Blog: K is for Key Performance Indicators (KPIs)

When you hear the words “key performance indicators” at work, you might worry that the user has watched too much Office Space.  And the concept can sound self-important and jargon-y.  Once simplified and applied to your business, though, Key Performance Indicators (KPIs) can become essential tools for the success of your company.  At its core, a KPI is just a number that has meaning to your business.  While not every business decision needs to be numbers-driven or supported by data, good Key Performance Indicators can be illuminating.  Without the kinds of clear metrics that KPIs can provide, it can be difficult to evaluate what’s working and what isn’t, especially when management time and resources are limited.

The first important thing for small businesses to understand is that KPIs need not require complex formulas or major analytical tools.  Your Key Performance Indicators could be almost anything – figures as simple as revenue growth rate or profit margins per unit can be tremendously helpful KPIs.  A company may choose to track industry-specific figures like average revenue or gross profit per technician in order to manage staffing; tracking the average number of jobs per week or the average income per customer can help to better understand efficiency and customer value.  Still other types of business goals might be addressable with KPIs like customer retention rates (customer satisfaction and growth), website traffic (marketing success and customer acquisition), or days sales outstanding (collections and cash flow).  Whatever your objective, there’s likely a metric out there that you can turn to in tracking results and pursuing improvement for your business.

KPIs are also important tools to align team efforts by setting clear expectations. When employees have a clear understanding of the indicators the business is targeting, they’ll have a better idea of how they can succeed at work.  Owners and managers will also have a stronger grasp of how to track and reward employee success.  By coordinating everybody’s interests, KPIs can improve motivation and accountability among staff, fostering a culture of transparency and continuous improvement.

Ultimately, KPIs turn data into actionable insights.  By determining the questions to be answered, identifying a relevant Key Performance Indicator, and consistently monitoring these indicators, owners can spot trends, seize opportunities, and make progress toward nearly any goal.