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For those unfamiliar with the acronym KPI, it stands for Key Performance Indicator. It refers to a methodology for helping businesses measure and drive performance toward goals. Understanding and using them correctly can yield tremendous benefits to your small business. The misunderstanding and misuse of KPIs can be frustrating and costly.
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, or
- You didn’t have an easy way to capture the data you wanted to measure and gave up.
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:
- Many small businesses don’t use KPIs. Those who do stand to gain a significant advantage over their competitors who don’t.
- Conversely, if your competitors are using KPIs successfully, you are putting your business at a disadvantage.
- 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.
- 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.
- Proactive describes companies who use KPIs effectively. Gone are the days of “waiting and seeing” or knee-jerk reactions.
- 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 pitfalls when embarking on the implementation of KPIs into your small business, those should not deter you. With the right information and the most helpful tools and resources, you can implement an effective KPI program that helps you achieve whatever goals you define as most important to your small business.