Key Performance Indicators (KPI’s) are commonly implemented and used in many medium-size and large size companies. They can be just as useful in guiding a start-up or a small business during the various phases of the business life cycle. In simple words, KPI’s are nothing more than the gauges that you need to use to manage effectively and grow your business, similar to the indicators that you use to drive a car, e.g., the gauges for fuel, speed, oil, temperature, etc. Without these indicators, you probably would not be able to drive a car for an extended period without having an accident or running out of gas. Similarly, every business owner needs to have its own gauges to manage and grow their business.
All businesses go through a life cycle from start-up, growth, maturity, decline, and rebirth or death. KPI’s not only vary from industry to industry, but they also differ from where the company is in its life cycle. At the early stages, the company is probably more concerned with reaching critical mass to cover the variable expenses. On the other hand, a company in a mature stage is perhaps more concerned with recreating itself by looking for new and fresh growth areas.
The number of customers or number of customer orders, or orders/customers are examples of operational KPI’s. The right KPI depends on your industry. In the restaurant business, you certainly want to keep track of number of customers by day and the average bill per customer. Tracking this will help you understand what days of the week or what months of the year you need to have some promotions in order to increase traffic. On the other hand, if the average bill is too low, perhaps you need to promote add-ons on your menu.
If you have a business that sells to the top of the market, like luxury vehicles or custom wedding invitations, you also want to keep track of the closing rate. Meaning how many orders you took over a given period relative to how many customers came to your store during the same period. Again, these figures will vary from industry to industry.
The most important KPI’s in this segment are the ones designed to “listen to the customer,” for instance, customer reviews/opinions or complaints. As an alternative, you may also want to keep track of customer error rates. Depending on your business, these are the errors that impact customer experience. For instance, an online retailer can use: incorrect customer shipments or customer shipments not delivered. These KPIs will help you make adjustments to your process along the way. If you are getting consistent feedback that the service level is not satisfying, you need to address the necessary process issues head-on to make sure that customers come back.
The primary purpose of implementing KPIs is to objectively make changes to your process, people, or your technology to grow the business. The most important thing is to make changes based on data as opposed to “gut feelings”. Don’t worry about being perfect at the beginning because KPI’s will evolve with time as you learn more about the business or as you face different challenges along the way. For example, today, you may be launching a new product with limited competition, but tomorrow you may have 3 or 4 competitors that are eroding your margin; therefore, keeping track of your pricing relative to your competitors may be an indicator that you need to implement in the future.
