Every business needs to set clear business objectives and determine the best way to track progress toward achieving them. Looking at metrics like revenue and profit on the balance sheet or in your ERP software only paints a brief picture of your business. For a business to properly scale, tangible metrics should be used to gauge progress.
What Are KPIs?
Key Performance Indicators (KPIs) are a type of goal measure that is used to evaluate the performance of an organization against its strategic objectives. They assist in decision-making, help you set strategic objectives, and allow you to evaluate your business process in real-time. In order to maintain your company’s progress, key performance indicators (KPIs) help you assess your business’ success and build strategies in achieving your goals.
Examples of Sales KPIs
- The number of new contracts signed per period
- Dollar value for new contracts signed per period
- Number of qualified leads in the deals stage
- Hours of resources spent on sales follow up
- Average time for conversion
- Net Sales – dollar or percentage growth
The Importance of KPIs and Business Strategy
During day-to-day tracking, there are certain financial KPIs you should keep an eye on, such as cash flow and outstanding revenue. If your business utilizes an ERP software, custom dashboards and alerts can be set to continuously track financial KPIs.
In addition to financial KPIs, your business should be tracking KPIs in various sectors, such as sales and operations. Many companies make the mistake of not staying consistent with their tracking across multiple reporting periods and do not remain consistent with their objectives. KPIs are only useful to your company when tracked consistently for progress and collecting relevant data for historical performance comparison, and anticipate trends.
An e-commerce website decides to track website visits as a KPI. However, they are not tracking their conversion rates and pay little attention to it. During their 3rd quarter, the company sees a 320% increase in website traffic. However, because they are not tracking the conversion rate, the collected data has little use to them.
Keep KPIs Specific, but Simple
KPIs help you identify major areas of improvement across your company. By carefully selecting KPIs tailored to each department, you will focus your teams on what really matters for your business goals.
Avoid selecting flashy KPIs and imposing them across all your teams. Doing this can create unclear or unrealistic goals. Additionally, if a specific KPI worked for a specific industry, that doesn’t necessarily mean it will provide the same value for another. KPIs are unique to the company and across industries.
Ideally, start off with a few indicators that are easy to track. For example, selecting 10 KPI indicators across your company and delegating them to various departments ensures your objectives are met.
Focus On Business Goals
Setting realistic business goals is essential before starting to think about KPIs. By setting realistic goals, you are able to create accurate expectations for your teams and project growth forecasts on all metrics.
KPIs should be dependent on the size of the company. For example, smaller companies may focus on values that are core to the business and track short-term progress, while established companies may focus on customer lifetime values, cost acquisitions, and big picture growth.
KPIs are unique across industries, companies, and departments. Even though your company may have many departments that make up your business objectives, KPIs that remain measurable should be delegated per department.
For example, marketing teams have different goals than a sales team. Therefore both teams would have different KPIs, even if they both monitor information such as revenue. A sales team would focus on new clients and growth rate, while a marketing department might have KPIs that focus on website traffic increases, impressions, and click-through rates.
KPIs are useful across all departments in a company, but they are the most useful to financial teams and decision-makers. Tracking KPIs across sectors of the company, including financial, allow decision-makers to measure real-time accurate performance and strategize effectively.
KPI Metrics Can Help You
- Determine whether you’re on track to reach your financial goals
- Evaluate the success of your strategy based on these key metrics
- Pinpoint areas in your business that may need improvement
- Identify any opportunities and challenges
- Assess whether your customers are happy or not
Examples of KPIs Per Industry
The main goal of every business is profit. Businesses shouldn’t be spending more money than they are bringing in. Keeping track of this KPI is important because it tells you how much profit you are generating contrary to the amount paid to suppliers. If your business’ profit margin is increasing, then continue with your strategy. However, if you see a decrease, you would need to make an adjustment somewhere.
Flow In and Flow Out
One of the most important KPIs for small businesses is flow in and out. This metric helps business owners assess whether their sales and margins are appropriate. It also helps in tax preparation, new purchases, or identifying any cash surpluses. This information can be tracked using an ERP software or by traditional financial means.
A company’s revenue depends on the company’s profit or sales growth. If your business income or sale is increasing, the revenue rate is also increasing. To ensure your company is progressing well, make sure to monitor revenue growth rates from the present year and the previous years.
Inventory gross tells the company how much inventory it has sold over time. Using ERP software you are able to easily track inventory real-time and assess gains and losses in regards to stock.
Accounts Payable Rate
Account payable rate is critical to track to ensure all of your suppliers are paid. This metric can be measured through traditional financial means, such as balance sheets, or through an ERP financial software. This key performance indicator will help you identify whether you have to reduce the spending on suppliers to boost the company’s future profits.
The purpose of this KPI is to access a company’s success and position in the market and how it measures up in comparison to competitors. Market share is a key indicator of market competitiveness, which enables managers to assess total market growth or decline, identify key trends in consumer behavior, and see their market potential and market opportunity.
Increasing market shares puts a company at a better vantage point and ultimately extends its competitive advantage. Having a higher market share also poses a company to more favorable prices from suppliers and enhances their buying power. This is because of their large volumes of orders and reputation within the market.
Customer Lifetime Value (CLV)
CLV helps you gauge the value your organization is getting from a long-term customer relationship. Additionally, this KPI helps narrow down which channel is helping you gain the best customers for the best price.
Customer Acquisition Cost (CAC)
CAC is considered one of the most important metrics in e-commerce because it can help you evaluate the cost-effectiveness of your marketing campaigns.
Net Promoter Score (NPS)
Monitoring your NPS is one of the best ways to indicate long-term company growth. To determine your NPS score, send out quarterly surveys to your customers to see how likely it is that they’ll recommend your organization to someone they know. Each quarter set NPS goals and reflect on customer satisfaction across your sales teams.
Number Of Customers
By determining the number of customers you’ve gained and lost, you can further understand whether or not you are meeting your customers’ needs. Additionally, monitoring your customer rate helps you determine potential project growth and can be useful in Human Resources and talent acquisition.
Employee Turnover Rate (ETR)
To determine your ETR, take the number of employees who have departed the company and divide it by the average number of employees. If you have a high ETR, focus on examining training measures, workplace culture, and benefits packages.
Percentage Of Response To Open Positions
Having a high percentage of qualified applicants apply to a job means you are doing a good job maximizing your exposure to prospective employees. Measuring this metric allows your company to ensure its human-resource-related financials are in order.
Measuring your employee satisfaction through surveys and other metrics is vital to your departmental and organizational health. Happy employees can onboard new talent, increase sales metrics, and ensure growth of an organization.
Choosing the right KPIs for your business is extremely important, regardless if you’re a startup or a well-established business. Using ERPs or revenue performance management software is a great way to ensure your KPIs are getting tracked in real-time. ManoByte is able to help your business implement strategic software, approaches, and leverage additional inbound marketing tactics. Talk to one of our Business Growth Consultants today to see how we can help your business reach their objectives.