One of the most important buzzword acronyms thrown around the business world is “KPI”, or key performance indicator.
Yes, you’re likely to have heard of KPIs. But, are you crystal clear about what they are?
In this blog post we clarify what exactly a KPI is, and even more importantly, help you work out what the most important KPIs are for your business, as well as how to use them to measure performance and succeed.
First off, lets talk about what KPI stands for, and what they are.
KPI is short for “key performance indicator”. They’re some of the most important tools that businesses can use to measure performance and see if processes and results can be improved.
You can think of KPIs for your business like you do when you measure your own health.
When you look at how healthy you are as a person you look at factors like your weight, blood pressure, nutrition, vitamin levels, cholesterol – these are all key indicators of your health.
Similarly, some of the most common key performance indicators used by small business owners are;
- Gross Profit Margin as a Percentage of Sales
- Sales Conversion Ratio
- Revenue Growth Rate
- Inventory Turnover
- Accounts Payable Turnover
- Staff Productivity
It’s important to note that while the above list includes KPIs commonly used by small business owners, KPIs should be selected to fit the business, and not considered with a ‘one size fits all’ approach.
Regardless of your business size, KPIs are important to use. Quite simply, they’re the best way to track how your business is going and make the necessary adjustments to keep it on track towards success.
What should be measured?
OK, so KPIs are great to use, but where do you start?
If you’re new to business then your KPIs may need a bit of thought and some advice from experts that have done this before.
Great business advisors are worth their weight in gold, and help you work out which particular areas of your business should be measured. As stated above, KPIs differ from business to business, and the set of KPIs you devise for your business should be as unique to you as your fingerprints.
Now when it comes to getting help from expert advisers, an accountant that specialises in strategy is your best port of call. Your accountant should be integral in helping you understand the most relevant KPIs to set for your business, and how many KPIs to measure to give you a clear overview of your business. The right accountant will help you with this by taking into account:
- your industry
- the size of your business
- the location of your business
- your stage in your business (at the start is great – clean slate!)
- your business goals
- your personal situation.
RightWay Business Partners are accountants and business advisers that know all about KPIs, measuring business performance and reaching goals. Our team are the ideal people to talk to about getting your KPIs on track and letting you get on with seeing how your business is progressing and how to achieve your success.
KPIs aren’t just ‘set and forget’ tools
Crucially, once you’ve chosen your KPIs, they need to be regularly monitored and measured.
Forgetting about them is easy to do but at the end of the day, regularly returning to your KPIs effectively will keep you on track towards your goals, and save you a lot of time and heartache by chasing shiny but useless distractions.
KPIs take the confusion out of where you are now, where you want your business to go, and how you’re going to get it there. They’re exactly what you need to succeed in your new business.