You Probably Already Have Them and Just Don’t Know It.
Simply, Key Performance Indicators (#KPIs) were designed to help us better manage our business better. The old expression is “what gets measured gets managed”. The challenge for many is finding those few KPIs can be the equivalent of looking for the Holy Grail. Once discovered they will lead us to the promised land of business knowledge and eternal glee or something like that. So where do we begin this journey?
Let’s start with a simple definition developed by David Parmenter in his book “Key Performance Indicators ”. A characteristic of a KPI is “non-financial in nature that can be measured daily yet can have a significant impact on operations”. For my financial colleagues, that can be a head scratcher as we are always thinking of P&L and Balance Sheet items. The financial statements are merely the scorecard for the results of the KPIs. So what measures of performance can we use to “save the day”?
As business coaches and accountants we have to move out of the back office and move upstream to identify the KPI transactions that can drive our business. So here is a sample of KPIs that most businesses have and we just did not know it.
5 KPIs That Drive Results
The following KPIs all fall into the category of what you can do today to drive the business.
Number of Prospective Qualified Leads
Businesses seem to live on blind faith that there will always be a new client that walks in the door. In reality, it requires the business to nurture a certain number of prospects to generate just even one qualified lead. So the business always needs to make sure it always is developing prospects, which is a daily requirement for any business.
Daily Revenue Goals
A major retailer of home and building supplies measures the total revenue driven per day. Let’s assume that the weather brought a lot of rain to a region. The company will instruct its sales associates to spend greater time assisting the fewer customers in the store due to the weather. The retailer has proven that those that go to the store are actually planning projects and need more support. So by spending more time with each customer, the store actually does see the average sales ticket value increase so they can save their day.
Top 10 Products
Companies make a huge mistake by not following how their products are selling and more importantly if they are generating the profit margins they should. If certain products sales are slowing down, increase promotion or offer discounts. Or better yet, let your existing clients know the other product exists with some cross promotion.
Recently, I was having a discussion with an executive that worked for a major on-line steak ordering house about KPIs. His company measures the kind of products a customer will buy and then recommend other high margin products for future orders. So they might have attracted you with a low margin product, but they want to direct your future purchases to better margin products.
One of our #webKPI Partners is a California firm called Get Kaizened. This is a Japanese term meaning “continuous process improvement”. This firm started as a business unit within Toyota and their entire mission was to evaluate process flow and determine how to reduce the number of manufacturer touches, reduce supplier lead times etc. So here are some KPIs that you can measure to evaluate your firm’s efficiency: Ratio of timely completed orders; Returns; System Downtime; Overtime Hours and Supplier On-time percentage.
I was taught from the beginning to follow the cash. So how many businesses actually measure their cash goals for the coming week? Do you have a payroll in the next five days? Do you have any receivables that you need to contact to make sure payment is en-route? Are you paying your vendors too quickly? Develop a weekly cash plan but measure daily.
Benefits to a Financial Leader
The coach, accountant and business ownership can use this process to define excellence in their organization. Staff does respond when accomplishments can be measured and hopefully rewarded. WebKPI is making available a Free KPI Assessment Form at the following website by clicking this website.
In this first column, I have selected five KPIs that can be measured daily and allow you to save the day. Each was selected from a long list of KPIs that is part of a Balanced Scorecard. I will discuss more in future columns why not all KPIs are treated equally.
In the meantime, I would like to get your opinion on the KPIs that I listed above. Hopefully now you know that your organization has these KPIs available for you to Save the Day.