Improving your bottom line is one of the most important objectives as a small business owner. To most effectively drive customers and generate revenue for your startup, it is important to use key performance indicators to effectively track your company’s growth.
What Are KPIs?
Key performance indicators, also known as KPIs, are measurable values that demonstrate how effectively your company is achieving its business objectives. The most important, but often ignored, facets of KPIs are that they are a medium of communication. As such, they follow the three most important rules of effective communication: being succinct, relevant, and clear. This type of information is more apt to be absorbed and put into action.
When deciding what KPIs to employ within your business, start by researching common KPIs used within your industry. Next, clearly lay out your organizational goals, your plan for achieving them, and how you can utilize the information from your KPIs. Remember, KPIs need to match your startup’s strategy and objectives, not just your industry’s.
Benefits of a Performance Dashboard
The most effective KPIs follow SMART criteria, meaning they are specific, measurable, attainable, relevant, and timely. A performance dashboard can help you seamlessly track these goals by providing an easy-to-use platform to effectively measure your company’s performance while generating consistent improvement feedback within your company. An effective performance dashboard performs three main functions:
- Monitors significant activities and processes within your company using business performance metrics and online accounting systems to trigger alerts when potential problems surface.
- Analyzes the root causes of problems by investigating timely and relevant data from various perspectives at multiple levels of detail.
- Manages processes and people to enhance performance, optimize decisions, and point your startup in the right direction.
There are two main groups of KPIs: process indicators and results indicators. The former is valuable for determining your company’s operations efficiency. Process indicators are known as nonfinancial KPIs and originate from information separate from your accounting statements, such as your customer relationship management system and website.
Popular process indicators include:
- Funnel Drop-Off Rate: calculates the number of visitors who quit a conversion process, known as a sales funnel, before completion.
- Customer Support Tickets: determines the amount of resolved tickets versus the amount of new tickets and the time in which a resolution is reached.
- Percentage of Product Defects: analyzes the number of defective units divided by the total amount of parts created within the timeframe of examination.
Contrary to process indicators, results indicators measure how well your business is performing financially. However, process and results indicators are not mutually exclusive, as more efficient processes usually produce better results. An analysis of results indicators requires up-to-date financial statements, including your company’s balance sheet, income statements, and cash flow statements.
Popular results indicators include:
- Gross Profit Margin as a Percentage of Sales: quantifies the amount of money retained versus the amount being paid to suppliers.
- Revenue Growth Rate: measures whether your startup’s growth is plateauing, increasing, or decreasing.
- Incremental Sales: calculates the effectiveness of your marketing campaigns at generating increased sales and revenue.