Key Performance Indicators: The Gateway To Knowing Your Business’ Health
When I conduct a business assessment with a prospective client, I always ask them to provide their Key Performance Indicators, or KPIs.
These tell me two things:
- How well the business owner knows their business and
- How well the business is doing.
So What Are Your KPIs?
For example, if you are in retail and have had a 30 day turnover for your most profitable item for the last 10 years, is the current turnover rate for the current year better or worse? Or, if you want to get to $500,000 in net profits, and you are currently generating $1.5 million in revenues, what is your profit margin, or the percentage of income left over after you boil out all of your expenses.
More importantly, do you know all of your expenses?
Because if you don’t you will never be able to accurately predict your profit margin, so you will never be fully certain of your net profit.
Profit is not income.
It’s not what you take out of the business in the form of a salary. Profit is what’s left over that can be sewn back into your business for capital improvements, to hire more staff, to relocate your offices to a better location, etc.
KPI’s: Getting Beyond The Numbers
Depending on your business there are other KPIs that are just as important as your financials:
- How often do you survey your customers to ask them how you are doing as a provider of goods or services?
- How frequently do clients come back to you for additional business – and just as importantly, how often do you ask clients for additional business
- What is your conversion rate from lead to client on a month by month basis?.
- If you do e-blasts, what’s the open rate or the click through rate? Or the number of people that ask to be removed from your list?
These are just some examples of KPIs.
The key, is to develop a set of KPIs that are critical for your business and then measure them consistently. We all want to do better in our business. But the real question is better than what? KPIs help you define the “what” and then track it to ensure you are getting the performance you want, or identifying weaknesses that you must address.
Are you interested in learning how to define KPI for your business?
Contact our business coaching firm for a free business assessment and we’ll make sure you know the critical KPIs in your business. Better yet, attend our GrowthCLUB, business planning workshop on March 25 and define the metrics that are important to your business and learn easy ways to keep track of them.