How to choose the right KPIs for your business

Every business needs key performance indicators (KPIs) so that it can measure whether or not it is on track to achieve its goals and, ultimately, its vision for the business. The key to KPIs, obviously, is picking the right ones.

How do you do that? Easy – look to your goals. 

In a prior article I talked about the planning process your business can implement to tie everyday activity to the vision and mission of the business. The planning process involves creating a 3-year plan, a 1-year plan, and a 90-day plan. Each of those three plans includes profit, impact, and enjoyment goals, as well as 5-10 building blocks that need to be put together in order to achieve the goals.

You can’t have meaningful KPIs without first having your goals and building blocks identified. The business’ goals will tell you what your KPIs (or at least most of them) should be.  

In the previous article that I mentioned above, I gave an example of a business’ 3-year goals and building blocks, which I have set out again here:

ABC ENVIRO CO. – 3-YR PLAN

GOALS

  1. Profit: $200,000 ($1.5 million revenue less $1.3 million expenses)
  2. Impact:
    • fastest-growing company in our industry in our region
    • helped region reduce unrecycled hazardous waste by 15%
  3. Enjoyment:
    • overall vacation time increased 20% (including owners)
    • employee Net Promoter Scores 80%+

BUILDING BLOCKS

  1. Close service agreements with 100 new clients
  2. Realize 20% more efficiency in our recycling process
  3. Hire a CFO and marketing director
  4. Expand warehouse by 50%
  5. Attend 3 trade shows/year
  6. Resolve issues with logistics software, or implement a new one
  7. Implement and track minimum paid time off
  8. Refinance vehicle fleet
  9. Annual employee engagement survey

So what should the KPIs be for this business?

Well, of course you want to track revenue and profit, and that’s pretty easy as long as you have some decent financial management and accounting in place. As for impact and enjoyment, you can’t know if you’ve achieved these goals or not without measuring them, so there needs to be KPIs around this too. In this case, the business will need to track its growth and the region’s hazardous waste recycling rate, for example.

While the KPIs related to the business goals are important, so too are KPIs relating to the building blocks. The building blocks are designed to help the business achieve its goals, so KPIs connected to the building blocks will be indictors of the business’ likelihood of achieving its goals. In other words, goals are the endgame and building blocks are the means to get there. 

The first building block for this business is to close 100 new clients. So the number of new clients needs to be a KPI. But what leads to a new client? Are there KPIs that can help predict how many new clients will be closed next month or next quarter? There should be, and this will depend on the sales process for your business. Examples might be the number or sales calls made, the number of follow up meetings or presentations, and the number of proposals sent out. 

A couple of other KPIs jump out when looking at the building blocks above. First, % efficiency in recycling process, and second, given the issues with the logistics software, there could be a KPI around % of on-time deliveries. 

And while not specifically a goal or building block for this business, it is generally a good idea to have KPIs around cash flow, such as bank balances, accounts receivable, and work in progress if applicable. There can be others. 

So let’s look at the list of examples of KPIs for this business. I have added to the list how often each of the KPIs should be measured.

KPIHow often
RevenueWeekly
Net incomeMonthly
% GrowthMonthly
Regional recycling rateQuarterly
New clientsWeekly
Sales callsWeekly
PresentationsWeekly
ProposalsWeekly
% Recycling efficiencyMonthly
% On-time deliveriesWeekly
Bank balanceWeekly
ARWeekly
WIPWeekly

As you can see, the majority of the KPIs should be measured weekly and reported on in the Data Review portion of the weekly meeting process that creates the culture of accountability in your business. The other non-weekly KPIs should be added into the Data Review at the appropriate intervals.

Picking the right KPIs and measuring the majority of them weekly will allow your business to know if it’s on track to achieve its goals and, equally important, to take corrective action if it isn’t.

2 thoughts on “How to choose the right KPIs for your business”

Leave a Reply