Key performance indicators (KPIs) are a set of quantifiable measures that a business uses to gauge or compare performance in terms of meeting their strategic and operational goals as detailed in their Strategic Plan. A good KPI should act as a compass as it lets you know whether you are taking the right path towards your strategic goals.
To be effective, a KPI must be well-defined and quantifiable, communicated throughout the business, and actually be crucial to achieving the goal. They are the ’key’ to optimal performance.
The trouble is there are literally thousands of KPIs to choose from. If you choose the wrong one, then you are measuring something that doesn’t align with your goals. To select the right KPIs for your organization you need to research and understand your specific industry and business.
Common KPI’s are:
- Profit: This is the most important performance indicator. Both the gross and net profit margins should be analysed.
- Cost: Measures cost effectiveness and assists in finding the best ways to reduce and manage costs.
- Numbers: Customer numbers gained versus customers lost.
- Revenue ‘vs’ Target: This is a comparison between the actual revenue and the projected revenue.
- Day Sales Outstanding: The lower the number, the better the business is doing at collecting the debtors.
- Market share (%).
- Staff turnover (%).
- Employees injured at work: Total days off work.
Good KPIs help in understanding and meeting the goals so should be integrated throughout the business. KPIs should match the business strategy, not just the industry.