There was a time when cars didn’t have a fuel gauge. That meant you had to understand the size of your fuel tank, remember when you last bought fuel (and how much) and estimate the distance you’ve travelled since filling up.
What is the equivalent of the fuel gauge in your business? Often called Key Performance Indicators (KPI’s), when you glance at the “dashboard of your business”, what do you see? And what don’t you see?
Let us look at some best practices in KPI monitoring:
Three or four important indicators can give you a strong sense of what you need to do. You can then drill into challenges and opportunities as you see fit.
If you have a strong orientation to revenue growth, you may want to measure how many leads you are generating, where they are coming from and your sales conversion rates. You could look at this by product, by region or by sales team member.
If you have a strong profit orientation, you might look carefully at business expenses over time. Alternatively, perhaps your goals are around increasing efficiency, in which case you could measure the returns on your resources or assets.
How does today’s data compare with one month ago or one year ago? Where do you want to be in six months from now? Are you on track to achieve that?
It used to be extremely difficult to access all the data we want and include it in easy-to-read reports. Thankfully, this has become much easier and many tools exist to help us. But you still have to think carefully about what you want to see and when you want to see it. A lot of time can be wasted due to a lack of preparation in this regard.
Make sure the KPI’s are meaningful to as many team members as possible. You want people to be “living the KPI’s“. They should be easily accessible and people should get excited when there are positive developments. If they are seen as “some strange management activity“, it will be difficult to drive them in the right direction.
The first KPI’s you define might not make sense as the business and market changes. Always challenge whether your approach can be improved.
Most importantly perhaps, ask what decisions you might make based on the KPI’s. If revenue is declining but the number of leads is rising, what are you going to do? What about in the opposite case? If you can’t easily answer this, you may have the wrong KPI’s.
Need help building and using a business dashboard? Your accountants are uniquely positioned to help with this so please get in touch, or join our mailing list to get more tips and tricks sent to your inbox monthly!
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