5 Tips For Creating Profit-Driving KPIs - Key Performance Indicators

how to create profit driving kpis

If you own a small business, you probably already know a thing or two about Key Performance Indicators (also known as KPIs). KPIs are the benchmarks your business sets in place to make sure it’s moving toward its long-term goals. The key to effective KPIs is not just having them in place, but having the right ones in place. Of course, that’s a lot easier said than done. To help you out, I’ve put together this guide on how to determine which KPIs will best drive your business forward. 

1. Begin With Efficiency KPIs

In a discussion of KPIs, there’s a good chance efficiency KPIs are likely the first kind that come to mind. These are your basic markers of ROI. 

According to the smart folks at PNMsoft, an Intelligent Business Process Management Suite provider, efficiency KPIs include measurements such as: cycle time from request to delivery, volume of tasks per staff and number of staff involved. 

Key performance indicators are the basic markers that make sure your business is running the way it’s supposed to and your employees are meeting the company’s goals. 

“So, how to pick?” asks Entrepreneur Contributor Joe Worth. “Identify your business goals and the activities that lead directly to achieving them.” 

2. Measure Prospects Using KPIs 

Business owners often think of KPIs as merely a way to measure internal performance. This limited thinking will result in equally limited measurables. By creating KPIs for your prospects, you are creating benchmarks for your most important profit-driver: customers. 

Your KPIs should factor in how many customers you currently have, how many you’ve lost, how many are in the pipeline, where they’re coming from and how they’re converting. 

For example, if your company is a technology provider, you can create a valuable KPI by recording conversations with current customers and prospects and tracking which customers request service upgrades based on those conversations. This data can be invaluable to your business success.

“In order to increase number of leads, you have to start counting those leads,” says Herb Axilrod, Founder of Birch Grove Software. “If you want to increase sales, understanding the source of current sales is imperative. Breaking an entire process of working with customers into steps, measuring every step and experimenting with improvements can lead to an increase in ROI.” 

3. Setup KPIs To Establish Workload 

Are your employees overworked? Or perhaps, are they under-performing? By creating KPIs that measure your business’s overall workload, you can help alleviate either concern. If you own a services company, divide each client’s budgeted hours by the number of employees and their hours per week. 

This will help you identify what your company’s workload is, and if you can handle more or if new staff needs to be brought in. Being under or overstaffed are equally dangerous scenarios for your business. Establishing recruiting metrics (e.g. how long it takes to bring on a new employee) can also help you avoid having to hire in a pinch. 

4. Create KPIs Considering The Entire Industry

The success of your business is dependent on so much more than what happens in the confines of your office. To stay afloat, it’s important to create KPIs that measure where your business stands within the scope of its industry. 

For example, if you own a civil engineering firm, you might want to think about where your work comes from and what kind of trends could make or break your profits. In this instance, your KPIs should include upcoming government bonds, developing land planning applications and the statistics your employees provide regarding new planning activity. If you work in food manufacturing, your KPIs would be more likely to track current and predicted commodity prices. 

“A key element of innovation is doing regular evaluations of the market for the group's products and services, understanding customers' expectations and budgets and keeping current with technical developments from other firms,” writes Art Markman, Professor of psychology and marketing at University of Texas. “In this way, teams are forced to find ways to adapt the ideas they generate to the realities of the world and marketplace.” 

5. Develop KPIs That Ensure Quality

“If you can’t measure it, you can’t control it,” writes Susan Solovic for Inc. Magazine. This is one of the foundational principles of quality assurance, and it applies to business in general. Be sure you can accurately generate all the important metrics required to understand where your business stands. Without that information, or with incorrect information, you will make bad decisions. 

Quality KPIs measure how well your business is doing. This includes returns, complaints, process errors, human errors and jobs that exceed their budget. These KPIs are essential for creating a positive customer service experience for clients, which is ultimately what will fuel referrals and repeat business. 

While choosing the right KPIs is critical to your business’s success, even more important is making sure they’re realistic. Don’t set benchmarks your employees can’t achieve. This will wreak havoc on your company culture. Of equal importance is making sure they’re specific. Neither you nor your employees can achieve what is impossible to measure. 

Lastly, KPIs must be communicated. Every employee should know what KPIs they are responsible for, so they can work towards their goals and, ultimately, the company’s overarching mission. A great way to set this in motion is by visualizing it through a chart or spreadsheet and incorporating them in performance reviews. 

Key Performance Indicators Conclusion

By setting realistic, specific and well-communicated KPIs, every member of the team is incorporated in the company’s long-term business plan. Key performance indicators ensure that everyone is rowing their oars in the same direction and steering the ship where it’s supposed to be going. 

Author Jodie Shaw is the Chief Marketing Officer for The Alternative Board. She brings more than 20 years of experience in B2B marketing and 10 years in franchising to the role. Prior to joining TAB, Jodie was the CEO and Global Chief Marketing Officer of a business coaching franchise, representing over 50 countries worldwide.

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I hope you enjoyed this article about tips for creating KPI's to boost sales and pump up your profit margins long-term.

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