How can you measure the effectiveness of your business? And how do you create these measurements?
In this episode, you’ll learn what a KPI is and how to establish KPIs for the most important areas in your small business. There’s no need to be overwhelmed by setting KPIs because I’ll show you how to do it in five easy steps.
What is a KPI?
KPI is an ominous acronym that makes you feel like, “I’ll come back to that later.” A KPI is a Key Performance Indicator. It’s a measured value, which measures how effective your organization or business is in achieving its goals.
KPIs are metrics that will measure how effective your business is achieving its goals.
KPIs are so great because they provide you and your team with feedback on exactly how you’re doing, they allow you to cast a vision, and they measure how you’re attaining what you set out to do.
How to Establish a KPI for Your Business
- Start with your vision. What is the vision you have for your business? You’ll want to have a 6-12 month vision and a 3-year vision. Your vision should be big and defines success for you in the next 12 – 36 months. Put your vision on paper. Want to learn more about vision? Go here.
- What is the goal this year that you’ll focus on that gets you closer to your vision?
- Rank the seven strategic objectives. Then determine your top three to four.
- Create a metric that ties back to your vision. For example, if visibility is one of your top strategic objectives, ask yourself, “What am I doing from a visibility perspective to help me reach my vision?” Every metric must tie back to a strategic objective.
- Ask yourself these questions:
- “If I was to succeed with ______, what would the outcome be?”
- “How will I measure this?”
- “Who’s responsible for it?”
“Every KPI is a metric, but not every metric is a KPI.”
You may pull a lot of metrics, but not all are worthy of being called a KPI. You should have between three and five KPIs. You may pull metrics for 30 areas, but you’ll have a limited number of KPIs.
You may need to pull data daily, weekly, monthly or quarterly to determine if you’re reaching your KPIs.
Examples of KPIs for the Different Pillars
- Financial Steadiness: revenue, profit, operating expenses, customer lifetime value
- Visibility: conversion percentage, cost per lead, site visits, number of subscribers
- Product Creation + Refinement: sales rate, average order value
- Operational Excellence: ROI
- Team Growth: task completion rate, on-time percentage, employee turnover
- Customer Experience: net promoter score, retention rates
Previous Episodes Mentioned
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