How healthy is your business? What areas need improvement? Where are the opportunities for future growth? These are some of the questions that key performance indicators (KPIs) can help answer.
What is a KPI?
It’s a measurement, number or statistic that reports on some aspect of your business. Sales volume, customer satisfaction ratings, debt ratio — those are all KPIs. They tell you whether you are meeting your goals. Plug those numbers into a timeline graph, and they reveal trends.
Any business can benefit from using KPIs, because you can customize them to reflect your unique situation. If your business is providing customer services, you’ll want to include some metrics on customer acquisition and retention. If you are a retailer, your KPIs should track inventory turnover.
In addition to measuring business performance overall, you may also want to set specific KPIs for different departments. For example, you might want to monitor specific activities of your sales force or work crews.
Choosing your KPIs
Key performance indicators can help you increase profitability, decrease inefficiencies, reduce your financial and credit risks, and much more. There are three general types of KPIs:
• Efficiency: Staff productivity; wastage/shrinkage; overhead costs; resource management
• Growth: Sales volume, gross revenue and net revenue; business equity
• Health: Debt-to-equity ratio; average margins; net profit percentage; inventory levels vs. payables; debtor days
• Marketing: Website traffic, online conversion rate, email open rates
When thinking about the KPIs your business will utilize, you should also bear in mind:
• Your industry
• Where you’re located
• The size of your business
• What business life cycle stage you’re in (launch, expansion, maturity)
• Short-term goals
• Long-term goals
Keep the big picture in focus
Although these metrics are extremely useful, they must be viewed through the lens of your experience. For example, a drop in sales during the summer months may be perfectly normal if your business is snow removal. There’s no need to look for a remedy if there’s not really a problem.
It’s also important to review your KPIs on a regular basis. You don’t want to find out you have an inventory shrinkage problem when it’s been going on for a year already.
Your dedicated CPA team at Xendoo can help you choose the smartest KPIs for your business. What’s more, our automated software, 24/7 access and timely reports make it easy for you to monitor those KPIs. You’re empowered to make the right decisions at the right time, and watch your business thrive.