Why KPIs are important for your business

Most small businesses have a business plan and a set of strategic goals. However, defining your goals and checking in once a year when you update your business plan, won’t actually help you achieve them. To achieve your goals you need to focus your efforts and track your progress on the most important areas - and to do this, you need KPIs.

KPIs, or key performance indicators, provide a way to measure the performance of your business in specific areas, and track progress towards your goals.

Why KPIs are important

Here are the top four reasons why KPIs are important for business performance:
• KPIs drive behaviour - there’s no motivation if there’s no measurement.
• KPI focus attention - if there are competing demands, the demands that get measured will win.
• KPI assist decision-making - it’s hard to argue with data, which makes prioritising easy.
• KPI make performance visible - there’s nowhere to hide when things are measured.

How to choose the right KPIs

Your KPIs should be directly linked to your key business goals. Therefore, it’s important that your business goals are well-defined and measurable. Also, there’s no need to measure everything - choose the key two to seven key KPIs and focus on them.

For example, if one of your goals is to increase sales by 20%, you might choose two or three metrics to measure your progress in this area. Depending on the type of business and industry, this could be monthly online conversion rate, revenue per employee or average order value. To be effective, KPIs also need to be timely. Data needs to be up-to-date and timelines need to be clearly defined. In the example above, these metrics could be measured monthly or even weekly depending on the size of your business. This will help to highlight meaningful trends.

How to use your KPIs

Report on your KPIs regularly. Graph your progress to show the trends and colour code them to make them easy to understand at a glance. Next, to achieve your business goals, you will need to act on what your KPIs are telling you.

For example:
• Green = excelling. Exceeds target level of performance. This deserves acknowledgement and celebration.
• Yellow = just scraping by. Minimum acceptable threshold. Start asking questions and keep a close eye on progress.
• Red = lagging behind. Unacceptable performance. Urgent attention required.

Finally, make your KPIs visible to everyone in your business. You could do this electronically or simply put a poster up in a common area. There’s no greater motivation than watching a graph climb towards its target.

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