Setting KPIs: Does Your Business Add Up?

by Jul 29, 2013Blog, Strategy | Entrepreneurship

Most business owners review their financial statements, paying attention to their gross sales, expenses and cash flow. These important numbers help them see if their business is on track. While reviewing your financial statements is important to tell you where you are, they do not contain the right information to help you look ahead.  Using them to guide your business is like trying to drive your car by looking in the rear view mirror. You can see exactly where you have been and how you got there, but you won’t have a clue about the road ahead.

To proactively manage your business, you need to be paying attention to other numbers. These other metrics, often called key performance indicators (KPIs) and have a very specific purpose: to guide your behavior down a path toward achieving a specific goal. When setting KPIs, they should be should be:

Directly tied to your objective. There are many things you can measure in your business, but KPIs are a unique subset which can be directly tied to an end result. What types of things should you consider to be KIPs? For each business, it’s different depending  on what you are trying to accomplish including but not limited to:  increased sales, reduced turnover, improved efficiency, reduced errors.

Easily and exactly measurable. If it’s hard to collect the data, you probably won’t do it on a regular basis. If the metric is vague, it’s too easy to fool yourself into thinking you are close to your goal.

Action oriented. Each metric should have a specific set of actions you will take to improve performance. It’s hard to reach a goal if you don’t know how to get there.

At Roundepeg, we have selected KPIs that have a fairly direct connection to new sales. Here are some of the things we rely on to see the road ahead:

  • Proposals and closing rate. I know how many new projects we want to add each month, as well as how long it takes from the initial conversations to get to a signed contract. I also know that not every proposal will become a sale. Tracking new proposals helps me predict how many new customers we will add in the next two months. If the number falls below my KPI goal, I know I need to start increasing my sales activity now, instead of waiting two months to see the results on my P&L. If my closing rate drops, I know it is time to head back to sales training or review our sales process. 
  • Web Traffic and Search Position. People don’t necessarily visit once and become clients, but we do know this is one stop they make during their sales process. We routinely check our rank for key terms. If we fall off page one, that is often an indication we need to update content on that topic. If web traffic falls overall, we look at which referral sources are working and which ones aren’t so we can beef up activities which drive results. A short-term fall in traffic is not a big issue, but a sustained pattern of decline is an indication that something is not working. Typically a change in traffic will lead to a change in request for proposals one or two months out. Noticing a steady decline or increase can be like looking into a crystal ball showing you a cloudy glimpse of the future.
  • Conversions and Email Response. It’s nice that people come to our website, but traffic doesn’t pay the bills, so we also track how many people download our tools each month, subscribe to our newsletter, open and click through the emails we send. Right now, we have targets for conversion activity, but haven’t been tracking them long enough to see the direct correlation to proposals. That’s one of the important elements of using KPIs: they get better over time as you have more data with which to view your results patterns.  
  • Seminar attendance. Seminars are a great lead generation tool for us. We know exactly how many new people need to attend a class for us to generate a new lead. If attendance is low this month, proposals will be low next month.

There are other things we measure which are not KPIs. While it’s good to have social activity, there isn’t a direct line to our sales channel. It doesn’t mean these things aren’t valuable parts of our marketing, they just aren’t KPIs.

looking for a way to start outlining your KPIs?

Our simple strategic plan worksheet can give you a great starting point.
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