How do you measure KPIs to improve business performance?
Key performance indicator (KPI) measurement helps you manage both your financial and non-financial data collection, to improve your business's performance. Measure your team’s performance as a whole and individually, dive into your financials, and your customer data too.
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 KPIs, is a metric that's key to tracking how well a business is working towards its key business objectives and it's outcome. High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes in departments such as sales, marketing, HR, support and others.
What's the difference between KPIs and gross profit margin?
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?
Establishing, processing and analyzing metrics requires data sources, documentation processes and technology to measure the KPIs, such as google analytics.
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.
The ways in which we measure KPIs are many and varied, depending on the type of KPIs being tracked.
In order to measure KPIs effectively you need to ensure that:
- You are measuring the right things e.g traffic
- You have a way to filter out extraneous data points.
- Your measurement systems are consistent across all key areas of your business operation.
How to decide which KPIs are right for your organization?
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.
Think of your KPIs as a "map" for your business. They should tell you not only where to go, but what route to take and when to make changes.
When setting out with this map in mind it can be helpful to create three categories or levels for the KPIs:
- The first level measures the success of the current business strategy.
- The second level measures the performance of the day to day tasks that support this strategy.
- The third level monitors what is happening around your business, both internally and externally. These KPIs help you stay ahead of any changes in customer sentiment or market conditions.
The KPIs grid below reflects these levels and their corresponding metrics:
Each level of a KPIs is important and should be monitored so you can make adjustments to your current strategy, day-to-day tasks or external environment as needed.
Level One KPIs:
There are three key areas for measuring the success of your business' strategy - growth metrics (e.g., revenue), customer satisfaction (e.g., customer retention), and employee engagement (e.g., organizational alignment)
The first level of KPIs, growth metrics, measures the success or failure of your business' strategy and is a result of a previous process taken to plan ahead and grow your company.
For example: If you want to increase performance from $100k to $200k in one year, then revenue the company must have a strategy in place to improve your performance indicators that will allow you to achieve this goal.
Level Two KPIs:
The second level of KPIs, customer satisfaction, measures the success or failure of your business' customer service and is an outcome from previous actions taken.
For example: If you want to increase customer retention rates by 15%, then you must keep customers happy, make them feel valued, and provide excellent customer service.
The third level of KPIs, employee satisfaction, measures the success or failure of your business' human resources policies.
For example: If you want to increase company morale by 20%, then you must have a strong mission statement that employees can connect with on an emotional level.
Many companies are trying to improve their KPIs, but they have difficulty measuring the success of these goals. For example: If you want to increase customer retention rates by 15%, then you must keep customers happy, make them feel valued, and provide excellent customer service.
How to set KPIs goals
Good KPI targets look SMART:
- Are they specific to your objective(s)?
- Can you measure your performance indicators 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, you might decide to implement a new customer support team or offer your customers more options.
Finding the right KPI targets for your company can be difficult, but it's worth spending some time and energy on them so you know how best to approach and plan for your goals in the coming year.
This blog post is about finding KPIs that work for your business.
- KPI business goal
Is your goal attainable?
Are they relevant to your business goals and KPI ?
Measurement frequency - How often do you measure your businesses performance?
How often do you measure the performance of your business?
Some companies might not measure KPIs at all, but this can be a huge mistake. For example if you're in the retail industry and plan for and don't keep track of inventory levels or customer satisfaction rates, then there's no way to tell what changes are needed. The more frequently you measure your performance indicators the better.
What are some examples of key performance indicators?
Financial performance indicator examples
Revenue per employee
As the name implies, this metric works out how much revenue each employee is generating. It can be a useful way to compare the performance of different teams, or how well you are doing against your targets. You could also use this metric as an indicator that points towards areas where more investment will lead to improved results.
How do you calculate revenue per employee?
Revenue per employee = income/number of employees
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 and has a poor profit margin.
What is operating profit?
Operating profit= operational income + other income - cost of sales - expenses
Non-financial performance indicator examples
Succeeding in business performance can be difficult for any person or company. Churned customers are those who cease to use the service 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)
As we know, customer satisfaction is a key part of any company's success. Strong customer loyalty and high-quality products and services are what makes people want to stay with your brand for the long term.
To measure how satisfied your customers are, you'll need to reach out to them directly - either by running a survey on your product or website.
How do you calculate average customer satisfaction score?
Customer satisfaction = (total sum of all responses) / (total number of respondents)
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 analyse 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 and to plan ahead, you need to give them a bit of time to come into effect. Don't panic if the metrics on the page 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 using google analytics and begin building strategies around your conclusions. Using Futrli Advisor's alerts feature, we can help you keep track of your targets and plan ahead, letting you know when to celebrate, or if your outcome means 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, analyse traffic and plan 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 and making a plan, 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 and ultimately increase your profit margin.
Every business owner needs to monitor their KPI’s for it to be effective. With the flexibility of this type of software, you can view any account, category, or account group and see how they are performing across the board. This is important because KPIs will give insight into your businesses performance without having to look at all numbers.
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 KPI 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.