What Are Your Key Performance Indicators?
Here at Viking, we recommend that every business owner should know the Key Performance Indicators (KPIs) that determine the health of their company. A KPI is a number or value that indicates how effectively a company is achieving its key business objectives. The KPIs that should be tracked are those that report on important operations of the business and both actual results and predictive indicators of future results. The best-performing companies regularly report KPIs and review them on a scheduled periodic basis in their management team meetings.
Examples of KPIs by function are as follows:
- Sales for the week, month to date, and year to date
- Sales to top customers
- New customers
- Lost customers
- New contracts, recurring revenue
- Sales generated to new customers
- Sales pipeline
- Percent of sales going to the top 5-10 customers
- Website traffic
- Marketing generated leads
- Website search engine results; page rank
- Production hours
- Service hours
- Quantities produced
- Average labor per unit (hour, pound etc.)
- Material cost per unit
- Customer satisfaction survey results
- Waste factors
- Quality factors
- Number of employees, new and lost
- Employee turnover
- Gross profit margin
- Inventory; on hand and in transit, fast-moving, time delivery sensitive or frequently ordered items
- Accounts receivable and days outstanding
- Cash on hand
- Line of credit balance
Not all the KPIs listed above are critical to every business. The business owner and/or management team should select those (2-4 in each category above) that are most relevant to the health of their business. The business owner and management team should know these numbers as well as they know their cell phone numbers. They should be able to discuss them and the factors that create positive or negative trends. Reporting and discussing KPIs can have the added benefit of engaging, training and motivating your management and employees to achieve higher performance results.
Many companies report KPIs graphically in a dashboard format using graphs, charts, and colors. These can be easier to grasp by people who are not detail or number oriented. Using a color scheme similar to traffic signal colors; green, yellow and red are familiar to all, can be very effective and can be a terrific motivator for some.
Below are few website references for you do some research on KPIs and dashboards. Be aware some of these sites may include links to advertisements for a subscription.
Some business software including accounting, CRM, inventory management systems and Microsoft Excel have the ability to create charts and graphs, so be sure to look internally for these capabilities.
Remember, KPIs reflect the health of your business. Your future success will be determined by how well your company meets and exceeds your KPIs. These indicators can also be a great way to prepare yourself for the future sale of your business. Being prepared and organized in the early stages of your business will set you up for success later down the road. If you’re interested in selling your business, Viking can help. Contact us today for a free valuation of your business. If you have any questions on how to set up and report your KPIs, please contact me by visiting my biography page below, or contact one of your trusted Viking advisors. Also, please view my previous blog posts by clicking here.