How To Implement Key Performance Indicators & Bonuses

How Setting Key Performance Indicators (KPIs) Can Help Your Business Grow: A Guide for Entrepreneurs and Business Owners

Ever worked so hard in your business serving your clients that you realize you have NO idea what’s going on in the rest of the business??

It happens to even the most focused and disciplined entrepreneur. And if you don’t have KPIs set in your business, that anxiety can turn into a business-crippling weakness. This blog post will provide a step-by-step guide on how to set KPIs, how to use them to grow your business, and why they’re so important.

What are Key Performance Indicators (KPIs)?

Key Performance Indicators (KPIs) are measurable values that indicate how well your business is achieving its objectives. It’s essentially an easy way to check on the health of your business at a glance so you feel in control of your business. KPIs are used to evaluate success in reaching specific targets, such as revenue goals or lead generation numbers. Setting KPIs helps businesses stay on track and monitor progress toward achieving their objectives.

Setting KPIs

The first step in setting KPIs is to determine your business's financial target for each month of the year. This target can be based on revenue, lead generation, or any other metric that's important to your business. Once you have your financial target, work backward to determine the numbers that must be true to achieve that target for each month.

For example, let's say your business is lead-generating, and you want to generate $50,000 in revenue in January. If your average transaction value is $5,000, you will need ten sales to reach your goal. To get ten sales, you'll need 50 leads because you have a 20% conversion rate. Therefore, the number of leads generated is a crucial KPI for your business.

Creating KPIs for Different Departments

Different departments in your business will have different KPIs. So you must decide as the business owner which metrics are important and which aren’t. For example, your sales team’s KPIs may include unique consultations attended, the average time to close, rolling 30-day average client value, and the number of closed sales. For a marketing team, KPIs may include the number of consultation requests booked, the overall cost per consultation, and the number of pieces of content posted. For a client experience team, KPIs may include net promoter score, response rate, five-star reviews, video testimonials, client referral introductions made, and client calls attended.

Lag Metrics vs. Lead Metrics

Understanding the difference between lag metrics and lead metrics is absolutely vital when setting KPIs. Lag metrics are numbers that indicate a problem after it has occurred, such as revenue or sales numbers. These are metrics or numbers that are influenced by actions taken by your team BEFORE the metric can be measured.

On the other hand, lead metrics are numbers that occur before data for a certain metric can be measured. Tracking these kinds of KPIs specifically is the fastest way your business can indicate there’s a problem before it has occurred. Focusing on lead metrics is critical because it allows you to be proactive in addressing potential issues. An example of a lead metric could be the number of consultations attended for your business. If this specific number starts decreasing, you can address it BEFORE your monthly revenue numbers are affected.

Tying Bonuses and Incentives to KPIs

Tying bonuses and incentives to KPIs is a great way to motivate employees and keep them focused on achieving business objectives. When employees know that their performance will be rewarded, they are more likely to work harder to achieve their KPIs. Bonuses and incentives can be tied to KPIs such as the number of consultations booked, sales closed, or net promoter score.

Internal Protocol for Setting KPIs

At SMB Team, we have an internal protocol for setting KPIs that has helped us scale our business to over eight figures in revenue in four years. Our KPIs are the numbers that must be hit to reach our annual targets. Every department head and leader in the company is obsessed with hitting our KPIs on a weekly and quarterly basis. KPIs are evaluated based on the most effective ways to hit those monthly targets for each department. The department manager works with the team member(s) responsible for the KPIs and decides on the lead and lag KPIs to measure. Then, the manager submits them to executive leadership for final approval.

Conclusion

Setting KPIs is an essential part of growing any business. KPIs help entrepreneurs and business owners stay on track and monitor progress toward achieving their objectives. By creating clear financial targets and working backward to determine the numbers needed to achieve those targets.