Why Do Entrepreneurs Need KPI's?
What are KPI's?KPI's are key performance indicators. These are the tools for measuring your business, successful or otherwise. Ordinarily, you would think that they are financial and yet the most important could be a non-financial performance indicator.
Indicators of success could be: Meters run in a premier league game. Sam Allardyce was recently quoted that he managed to get his Sunderland squad fitter and running 3,000 more meters in every league game compared to when he arrived at the club. A major contributory factor to the team avoiding relegation?
High batting averages. Obviously you would pick your international eleven and particularly the first 6 batsmen from those that are successful at the level one down, in county or regional cricket. It is often a surprise when they don't 'cut it' at the higher-level but it demonstrates the gulf in standard between the two.
Customer enquires converted. Unless you receive an enquiry to price then there is no chance in converting them to actual sales. The percentage converted tells an awful lot and perhaps why they weren't converted, as well. If you are running at 30 % or higher as a rate of conversion that sounds good, but the 70% needs careful analysis. Is it down to price, delivery dates, misunderstanding the specification or any other reason?
Footfall in a store will indicate the traffic and the number of customers coming in to browse. The number of transactions will indicate how many actually shopped and the average £ spent by each customer is another statistic to work towards understanding how much each person actually parts with their money. Obviously the more that any of this can be increased, then the better you are marketing your shop, offering and selling your goods. Each statistic is a benchmark from which to measure and mark yourself. Do not rest on your laurels that the trend is going up, it can easily decline as quickly. Maintaining a level status is a key first priority.
Let us return to financial performance:
Yes, daily weekly or monthly sales levels are important, so is the amount of cash received each week, to ensure that everything is on track and that the sales are just not accruing in to a large figure for receivables.
Equally profit margins are vital to the life of the business. Healthy margins make running the business easier. Once these are controlled, then as long as overall the business is profitable then the rest should flow and the business can develop.
Analysis on the sales is an interesting exercise to undertake to make sure that what is being sold as goods or services are as expected. That the supply is sufficient and that items with high gross margins are not covering those with low margins. In other words, that efforts are not being spent in the wrong area.
Much can be told and understood from the correct KPI's. Get them installed and make them easy. You may only need 5 weekly figures to make money!