Why KPIs are important to your business’s success
Your business’s success is based on results. However, if you don’t know what you are measuring those results against or can’t see the outcome in a useful way, then how can you identify the processes and systems to put in place to harness your company’s achievements.
In this article, we discuss why KPIs are essential to your business’s success.
What is a KPI?
A KPI (Key Performance Indicator) is a way to measure, via data collected, how your business is doing against a target or goal you have set.
It will usually align with your business plan and strategy. The information collated could relate to sales, profits, your employee’s performance, or any other area that is deemed crucial to the success if your business.
To make the most of the information, you ideally want to set targets in advance. For example:
- In quarter 1 the company will make a net profit of £100,000
- Customer service employees must answer the phone within 3 rings
- The number of visitors to the website will increase 50% in the next 6 months
You can then measure against these specific targets to analyse how well the company is doing and identify areas that need to be addressed.
However, you can still collect meaningful data without business goals if you are just starting out and haven’t yet finalised your business strategy. Having critical data about areas such as marketing, sales, finance, customer experience, employee performance, IT services, or HR is always a benefit and can aid you in creating your future plans as well as tell you a lot about where your company is currently.
Why are they important?
There are a number of reasons why KPIs are an essential element in your business’s success and growth, from reviewing employees performance to tracking your company’s progress.
1. Keeps objectives at the forefront
It is essential that business objectives are communicated well across all areas of your business, setting KPI’s around these will ensure that people know what they are and have those targets in the forefront of their minds. Meaning that your company is striving for the goals that support your overarching strategy and can stay on track.
It also helps you to ensure that you are not collecting data purely to have a KPI but that it relates to the broader business objectives. Meaning that everything your company does is with the correct intention and purpose. It helps retain focus in your corporation.
2. Helps you to plan, prepare and be flexible
Data that is generated by KPIs can often lead to meaningful conversations and strategic decisions in the workplace. If you have a negative result on one of your KPIs, then you can immediately start to look at the issue and use the data to consider how you might move forward.
It can also highlight if a target you have set is unrealistic or the marketplace has impacted your company, and you need to adjust your future plans. Helping your business to remain flexible and deal with challenges in a structured and productive way.
KPIs give you the tools needed to plan for the future. For example, if you can see that every January sales increase by 50%, then you can also start to consider how to make the most of that natural upturn to maximise profits.
It will help you to plan in advance what other things you may need to put in place. If customer service response times are down, then you may need to adjust your processes or provide staff training to ensure that you are ready for the New Year influx of business.
You can easily see how much stock you have and whether you need additional items to support the increased sales of a specific product. Your KPIs should also be able to tell you which products are selling better than others, so you don’t over order and negatively impact your potential profits.
3. Support your brand, identity and values
You may have company objectives that are specific to the branding and identity of your business. For example, if one of your key differentials is your approach to safety, then you may want to utilise your KPI data to highlight how you are committed to this goal publicly. You might share the outstanding safety record that you have or how you monitor areas to ensure that it is at the forefront of what your business does every day.
If your company has a strong commitment to charity, your KPI’s can support that goal by helping you to communicate these efforts. You may want to run marketing campaigns around how much money you have contributed to local charities or what percentage of your employee’s volunteer to enhance your brand awareness.
Perhaps one of your company’s primary objectives is to reduce the impact it has on the environment. Utilise those KPIs to ensure that you are making headway against that goal and upholding those company values.
4. Increase accountability
Having KPIs ensures that individual’s targets and expectations are clear. If an employee is performing poorly, and the KPI’s show they are not achieving the goals set, then you have factual information to facilitate a discussion with that person. You can both see the outcome and start to discuss the root causes. It may be that the KPI is too ambitious, that other processes implemented have prevented the target from being reached or that the employee is struggling in some other way. The KPI is a good starting point for a meaningful discussion.
If everyone in your business knows what they are doing, then each area is more likely to run efficiently. People will be less likely to get distracted by issues that are outside of their remit. They know what is expected of them and can organise their day to support those expectations, in line with the company’s objectives.
It also helps everyone to see who is responsible for what, so rather than get involved unnecessarily in a topic, they can refer the problem to the correct person and then get back to what they need to be doing.
KPIs can also help to remove any personal bias. When team members don’t get on, small inconsistencies can become more substantial issues in the mind of one party. Without KPI’s to show an individuals performance it could be perceived that someone is lazy, not punctual and doesn’t care about the business. However, if the KPI’s show that the employee consistently hits their targets or is the highest earner in the sales team, then not only can you clearly see you may have an issue in that team. It also prevents any personal opinions from spilling over negatively into performance reviews and creating a larger HR problem.
5. Boosts employee morale
Having clear individual or team KPIs mean that your employees know what is expected of them. Whenever a person does well at work they feel proud and happy. When they can also clearly see how that they are hitting those goals or even exceeding them, it will naturally boost employee morale.
Make the most of the data you collect to praise staff who are positively contributing to your business’s success. For example, if sales are up 50% this quarter, let your staff know and show them how their work makes a real difference to the company’s profitability.
The happier people are in their role and the more appreciated they feel for their contribution, the more likely they are to perform well and work hard. It creates a sense of purpose and keeps them focused on their goals. KPIs can also form the basis for an employee rewards or benefits scheme.
Let’s get started
Creating the right KPIs means that you have the tools needed to increase potential cash flow, improve profitability, create meaningful employee rewards and ensure everyday activities are aligned with your strategy. MRA work with company’s to provide financial HR for your employees, to set up appropriate employee benefit schemes, and assist in forward tax planning and lifestyle financial planning advice.
Working together, we can help you objectively look at your business and create meaningful KPIs that support your business’s values and aims for the future. MRA offer the systematic approach you need to ensure that every part of your business moves forward in an integrated and effective way. Contact us here to find out more.
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