 company by Q4 of 2020. To do this, we’ll increase revenues from XYZ product lines, while cutting operating costs.” Another example could be something like “Attract 500 new customers by the beginning of Q2. To do so, we’ll increase spending on social media marketing campaigns by $10,000 and will focus on sites like LinkedIn.”
Are you with me?
So here are examples of the KPIs that some of my clients measure. Remember, this is highly individualized to each business. These are ideas to help the crystallize the concept, but only you can determine what’s most critical for your business to measure:
- Retention
- Debt to income ratio
- Turnover on inventory
Holding ourselves accountable is one of the biggest challenges of entrepreneurship. If you don’t do it, it won’t happen. We have to know what we’re doing well and where we need to improve to in order to grow in our businesses.
How to Set a KPI That’s Right for Your Business
A good KPI is one where you can track your progress with data. For instance, using the marketing example above, you can track your increased marketing outlay and the resulting number of new clients. You can track the progress of leads into your sales funnel and tweak your strategy on various platforms.
Keep this example in mind as you think about your own KPIs and how to determine the right ones for your business. Here’s what to consider.
They provide actionable information.
The whole idea of KPIs is that they provide data that you can act on to improve your business. With the marketing example, if you don’t hit the number of new clients that you desire, you have metrics to review from your social media and the leads and new customers that you did gain to help you analyze your next steps.
The data is clear.
The beauty of KPIs is that they are not difficult. The data objectively indicates whether or not you hit your goal through the outcomes. Data and numbers are your friends!
They are current and relevant.
Historical data can have its place, but not here. You need a clear understanding of what’s happening NOW in your business.
They speak to your business goals.
KPIs relate to your bottom line, so when your KPIs improve, they should move you closer to the overall targets for your business.
KPIs help us measure our goals and what we want to happen. By reviewing them quarter over quarter and year over year, we can determine what we’re doing right and where we need to improve.
Simply put, you can’t answer these questions without getting really clear on what you’d like to measure and looking at your financial statements. What are you looking to achieve every month and quarter?
A goal is nothing without actionable steps to make it, and a means to evaluate your success. Determining your KPIs will help you evaluate your performance this year and provide so much clarity to the effectiveness of your efforts moving forward. You can do it, and if you need help please don’t hesitate to set up some time with me to chat.
You’ve got this!
Photo by Content Pixie on Unsplash
