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Key performance indicators (KPIs) - measuring the success of your business

2-minute read

Josh Hall

26 July 2010

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Success in a business is judged according to a range of different factors – factors that vary from firm to firm. Key performance indicators, or KPIs, are an important way for businesses to keep track of these factors, and judge their progress.

What are key performance indicators?

Key performance indicators (KPIs) are a vital means by which firms can judge how well they are performing. They allow businesses to identify some of their most important metrics, and provide a standardised way of determining whether or not they are meeting their goals, targets and objectives.

KPIs are often numbers, but will differ from business to business. One of the most common KPIs measured is average revenue per customer; if this metric increases over the course of the year, it is a safe bet that something is going right in your business.

But KPIs can be used to measure virtually anything. In many business types, success will not be judged by numbers. Instead, you might use graphics, words, or almost anything else to communicate your performance.

Which KPIs should I measure?

Different businesses will use different indicators to measure their success. What is important to one business might be irrelevant to another.

When determining which KPIs to measure, you should ask yourself – what matters to my business’s stakeholders? You might have a range of stakeholders, including investors, staff, creditors and, crucially, customers. So, KPIs might include not just metrics relating to revenue or sales volumes – but also reports on customer satisfaction.

Some of your KPIs will be measured regularly throughout the life of your business, while others will only be relevant for a short time. You should make sure, though, that KPIs are regularly evaluated and recorded. A single snap-shot of information is entirely useless; data is only relevant when it is measured over an extended period, in order that changes and trends can be noted.

What is a measurable objective?

Measurable objectives are a vital part of any growth and expansion strategy. They provide businesses with a tangible, observable goal to aim for – and KPIs are an important element of this.

Here is an example of a measurable objective: “Increase daily footfall from 200 to 300 by end of Q3.” There are several distinct elements to this statement. There is a direction (‘increase’), a KPI (‘daily footfall’), a benchmark (‘200’), a target (‘300’), and a time frame (‘by end of Q3’).

Businesses cannot grow without coherent, relevant measurable objectives – and measurable objectives cannot be achieved without the efficient formulation and monitoring of KPIs. KPIs are therefore a vital element of any growth strategy.

What are the potential problems?

Despite their importance, there is a wide range of potential problems with KPIs. Amongst the most common is ‘data overload’. Once businesses begin to understand the importance of KPIs, it is common for them to begin measuring absolutely everything that they possibly can. Of course this will yield some important data – but it will also produce a lot of dross. You must therefore think carefully about which indicators you choose to measure.

Another common problem is a lack of monitoring. As has been explained, it is no good to simply decide on a KPI and measure it once; this will not provide useful data. Instead, you should remember that KPI monitoring is an ongoing process. So, if you are measuring average revenue per customer, you should be recording this on a weekly or monthly basis. This will help you to identify trends – and to determine whether or not you are on track to achieve your objectives.

Key performance indicators are a vital part tool for businesses of every size. If you are to effectively judge your success, and ensure that you are growing in a sustainable and targeted way, you need to keep track of a range of different data.

So start thinking about the metrics that are important to you – and make sure that you are efficiently monitoring them.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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