When it comes to measuring the performance of your business, you have to heavily rely on indicators. Whether it be result indicators or performance indicators, both of them come in handy to make better-calculated decisions for the business.
Result indicators are more inclined towards evaluating the performance of a combination of teams, but performance indicators are usually associated with a common goal, which is more beneficial for the business in the long run.
In this article, before jumping on to what KPIs are right for your business, we will start by discussing what does the term KPI means and how it is beneficial for your business. Then we will move on to discuss some types of KPIs, followed by some tips and tricks for business owners to help them choose and measure the most suitable KPIs for their business.
What are KPIs?
In the simplest of the term, KPI stands for Key Performance Indicator. It is a metric that helps you efficiently measure the performance of any step taken by your business and it aids you in analyzing how that particular step comes in handy to be a bit closer to your goal by identifying potential areas of improvement.
Apart from evaluating the overall performance of a business, KPIs are also essential to keep a check on individual departments within the business.
However, we have to make it clear from the beginning that the KPIs that are used to measure the progress of one department might not be the same as the KPIs used to measure the progress of another department.
Benefits of KPIs
KPIs help a business to identify its underlying strengths and weaknesses, and how they can be harnessed for gathering more success in the long run. They help to devise plans for further improvement that guarantee constant success for your business.
In a nutshell, KPIs are beneficial for a business because they
- provide measurable and quantifiable results
- distinguish between good performers and poor performers
- improve individual performances through incentives
- boost business productivity
- increase sales
- give measurable and achievable goals
- multiply the efficiency of individual departments and overall business
- reduce uncertainty and provide a clear path to achieve a mutual goal
- divide complex information into understandable steps
- bring all departments of the business on one page
- cut down unnecessary business costs
Types of KPIs
Every business has to track different KPIs, depending on their needs and requirements. Even within a business, every department has to track its own individual KPIs to ensure its individual growth and process.
Broadly, KPIs can be divided into six different types, including
- Input KPI: These KPIs measure the input elements within a business, which broadly include asset, time, and resources
- Quantitative KPI: Anything that concerns with numbers falls under this category of KPIs. It can include the number of sales, the number of courses attended, inventory, etc.
- Qualitative KPI: These KPIs focus on descriptive characteristics, usually associated with an opinion or feeling. Examples include brand loyalty, employee satisfaction, etc.
- Process KPI: Productivity and efficiency of the business are measured through Process KPIs.
- Lagging KPI: A past process is described through lagging KPI, such as unemployment rate, corporate profits, and so on.
- Leading KPI: Prediction of future performances is based on Leading KPIs, which include the number of new clients, increase in website views and email subscribers, etc.
How to choose KPIs?
Choosing the right KPIs for your business can be a daunting task. There is no hard and fast rule to do so, so you have to rely on your experience to choose the ones that give you the maximum benefit.
However, after years of trial and error, people have come up with some basic criteria for choosing the right KPIs for your business. Some of the key points for this are:
- Consider your objectives: Every business has a variety of different objectives, whether it be user-oriented goals, business-oriented goals, or product-oriented goals. All of these goals should be considered before finalizing the KPIs.
- Make your KPIs are realistic and attainable: Ensure that the KPIs you consider for boosting your business is specific and data-oriented. Moreover, you should also compare the expenditure cost of each KPI with the benefit it provides.
- Base everything on data: With the ever-changing world, it has become immensely important to ensure that all your business-related decisions are based on data. Work with ratios, ranges, and percentages instead of plain numbers, so that you have a long-term target in mind.
- Work with fewer KPIs: Only choose the KPIs that truly affect your business. Moving forward with too vague or too high-level KPIs will only lead to a higher increase in cost compared to the benefit. Limiting the number of KPIs ensures that you can focus on each of them diligently.
- Ensure the accuracy of KPIs: KPIs should be reliable in predicting business performance. You do not have a lot of margin for error, so make sure that the chosen KPIs include all relevant information and are accurate in reflecting and predicting business performance.
In today’s fast-paced world of data, working with metrics and KPIs is bound to have its benefits. However, choosing the right kind of metrics and KPIs has also become significant, as not all of them work fine for every business. Hence, a little effort into choosing the right KPIs for your business has shown to result in good gains and profits over time.