How to Measure KPIs for Your Business [Blueprint Building Block #2]

Written By Mike Ridder

We’re back with the next installment of Blueprint Building Blocks (B³): the series where we explain hot topics in the CFO world.

(Missed the last installment on accountability tools? Catch up here.)

Today’s hot topic is key performance indicators (KPIs).

Being numbers guys, we’re jazzed about KPIs.

Why, you ask? Well, KPIs are numbers that tell a story.

That story can be…

  • A historical story, telling the reader where a business has been over time

  • An inspirational thriller, watching the “next big thing” materialize

  • A tragic love story, mapping a past initiative that was supposed to be the “next big thing”… but failed miserably

Let’s break it down a bit.

A business owner checking KPIs

What Is a KPI?

Two elements drive a KPI: key and performance indicator.

There are lots of potential performance indicators out there, such as…

  • Sales

  • Profit

  • Selling activities

  • Lost time accidents

  • Backlog

  • And more

…all of which may point your business in the right direction.

For me, the focus word is key. A key performance indicator is one that helps you achieve your business goals.

If your goal is additional revenue, you’ll track something related to sales.

If your goal is improving safety, you’ll track something related to safety.

How Do You Choose the Right KPI?

If your goal is more sales, what KPI will help you achieve that goal?

Does tracking historical sales help you achieve that goal? Most likely not, but looking at that will help you identify the right one to track.

If you are off your goals, do the “5 Why” test. Keep asking, “Why?” until you get to the root cause of the problem.

If the root cause of your sales miss is a lack of new contacts or leads, select a KPI that will encourage that activity, such as new lead visits.

How Often Should You Measure KPIs?

Most KPIs are measured daily, weekly, or monthly.

I usually recommend a weekly KPI check unless your system does not allow efficient tracking of the KPI (something to fix, by the way).

Tracking your KPIs weekly allows you to quickly adjust the downfall of the action. Monthly may be too late.

What’s the Right Goal for a KPI?

Each KPI should have a goal — ideally a goal that is not what the KPI is today.

For instance, if your new lead visits KPI is currently 1, don’t make your goal 1 — that isn’t going to drive any progress. Make your goal 5 or 10.

Color-code all “hits” with green and all “misses” with red. It’s okay to have reds — you need something to strive for.

Keeping measuring until you hit that correlation point. For instance, if you don’t know how many new lead visits will result in a sale, keep experimenting until you hit the right goal.

What if You Aren’t (Or Are!) Hitting Your Goals?

If you are red in a goal, “5 Why” your way to figuring out the root cause of the miss. Then, institute an action to rectify it.

If your salesperson isn’t doing the actions needed, figure out if they’re hitting roadblocks… or if they just aren’t the right person for the job.

If you are green in your goal, stretch your goal. You may even want to replace the KPI altogether.

For instance, if your goal is 0 lost time accidents, and you have achieved that goal, set up a monitoring system to make sure it stays in place. Then, find a new KPI to track.

Want Help Building Your KPIs?

Key performance indicators are an important building block in any business. Some might even say they’re key.

If you need help identifying or creating a KPI system, please let us know. We’d love to discuss and assist.

 

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Mike Ridder
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2 Useful Accountability Tools for CFOs [Blueprint Building Block #1]