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How do you measure KPIs to improve business performance?

KPIs
A ruler and pen lie on lined paper next to a laptop that is open to explain how to measure key performance indicators for businesses, advisors and accountants. #KPI

Every business needs to measure its success. Whether you're using metrics to make improvements, track trends and have something to celebrate, keeping track of your business is essential to your success.

What is a key performance indicator?

A key performance indicator, or KPI, is a metric that's key to tracking how well a business is working towards its key business objectives. You can measure your team’s performance as a whole and individually or set the metrics business-wide, bringing a sense of shared accountability and informing your team on where they need to improve.

What's the difference between KPIs and metrics?

Metrics are measures of performance within a business. KPIs are the most important metrics to your business's success. So, in a way, the terms can be used interchangeably, but it's worth defining certain metrics as KPIs, in order to concentrate on those the most.

How do you measure KPIs?

Measuring KPIs requires you to have a source the correct data, process and analyze it. Where you find that data and whether it's something you need to track manually is dependent on the subject of your metric and the tech your company uses.

If, for example, you wanted to track how quickly your Sales team convert leads to sales, you may need your Sales team to track this manually, logging their points of contact and the time between first contact and a sale. Or, this could be information recorded and found in your CRM.

How to decide which KPIs are right for your business

Your KPIs should be a reflection of your main business objectives, so think of your primary goals and any short term focuses. Every business is unique, so their KPIs will reflect this. Some KPIs (like the cost of goods sold, for example) will be suitable for many companies, but the majority of your KPIs should be bespoke. This practice will help you to recognize the path you need to follow. 

How to set KPI targets

Good KPI targets look SMART:

  • Are they specific to your objective(s)?
  • Can you measure your progress towards your goals?
  • Is your goal attainable?
  • Are they relevant to your business goals?
  • Do you have a timeframe for achieving your goal?

A good KPI goal should also be data and feedback-driven. Building your strategies around problems and successes you've found will yield better results. Say you calculate your customer satisfaction score and discover many of your customers are unhappy, rather than immediately beginning a number of initiatives to improve their experience for the problems you presume they have, investigate the specific reasons for your customers' unhappiness. This will drive strategies that are sure to improve their satisfaction and provide you with better, more efficient results.

What are some examples of key performance indicators?

Financial performance indicator examples

Revenue per employee

As the name implies, this metric determines how much revenue is being generated by each of your employees. This is a quick method to evaluate the value contributed by each staff member and a telling factor to evaluate hiring policies and staffing.

How do you calculate revenue per employee?

Revenue per employee = income/number of employees

Operating profit

Operating profit evaluates whether or not your business is making a profit from its everyday operations, by looking at the revenue generated by the business once direct costs and overheads have been accounted for. Negative results indicate that a business is failing to turn a profit.

What is operating profit?

Operating profit= operational income + other income - cost of sales - expenses

Non-financial performance indicator examples

Churn rate

Essential for any company selling subscriptions, services or trying to build repeat customers. Churned customers are those who cease to use your product or services during a set period.

How do you calculate churn rate?

Churn rate = (Customers at beginning of period - customers at end of period) / (customers at beginning of period)

Customer satisfaction

As we know, the customer is a pretty big deal when it comes to business. Strong customer satisfaction shows the strength of brand loyalty and the quality of your product and service. To measure customer satisfaction, you'll need to reach out to your customers. This could be through email or a review system on your product or website.

How do you calculate average customer satisfaction score?

Customer satisfaction = (total sum of all responses) / (total number of respondants)

Customer acquisition cost

Acquiring new customers is a big task for any business. Working out the average cost of a successful customer conversion will help you to determine whether your current Marketing and Sales operations are working successfully. It is also a good way to reflect on Marketing campaigns, a low customer acquisition cost will suggest an effective campaign, whose style can be repeated.

How do you calculate customer acquisition cost?

Customer acquisition cost = total cost spent on Marketing during a set period / customers acquired during a set period

Your non-financial key performance indicators are likely to be unique to your company and your industry. So, check out our KPI Library for some more bespoke ideas.

How do you analyze KPIs?

This is the longest part of the KPI measurement process. Having your metrics in front of you is great, but to really make your results meaningful, you need to give them a bit of time to come into effect. Don't panic if your metrics don't hit the targets you set straight away, bad timing or experimentation with new Marketing could throw your stats, so giving them a few months to settle in is recommended before you make any big changes.

Now you can work out your averages, analyze your results and begin building strategies around your conclusions. Using Futrli Advisor's alerts feature, we can help you keep track of your targets, letting you know when to celebrate, or if you're not hitting the mark.

How should I present my KPIs?

We think a dashboard is the best way to represent KPIs. Being able to bring all of your top business metrics together, on one screen, gives you a quick overview of how your business is doing, simply and quickly. In Futrli Advisor, you can choose how to present your KPIs…

The Snapshot card

This card can display up to five metrics. When you’re tracking your KPIs, this one is the best way to get a quick view of the information you need. It can show you:

  • Revenue for the current period up until today
  • The forecast for revenue for the month up until today
  • How you’re performing against your forecast target
  • How you’re performing today in comparison to last month for the same period
  • How you are performing today in comparison to last year for the same period

The Report card

You must monitor your report card regularly for it to be effective. Giving you insight across your business, their flexibility allows you to view any account, category, account group, non-financial data, formula (KPIs), historical and future periods for actual and/or forecast data over tailored periods.

Drill into the KPIs with the formula builder. It’ll allow you to assess a variety of key measures such as ROI, wage %s, productivity, and more. Because Futrli is so user-friendly, the KPIs you choose or your business can then be applied in dashboards or scenarios. We’ve ensured you can create dashboards for your departments, or see a full overview.

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