For any type of business to grow, its owners and employees must keep focused on its vision and mission. They must understand the business goals and use them as a guide in any business activity. As time progresses, it is easy to detour from goals and focus on what is not important. The key performance indicators help both employers and employees to know if they are keeping within the path of the business goals. If they have detoured, the KPI helps them to know where they lost focus and where they should invest more.
- 1 KPI Templates
- 2 What is a KPI in business?
- 3 KPI Examples
- 4 How does a business benefit from KPI?
- 5 KPI Tracking Templates
- 6 How do you create a KPI?
- 7 Develop actionable KPIs
- 8 Performance Metrics Templates
- 9 KPI examples
What is a KPI in business?
KPI in business is an abbreviation for a key performance indicator. It helps business management to measure performance for a specific goal. KPI is quantifiable and helps business teams to measure progress in terms of milestones, targets, and insights across the entire business.
It helps every business department to move forward while focusing on the strategic goals. The management uses a performance metrics template to help them measure progress. Unlike metrics that measure daily activity success, KPI measures the business’s key targets as defined in the strategic plan and long-term goals.
How does a business benefit from KPI?
It is important to measure the right KPIs for the sake of business health and success. Most managers do not understand why they should be using KPIs or how to use them. They are helpful metrics that ensure that every department is fulfilling the business objectives.
They go beyond the numbers managers report weekly and touch on strategic adjustments that must be made in tasks execution for the business to achieve its purpose. Since a KPI is measurable, it provides a demonstration of whether the business is deviating from any key goal.
If they are, the management works on a quick adjustment to help the business achieve its goals faster. The best way to measure KPI is to use a KPI tracking template. The business benefits in multiple ways.
KPI helps monitor the business health
KPI can be termed as a business scorecard that provides important signs of business health. You don’t need to measure everything in your KPI worksheet at once. You can choose to measure only what is important at the moment so that you can focus your energies on that goal. The main KPIs you can measure in your KPI document template are:
- Revenue health
- Employees health
- Processes health
- Customers’ health.
If any of these indicates unhealthy signs, it is an indication that the entire business is unhealthy. It shows there is a step the employer or workers have missed and action is needed fast. These four KPI categories fall under the main things that any business relies on to achieve its goals. The business must have:
- The right human resources
- Follow the right business processes
- Provide customer satisfaction
- Follow the right business strategies
KPIs help in analyzing patterns over time
If you use the same KPI tracking template after every four months, you will start to notice specific patterns by the third phase. The patterns in the KPI tracking template can help business managers in multiple ways.
- Prediction on when the lowest quarter will likely be. Most employers upgrade their business systems during the lowest quarter.
- Setting the best quarter to train employees.
- You can tell which quarter will record the highest sales/revenue.
- You can track which employees are consistently underperforming or overperforming and take the right actions.
KPIs help the management to measure progress over time
A business must work with targets, short-term goals, long-term goals, and a strategic plan. Based on the goals the management sets, they use a performance metrics template to help them measure progress over time. The key indicators they can record in the performance metrics template are indicators such as –
- Office locations
- Revenue growth
- Gross margins
- Number of employees
- Employees’ growth and development in terms of training, education, skills, promotions, remuneration, etc.
- Customers – Number of customers, purchase behavior, complaints, compliments, etc.
To help the management measure progress over time, they should begin by setting goals at the start of each year. After every quarter, they should set new goals or update the ones they already have. For the quarter progress, the progress should be measured weekly, monthly, and quarterly. The indicators on every quarter should help the managers measure progress for the long-term goals and the 5-year strategic plan.
KPIs help business management to solve problems and take advantage of opportunities
By combining different metrics in the KPI worksheet, the management successfully extracts important data that provides signs of developing problems or opportunities. The same data extracted can be used to help them solve the problems and to take advantage of the rising opportunities.
For example, the management can take note of a problem in the sales/marketing department. The problem could be nose-diving sales or customers moving away. The reason for the problem could be the team is missing appointments, they are lagging in receiving calls, or they are no longer organizing trade shows.
The management should record this problem pointer in the KPI document template and begin tracking the progress weekly, monthly, quarterly, and yearly. There should be a detailed discussion with the sales/marketing team to help solve the problem.
Another example is when the management gets a business idea from quarterly KPIs. It could be an idea for a new product. Before launching the new product, they can perform a market test with some customers. Using a KPI document template, they will be able to validate if the product will be viable or not. If it is viable, they will take advantage of the opportunity it provides.
KPIs help business management to create adjustments so that the business stays on track
Having a results indicator is good but it is equally important to have problem indicators when the business is missing targets. Missed targets are an indication of danger and if it is not noted early, the business can collapse easily.
