Every type of business, from restaurants to the construction industry and everything in between, should be committed to monitoring progress, identifying successful strategies, and addressing areas that require improvement. KPIs (key performance indicators) help you do just that. KPIs help measure strategic goals, enable better decision-making, and improve overall outcomes.
What is a KPI?
A Key Performance Indicator (KPI) is a way to evaluate how well a person or business is doing in reaching their goals. They can help gauge the success of an organization, specific department, project, or individual. By looking at key performance indicators, organizations can learn if they are progressing towards achieving what they want. It’s like a checklist to see if you’re on track.
For example, financial, operational, HR, sales, or customer service KPIs allow organizations to pinpoint specific areas contributing to overall performance. Whether assessing the success of an organization, a particular department, a project, or an individual, KPIs provide quantifiable, objective data.
Why are KPIs Important?
Key Performance Indicators illustrate whether or not you are reaching your goals and help with smarter decision-making. Below are (just a few) reasons why you need KPIs.
1. They monitor a company’s health, whether a coffee house or a bank.
2. They indicate if an organization is meeting its objectives.
3. Businesses can use KPIs to make adjustments and work toward achieving a common goal.
4. They create a framework for accountability. Accountability can be assigned to individuals or teams for achieving specific, measurable results.
5. KPIs are crucial in continuously improving processes, products, and services.
Types of KPIs
You’ll find Key Performance Indicators across nearly every industry and category, from sales and marketing to IT and human resources. KPIs drive performance goals and results, so choosing the best ones for your business is essential.
Check out the KPI examples below to better understand which ones will benefit you the most.
Customer Service KPIs:
- Customer Satisfaction Score (CSAT)
- Customer retention rate
- Probability of customers to recommend a product or service
- Average response time
- Percentage of consumers who discontinue using a product or service
Financial KPIs:
- ROI (Return on Investment)
- Total revenue per employee
- Gross profit margin
- Operating cash flow
Marketing KPIs:
- Sales growth
- Monthly website traffic
- Conversion rates
- Social media engagement rates
- Page likes or comments
KPIs vs. Metrics
KPIs and metrics are related, but businesses use them in different ways. KPIs are tied to specific goals, while metrics are quantitative data points. Here’s a quick breakdown.
- KPIs align with business goals and targets. These key targets, like “reduce operating expenses by 10% in the next quarter,” will impact your strategic business outcomes the most.
- Metrics measures the everyday actions that support your key goals. A metric for “reducing operating costs” could be tracking the cost-to-income ratio after implementing cost-cutting measures to reduce operating expenses.
OKR vs. KPI
Objectives and key results (OKRs) are a goal-setting framework that makes it easier to measure your progress and stay on track. OKRs require you to identify your KPIs and metrics to decide what needs to be changed, fixed, or improved.
Think of OKRs as aspirational goals, like “increase engagement with new customers,” while KPIs help you monitor ongoing performances to achieve your goals. In this example, the associated KPIs could include metrics like the Click-Through Rate (CTR) or the Net Promoter Score (NPS) from new customers.
How to determine KPIs
Picking the right key performance inidicators for your business is crucial to achieving your goals. Here are some tips to help you determine the KPIs that matter most to your organization:
- What do you want to achieve? What are your objectives? Choose KPIs related to your business goals.
- Take into account the growth stage of your company.
- Identify performance indicators.
- Focus on a few specific, measurable goals that help you track progress.
Tip* There are a few KPI selection mistakes you should avoid. The two most common missteps during the selection process are:
- Choosing the same KPIs over and over
- Picking KPIs that are the easiest to measure
Not sure where to begin? Accounting can help define Key Performance Indicators by providing accurate financial data.
How accounting can help determine KPIs
Finding the right accounting KPIs can improve your business finances. Accounting provides essential financial data and insights. At Numetrica City, we work with small business owners across several sectors, including construction, the food industry, commerce, and more.
Here’s how our accounting services can help you determine the most impactful KPIs for your business.
- Get crucial data you can use to create financial KPIs.
- Accounting helps in setting budgets and tracking financial performance against those budgets.
- Determine cost related KPIs, including cost per unit or cost per project.
- Use accounting data to create realistic forecasts and set achievable KPI targets.
How to measure KPIs
Once you define your objectives, strategies, and actions to achieve your Key Performance Indicators, it’s time to measure and monitor your success. Measuring them involves collecting and analyzing data to determine if the set goal is achieved.
The collected data depends on the KPI. For example, if you’re measuring “employee productivity,” the data collected may include work completed by each employee or time spent on specific tasks or projects. Some performance indicators may involve setting up tracking systems or using existing data sources.
After collecting the data, analyze it to determine if the KPIs are being met. The results of the analysis should be used to identify areas for improvement.
Get started
Numetrica City offers Accounting, Financial & Business Services, and Business Consulting in Ottawa. Contact us today if you need help setting up KPIs for your small business.
