The Most Critical Business Performance Metrics To Monitor
Some KPIs are more important than others. If you focus on the wrong metrics, you’ll waste time. You might find yourself worrying about numbers that aren’t truly important in measuring your business’s success.
Just knowing your KPIs isn’t enough. Business intelligence allows you to use raw KPI data to make effective decisions, which we’ll explain further in this post.
Why KPIs and Business Performance Metrics Matter
To put it simply, business metrics drive business growth. They allow you to focus on your goals when making business decisions. Plus, they help you understand whether those decisions were effective.
A 2016 study found that 49 percent of small and medium businesses hadn’t identified any KPIs. Even the ones who weren’t tracking them regularly. The companies that did develop and track KPIs were 15 percent more likely to meet their growth goals.
In addition, monitoring KPIs can help you avoid painful errors. For example, if an employee’s performance isn’t meeting expectations, you can address it with them. Bringing up the issue early on can help reduce the formation of bad habits. It can also prevent lost revenue resulting from underperformance.
If everyone on your team is informed of KPI goals, they’ll be motivated to meet them. Measuring KPIs provides an opportunity for rewarding employees who meet them. For those who don’t, you can focus on training and encouraging them.
Important Business Performance Metrics
There are hundreds of potential performance metrics out there, but not all of them are relevant to your business. Moreover, non-essential measurements can be harmful to team morale.
So, which KPIs should you monitor? Read on for our top suggestions.
1. Employee Performance
There are several KPIs that can help you understand your employees’ performance. Some focus on your workforce as a whole, while others target individuals.
You can calculate revenue per employee by dividing your revenue by the total number of employees. Profit per employee is similar. Calculate it by dividing your profit by the total number of employees. Each of these KPIs will help you ensure your team isn’t costing more than they’re bringing in.
Remember, raw data shouldn’t be the only factor in assessing an employee’s work. There are also qualitative aspects of employee performance, such as how they get along with their team. Ideally, you’ll address all these components when giving feedback.
2. Sales Revenues
Sales revenue is the money your company earns from selling goods or services.
There are a few things to keep in mind when measuring sales revenue. Some small business owners focus exclusively on profits, which is understandable. Net profit is the money you can actually use after subtracting taxes, manufacturing costs, and other expenses. However, it’s best to track both profit and revenue.
Understanding your revenue can give you vital insights into your business. For example, you can determine if sales are higher during certain seasons or if customers buy more on certain days.
You can calculate profitability, or your profit ratio, by dividing net income by sales revenue. This figure tells you how well your business converts sales into profits. If your profit ratio is low, you can look into improving it by reducing costs.
3. Satisfaction of Customers
Low customer satisfaction doesn’t just lead to lost sales. It can damage your brand’s image, with long-term effects that are difficult to recover from.
Unhappy customers are likely to tell nine to 15 other people about their experience. They are also likely to leave a negative online review. This can cause problems for your business, as 93 percent of consumers say reading an online review affected their buying decisions.
There are several ways to look at customer satisfaction. First, you’ll want to consider customer experience (CX). CX is a way of measuring how people feel when they do business with you.
Are your employees friendly and responsive? Is it easy to make a purchase, and to get a refund, if necessary? These factors determine your brand’s CX.
Some popular ways to measure customer satisfaction include Net Promoter Score, Customer Satisfaction Score, and Customer Effect Score. These methods use surveys to see how satisfied customers were after a purchase or other interaction with your company.
4. Implementation of Strategies
Strategic implementation is how you ensure that your business actually follows particular strategies. After all, what good is a strategy for business growth if you don’t stick to it?
There are a variety of KPIs that fall under the umbrella of strategy implementation. The best one for the job depends on the strategy you’re working on.
Some strategic outcomes are hard to measure. Customer satisfaction is one example since it’s not quantifiable. However, strategies such as NPS surveys provide measurable data.
You may find it useful to differentiate between strategic and operational KPIs. Strategic KPIs are more relevant to long-term goals and projects. Operational KPIs, like average call handle times, are measured each day or even in real time.
5. Cash Flow Levels
Among small businesses that fail, 82 percent of them cite cash flow problems as the reason. So, tracking your cash flow levels can be the difference between succeeding and closing your doors.
Cash flow is separate from revenue. Understanding your overall revenue doesn’t tell you if you have enough cash to cover an emergency. It doesn’t take into account how much money is tied up in inventory or other non-liquid assets.
Some different KPIs relate to cash flow levels. One of the simplest is Operating Cash Flow (OCF), which is the cash your business generates each day. To calculate it, start with net income. Adjust for factors like the amounts in accounts payable, which don’t count as cash.
Data Tracking of KPIs is Crucial To Business Success
Once you determine the KPIs you want to measure, you need an easy way to track them. If it’s too hard to keep track, or you don’t know how to, these indicators won’t help you.
Many business owners and executives like to view KPI progress on a dashboard. This format provides an overview of the different metrics you might be tracking.
There are many business intelligence tools available to help you track and analyze KPIs. For example, SimpleKPI offers dashboards and reporting that make tracking easy.
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Frequently Asked Questions
Why is it important to track KPIs and business performance metrics?
These metrics provide insight into how successful your business is. They help you set goals and determine when you’ve reached those goals. Tracking KPIs ensures that you’re aware of any problems, such as a lack of cash flow. Understanding a company’s KPIs can help keep employees motivated to help meet them.
What are some critical KPIs to measure?
Business owners should consider tracking the following: employee performance, revenue, customer satisfaction, strategy implementation, and cash flow.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.