To help identify danger, the management uses a leading indicator KPI tracking template. The template helps them predict what will likely happen in both the near and far future. This way, the management can tell if they are still on track or off. There are two main advantages of leading indicators.
- They are measurable: It is possible to influence them. That is, you can control them to change their outcomes for the better.
- KPIs help to recognize learning gaps: One of the reasons why a business might not be making to achieve its goals is a lack of employee training. Employers need to continually train employees to help them remain productive. As technology changes, there should be upskilling plans to support the employees with the current technological skills.
For example, an employer might set targets for the marketing team to increase sales by 10%. If they fail to achieve the targets in the next two quarters, it is an indication that something is lacking in the team. One of the missing gaps could be training. If the employer is aware of this gap, they could organize marketing training for the team.
KPI Tracking Templates
How do you create a KPI?
There are many ways to create a KPI but the best one is to customize using a performance metrics template. There are different KPI examples you can refer to help you customize a KPI for your business. The following steps will help you create a measurable KPI.
Define your KPI objectives
Everything done in a business should be based on goals. Without them, a business can easily go in the wrong direction. Each business KPI should be tied to a key business goal if the employer wants to record any impact on the business.
Your business KPI should not be based on random numbers or chance. Instead, it should be rationally based on reasoned judgments. KPIs should be a reflection of the strategic goals of the business. Above all, they should be a reflection of the company’s growth story.
Share your KPI objectives with your key stakeholders
KPIs should be context-based to help the business have effective communication. The employer must explain to the stakeholders what they are measuring and why they are measuring it. Your priority stakeholders are your employees before you even share them with the board.
Let them be aware of the direction you intend for the business. If you don’t share it with your employees, they will not be aligned with your business goals. Once you share it, do not ignore any feedback you might get or the questions your employees might ask.
Create a KPI review plan
You need to go beyond the KPI document template you’ve created. Businesses are dynamic and the KPIs need to be reviewed consistently. When reviewing your KPI, base the reviews on two perspectives.
- Business progress against the KPI
- KPI effectiveness based on progress
Develop actionable KPIs
The KPIs you develop for your business should be practical, insightful, and effective based on your business vision and mission. After sharing your KPIs with your stakeholders, they should develop sufficient reasons to take action and make them work.
The following steps will help you create practical KPIs for your business.
- Evolve as goals evolve: You should keep reviewing your business objectives. As the objectives evolve, your KPIs should evolve too.
- Review progress: Have a plan for a consistent review of progress. Every time you record progress or regress, adjust your KPIs. Do not limit your KPIs by setting them once per annum. You can keep adjusting them as your business progresses or achieves its goals.
- Record your current progress: Your business goals should be achievable. After each target, analyze performance and improve on the key areas. You may analyze current performance based on the historical data you have.
- Involve your team: Every time you are reviewing your targets, keep your teams involved. Let every stakeholder stay updated to help your dream work. Without your team’s input, your goals could fail.
- Set your KPIs based on short-term and long-term goals: The best way to measure progress is to base it on short-term and long-term goals. The short-term goals can be measured every quarter. They are the ones that progress to long-term goals.
Performance Metrics Templates
Here are the main KPI examples employers can focus on.
Financial metrics focus on items such as:
- Regional Sales: What each team in a specific geographic region achieved in terms of sales goals
- Product costs: Look at product costs based on the cost of production/purchase/importation against selling costs.
- Profits: Have a better understanding of both the gross and net profit. The business should be consistently growing.
- Forecasted budget against actual budget: Check how the two compare.
Customer metrics measures things such as:
- cost of acquiring customers
- net promoter score
- customers acquired
- customer satisfaction rate
- customer retention rate
- customer life value
Another important KPI example is process metrics. It defines both qualitative and quantitative measures in terms of processes, performances, and business evolution. Processes can be measured in terms of –
- Product defects
- Customer support strategies
Human resource metrics
Human resource is the one that constitutes the workforce. They combine their skills, personalities, and education to help the business achieve its goals. If the human resource is not satisfied, the human resource KPI metrics will record red signals. Human resources can be measured in terms of:
- Employee satisfaction: Many companies conduct employee satisfaction surveys to determine if they are giving their workers the right support. If the employees are satisfied, they will use all their skills and knowledge to help the business to grow.
- Employees turnover rate:ETR in a business means the rate at which an employee is replaced with a new one. Replacement can be due to retirement, death, job termination, transfers, or resignation. If the ETR is too low, it indicates there could be a problem with the HR department, or the level of satisfaction is too low.
- How many applications are received every time there is a job vacancy: Sometimes the company might have open positions but receive too few applications. Sometimes the applicants could be too many. If they are too few, it could be because there was no proper advertising or people are not interested in joining the company. It might be because it has very poor benefits. The management can use these indicators to improve their employee benefits and remuneration.