What is Key Performance Indicator and Why it is Important for Business Management
Do you like playing computer games? If you don't play them anymore, we are sure you used to some time ago. TechTalk states that over 50% of Brits (52%) admit to playing video games in their spare time, whereas in the USA, according to Cloudwards, it is 67% of adults and 76% of kids. There is much debate about the benefits and harms of gaming, but you can acquire some skills that can help you even run a company in the future, just like what happened with the CEO of our company, AcuPower, Waldre Willemse.
At one of our meetings, we discussed the plans of AcuPower and the motivation, job satisfaction, and inner fire that would lead us to achieve our company goals. And Waldre said one exciting thing: "For me, AcuPower is not a 9-to-5 job or just a business. It is a strategic game that I love playing day and night—everything I do always brings me joy, as every new goal is like a quest task. I need to cooperate with the team, use my resources, and think of a strategy to achieve this goal. " Waldre used to play Dota-2, and he mentioned that this game boosted his leadership, strategic and critical thinking, problem-solving, patience, and perseverance skills. This set helps him successfully run AcuPower and enjoy every day of the company's growth, success, and improvement.
If we draw a parallel between quest tasks in games, every business should have its list of targets or strategic tasks that will measure the company's performance and identify whether the company is moving in the right direction and how fast it is. These tasks are Key Performance Indicators (KPIs).
So, here is what we are going to discuss today:
First of all, you should have an understanding of what can be called a Key Performance Indicator. There are specific characteristics to take into account.
Any KPI should be quantitative.
This means you should measure it by numbers. It can be the number of new subscribers to your blog you want to get, the number of products you plan to sell or the percentage of increased company revenue by the end of the year.
Your KPI should be realistic.
It means your goal should be adequate and achievable within the set amount of time. For instance, it's impossible to have $1 billion in revenue next year when your current income is $10 million. You should rely on your skills and performance and set realistic time estimates for your goals. In this case, your KPIs will be effective.
KPIs should be relevant.
Your indicators should correspond to your company's goals and missions. If you run an e-commerce company, your goals will be connected to new customer acquisition, improving the delivery process, and boosting your customers' experience of shopping with you rather than the number of brick-and-mortar stores you need to open abroad.
Your KPIs let you compare results.
Your KPIs should allow you to compare them to the previous goals. This way, it will be easier for you to visualise your results and track your progress. For instance, last month, your goal was to get +100 subscribers organically. This month, it can be +150 organically or +1000 by paid ads. At the end of the month, you will be able to see if you reached your goal and present your results with a bar graph, for instance.
We mentioned above some general examples of KPIs to give you a basic understanding of what they are. In our next posts, we will highlight KPIs for Financial Managers, Marketing and Sales Departments, and Customer Metrics. If you don't want to skip a notification about these posts, subscribe to our LinkedIn page.
But now, let's get to the importance of KPIs.
KPIs' most crucial function is measuring how well your company performs. They also show you specific individuals or even whole departments' progress. They allow you to track your projects and system too. You get helpful information you need to improve your business processes, set goals for the future, and track progress. KPIs also ensure that everyone in your company is on the same page. Let's look at four business areas that will benefit from having effective KPIs.
领英推荐
Profitability
Profitability is not only about measuring your income. It's about boosting your revenue and reducing your expenses.
You can track financial performance by product lines, deal size, upsells, and sales representatives if your company produces goods. These criteria will help you understand what is working and what is not.
If you offer services, you can pay attention to the speed of response and how stable and accessible your business is.
For a non-profit organisation, KPIs can help monitor donations, grants, working capital, and service metrics.
As a proverb says, "a penny saved is a penny earned," businesses establish expenditure targets and examine indicators to identify how best to manage funds and simplify services to keep the desired profit and loss ratio. Thus, a company's profitability assessments are essentially connected with its key performance indicators.
Competitiveness
KPIs allow you to track your results compared to your competitors on the market. Specifically, you can compare sales, expenses, product development cycles, market share, and more.
Moreover, businesses may use KPIs to examine the elements that go into each success aspect and seek ways to enhance performance. With the correct key performance indicators, they may take advantage of favourable market conditions, address weaknesses, and rally resources to support competitive advantages.
Productivity
Your company's productivity depends on every employee, process, cost, and system. KPIs help you see how each element influences the team, departments, and the company. Statistics show, according to Zippia.com, that more than 70% of executives are thinking of digital transformation for their business. Digitalisation opens many doors that lead to significant productivity boosts, as technology platforms, like Acumatica Cloud ERP, automate business processes and integrate workflows. To digitise your company successfully, you should control every step of implementation together with the vendor that will implement the system. You can have targeted KPIs that will monitor costs for implementation so that you don't pay extra. Don't waste money by paying too much for licences by not considering pricing models. Most economically viable are consumption-based systems, like Acumatica.
Customer relationship management
The more customers every business has, the faster it grows. KPIs become best friends for tracking your customers, especially attracting and supporting them. Key performance indicators verify that marketing and sales initiatives have the desired effect by reviewing customer interactions. Management of customers helps keep tabs on how happy they are and what problems they're having with the service. Based on this data, companies may adjust their priorities to provide better assistance before their customers lose interest. Lifetime value, retention rates, client acquisition expenses, and revenue growth are all key performance indicators.
Conclusion
If you consider a business a huge video game, you achieve your goals by completing small steps. Like in the game SimCity, where you play as a mayor, your tiny village transforms into a megapolis only if you meet the tasks and make the right choices. If your company has simple, quantitative, comparable, relevant, and realistic KPIs, you will be able to multiply your company's revenue and keep growing steadily.
Today, we mentioned the Cloud ERP Acumatica as a solution for automating your business processes and integrating workflows. Our team at AcuPower can show you the system and tell you more about its benefits and solutions for your company specifically.
For this, visit our website to schedule a meeting with us where we can answer all your questions:?https://acupower.co.uk/. You can also email us at?[email protected]?for more details.
And remember that subsequent posts will be covering more specific KPIs, so stay tuned, and have a great day!