How to use key performance indicators

Key Performance Indicators (KPIs) make some entrepreneurs shudder and remember exactly why they never want to work in a corporate. But scary acronym or not, KPIs can be an effective way of finetuning your business model and driving profits. This guide looks at what KPIs offer and how to use them:

• What KPIs are and how they work
• Why KPIs are important
• Choosing KPIs
• Using your KPIs

What KPIs are and how they work

KPIs provide a metric by which to measure and analyse a business function using a number rather than some sort of written assessment.  So if call centre staff are taking 100 calls a day in June, compared with 95 in May, you can see at a glance they are being more productive.

• A numerical metric for a business function

Why KPIs are important

As your business grows it's important to know which elements are performing most effectively or badly and to know what trends, changes, peaks and troughs relate to. KPIs enable you to measure performance against targets objectively. KPIs are able to measure productivity beyond just finances.

• Track productivity and effectiveness of business functions
• Measure performance against targets
• Measure productivity beyond finances

Choosing KPIs

It's important to choose KPIs that are worth measuring, ie they directly contribute to overall output and which you can influence. Typical KPIs include gross profit margin, return on capital, absence rates, sales figures, enquiries handled in a day, numbers of complaints, repeat orders.

• Choose KPIs according to relevancy
• Apply KPIs where you can affect change

Using your KPIs

KPIs aren't targets to make and hit. Set targets for performance, then use KPIs to monitor that progress. As a result, ensure staff don't view KPI assessment negatively and communicate they're just as likely to highlight strong performance as poor. Set targets in sensible time intervals but review KPIs more frequently to assess if those targets are being met and integrate into your daily / weekly reporting for full effect.

• Use targets and KPIs - but don't confuse them
• Communicate KPIs positively to staff
• Assess frequently

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