Are you using Key Performance Indicators (KPIs) to vitalize and propel your current business venture? If you aren’t, our advice to you is neat and succinct: start today. When used correctly, KPIs help to identify crucial “pivot-points” to keep you on the fast-track towards your targeted goals. Instead of “Killing Profits Instantly”, KPIs assist you to “Keep Progressing Intelligently”. Here’s how.
First, let’s make a brief pitstop at the starting line. What are Key Performance Indicators, anyway? A Key Performance Indicator is a deceptively simple, yet widely misunderstood,methodology for helping businesses measure and drive performance towards their goals. They make the best decisions the obvious ones and offer keen competitive advantages.
However, contrary to popular business belief, they can’t, won’t, and don’t do anything by themselves. Understanding and using them correctly can yield tremendous benefits to your small business whereas relying on KPIs to do all of the heavy lifting will invariably lead you into a cul de sac of frustration.
If you think KPIs are critical but just haven’t been able to construct them on your own, you should consider CFO consulting services. Outsourcing CFO services is an increasingly common strategy that allows you to leverage deep financial expertise at a fraction of the cost. Small businesses can benefit significantly from the sheer breadth of knowledge offered by masterful CFO consultants, without the burden of hiring c-suite executives full-time.
Key Performance Indicators Can Work For You
We have come across many small business clients who have used KPIs in the past and abandoned them because they failed to realize any return on the investment of time and money spent to define and monitor them. Many even report that business performance suffered as a result.
This does not mean that KPIs as a methodology is faulty, it might simply mean that:
- The wrong KPIs were identified and measured.
- You went from zero to hero and tried to measure and track too much data at once.
- You put the answer before the question.
- You didn’t have an easy way to capture the data you wanted to measure and gave up.
In order to avoid these pitfalls, it’s important we review the various kinds of KPIs along with their unique characteristics. If you possess a crisp understanding of what kinds of KPIs are available, you can better use them to “keep progressing intelligently” because they’ll be inherently realistic and informed.
The Big Three
Key Performance Indicators can be broken down into three categories: Raw Data, Progression, and Change Over Time.
The Raw Data KPIs refer to the amount of t-shirts you sold last month, the amount of complaints received on Yelp, the number of leads that made it through your sales funnel this week. The Raw Data KPI keeps you rooted in realism, you can’t fudge the numbers. Raw Data indicators are a great place to start because of their tangible qualities and simplicity.
Progressions KPIs map the percentage completion of some crucial project, process, or task. There are especially helpful if you prefer to have a light at the end of your tunnel. By visually representing the headway that’s been made, Progression KPIs help to rally productivity and rouse excitement throughout the entire trajectory of a project.
The last of the bunch, a Change Over Time indicator is a directional measure that compares data from one time period to another. This KPI is extremely helpful at illuminating growth patterns and serves to keep you and your business on a visible trajectory.
What’s In It For You?
Now that we’ve covered the basic forms KPIs take, let’s look at why you should never omit them from your planning.
Whatever the reason for not using or abandoning KPIs in the past, consider the following benefits you can gain by effectively defining and monitoring KPIs:
1) Many small businesses don’t use KPIs. Those who do stand to gain a significant advantage over their competitors who don’t.
2) Conversely, if your competitors are using KPIs successfully, you are putting your business at a disadvantage.
3) By not measuring the areas of your business that are most important to its success, you probably won’t know if they are improving – or worse, falling short – until it’s too late.
4) Your employees must be involved at some level in an effective KPI program (defining, measuring, and/or reporting). Involvement enables your employees to feel vested in the success of the business.
5) Proactive describes companies who use KPIs effectively. Gone are the days of “waiting and seeing” or knee-jerk reactions.
6) Decisions making relies more on objective data and less on gut “feelings”. You will minimize the effect of emotions on decision making.
While there can be many snares when embarking on the implementation of KPIs into your small business, don’t let them deter you. And if you need assistance in developing impactful KPIs, consider CFO consultancy services to help bring you to that next level. With the right information, the most helpful tools, and the right people in your corner, you can implement an effective KPI program that helps you achieve whatever goals you define as most important to your small business.