KPI, otherwise known as Key Performance Indicators and sometimes referred to as Key Success Indicators or KSI, are measurements designed to show how well a business is meeting its goals. Having several KPIs for a business is important in order to track its progress. If it is not doing well, the KPI will help show where adjustments need to be made to get the business back on track.
What Are Key Performance Indicators?
KPIs are devised after a business has established its mission statement, goals and objectives. Measuring the goals is an important part of running a business, so the KPIs are developed before the business begins operations. This helps the business determine how it will make sure it is on track to meet its goals. The KPI one business chooses will not likely be the same KPI another one chooses, because it will all depend on the industry and what exactly you are trying to do with the business. These should be viewed long term, and should not change frequently.
Choose Reflective KPI
When choosing KPIs for your business, remember that the KPIs chosen should reflect the business goals. For example, a company that has goals of a certain profit margin will likely have KPIs that look something like this: Profit Margin, Stockholder Equity. On the other hand, a non-profit organization that focuses on helping feed the hungry will have completely different KPIs, that look something like this: Donations, Meals Prepared, Meals Served.
KPI Need to Be Quantifiable
Because KPIs are used to measure how well a business is meeting its
goals, or where they are in the progress of meeting their goals, the
KPIs must be quantifiable. If they are not, they cannot be used as an
effective measurement. For instance, a KPI that reads like this: "Bring
in more repeat business," will mean nothing because there is not a
clear definition of what
"repeat" business is (with no indication of how much repeat business is already in the organization).
Define KPIs clearly, and keep the same definition every year to be able to more accurately see progress. For example, if you have a goal to increase sales, in the KPI, define how the sales are going to be measured. They could be measured in dollar value, or number of units sold. Factor in product returns and service refunds. Consider whether you are going to deduct them from the month of the sale or the month of the return. It is important to know which metrics you are going to use so you can be consistent throughout and monitor progress more effectively.
Be sure to set targets. Once you've established that you want to increase sales, and sales are measured by units sold, determine how many more units you want to sell within a specific amount of time. Do you want to sell 10% more units each quarter? Each year? These targets will give you quantifiable KPIs.
The important part of identifying your KPIs for your business is to be thorough. Take your time, consider your goals, define your variables and think long-term.