KPIs, Key Performance Indicators, are an important way for any manager or business owner to keep track of how he or she is doing. Remember one key point – If you don’t measure it, you can’t improve it. Which KPIs should you use to determine the success of your business? It would be nice and easy to tell you the six (6) most important KPIs for your business. The problem is that each business is different, and to make the decisions more difficult, each business owner has different goals.

So how do you determine what KPIs are the ones that you should use? To start, there are hundreds, maybe even thousands of KPIs. Some may only be relevant to a particular company or the interest of a particular owner. Let’s talk instead about how you determine what KPIs you should be looking at. That way, you can develop your own choices. What I’ve found doing consulting for over 13 years, is that no two businesses are alike, and no two business owners are alike. I can tell you what has worked for other business owners, but you need to decide what is the best for you. Here’s a little approach to methodology:

  • □ The measurements that you track depend on your goals and objectives.
  • □ Determine what you want to achieve in your business.
  • □ Analyze how to measure progress towards that goal.
  • □ Set a target for what results mean success.

You should probably set KPIs for different parts of your business. Some of them will be high level financial goals that tell you how your business is doing overall, and some may be detailed goals that will be reviewed and tracked by the department managers. Look for measurements in some of these functional areas – not all of these will be critically important to you:

  • □ Financial
  • □ Sales
  • □ Manufacturing
  • □ Marketing
  • □ HR
  • □ Customer Service
  • □ IT

In each area, look at those measurements that will tell you that you’re doing better than you did last month or last year. Set some targets that tell you what means success in each of these areas.

If you’ve never set KPIs for your company before, start with just the Financial and Sales goals:
Here are some representative KPIs in the Financial and Sales areas:

  • Financial
  • Gross Profit
  • Gross Margin
  • Net Profit
  • Net Profit Margin
  • Working Capital
  • Operating Cash Flow
  • Percent of AR aging at 30 days, 60 days, 90 days, over 90
  • Percent of AP aging at 30 days, 60 days, 90 days, over 90
  • Current Ratio
  • Return on Equity
  • Sales
  • Monthly/Annual Revenue
  • Number of new customers per month
  • Lead to Close Ratio
  • Average Order Value
  • Average Sales per Customer
  • Monthly Recurring Revenue (MRR)
  • Days Sales Outstanding (DSO)
  • Revenue per Employee
  • Average Order Size
  • Closing Ratio

Some of these may be relevant for you, some may not be. As a business owner, you should have about 20 measures that you will look at weekly or monthly. What is important is that any measure that you use should prompt you to either smile, or dig into figuring out how to make things better. Remember, it’s your company, and the results are going to provide you with information that you can use to make the best decisions possible. The results will be in those tables, graphs and spreadsheets, and will lead you to ask the right questions and get the answers you need to hit the next level of performance.

Sources –
Scoro Software
Clearpoint Strategy Software
Cascade Software
Impact Agency
Vital Design

Larry Chester

Founder and President at CFO Simplified, LLC
Larry Chester served as a corporate CFO for 25 years before starting CFO Simplified in 2007.Having worked in manufacturing and service companies of all sizes, he now leads a team of part time CFOs serving small to mid-sized companies throughout the Midwest.They serve the needs of business owners, providing them with Cash Flow Forecasting, Profitability Improvement and Financial Statement Clarity.Since the company’s inception, they have implemented changes that have improved operations, cash flow and profitability to their many clients.
Larry Chester

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