Keeping an Eye on Your KPI
Key Performance Indicators (KPI’s) Keep Your Business on Track
Is your business on track? Do you know? If you are like most successful small business owners, you have a handle on your financial statements, gross sales, expenses, receivables, and accounts payable. These important numbers provide a great snapshot of where you have been and where you are at any given time. While it is handy to be able to predict next month’s cash flow, these numbers only tell you part of the story. They can’t give you any insight into future sales.
So relying exclusively on your financials to drive 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.
KPI’s include Other Metrics
To predict the future, you need to be paying attention to a broad range of numbers. What numbers? That will vary based on your business. To answer that question, ask yourself about the steps prospective customers go through before they buy. Look for ways of measuring the pre-buying behavior. Why? If you pick the right metric, it is easier to anticipate when sales will slow down, and adjust marketing efforts accordingly.
At Roundpeg, for example, prospective customers visit our website, attend a webinar, sign up for our newsletter, and request a proposal. By studying the behavior pattern, we can set goals for each of these actions. If any of these metrics fall below our goal, we can make very targeted changes.
- 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 purchasing 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 the topic. If web traffic falls overall, we look at which referral sources are working and which ones aren’t so we can beef up the activities that 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 is like looking into a crystal ball showing a cloudy glimpse of the future.
- Webinar attendance. Training programs 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. If we notice registrations are starting to fall off we can add another class, send a reminder email, or even run a small social media ad to reach a wider audience.
- 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. When interest starts to wane among our readers, we will mix it up a bit, switching up our format, dividing our list to send more personalized content, and even removing people who haven’t opened an email in six months. Cleaning up our list gives us a much more realistic measure of which prospects are really interested in our services.
- 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 conversation 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.
Our metrics may or may not be right for you. As you start thinking about your key performance indicators, here are a few things to keep in mind:
- 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 KPI’s? 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, and 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 when you aren’t.
- 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.
- Don’t have too many metrics. It is easy to get overloaded and track too many key performance indicators at once. Ideally the right number of metrics is 5 – 7.
- Swap our KPI’s. As your business changes, your KPI’s may need to as well. For example, we used to count the number of forms downloaded from our website. What we learned, is those people are not as interested in hiring us as the people who participate in a webinar, so after many years of focusing on downloads we stopped, putting more effort toward our training programs. The result is a better look forward at our potential sales.
start outlining your KPIs
Our simple strategic plan worksheet can give you a great starting point.