Whatever your business or its size, tracking progress against your goals can help you better understand where to focus your attention. Taking time to identify the critical levers that drive your business is the first step.
Key Performance Indicators (KPIs) are measurable objectives that align with specific strategic goals for a defined period of time. They enable you to regularly monitor performance, make informed decisions, and improve results. By regularly analyzing KPIs, you have an accurate picture of how well your business is performing so you are better equipped to gauge which levers you may need to pull to get back on track.
I recommend that you start with no more than five KPI categories, of which there are many across various components of your business. Common categories include:
- Finance
- Sales
- Marketing
- Operations
- Revenue/Profits
- Information technology
- Human resources/employee retention
- Customer service
Begin with your company’s overall strategy and then identify which of the categories, like those shown above, will most directly impact your strategic goals. Next, identify a few specific leading or lagging indicators for that category. For example, leading indicators for marketing may include specifics such as website traffic, social media engagement, open and click-through rates for emails and newsletters, and LinkedIn likes and comments. They are the data that predict future performance and can often be adjusted quickly to influence future outcomes. Lagging indicators measure past performance. For marketing, it could be things like revenue growth, return on marketing investment, or customer retention rate. Set the KPIs, or desired goals, for each of your leading and lagging indicators. These are the measurements you will use to track your overall performance in each area.
I recommend that, once your KPIs are in place, you review and measure them weekly to stay informed and on track. If you find that some KPIs are not providing adequate information, consider choosing another KPI that more specifically provides the information you need. KPIs should also be revised along with any changes you make in your business and as it grows.
The benefits of setting and reviewing KPIs are many:
- Provides a snapshot of how the company is performing, enabling you to recognize and address issues in their early stages.
- Defines and maintains focus on critical objectives.
- Yields metrics with which to track your progress towards your strategic goals.
- Informs decision-making by providing accurate data.
- Helps optimize efficiency of operations.
- Facilitates accountability.
- Improves profitability.
KPIs are an essential tool for driving business growth through the intentional review and analysis of your unique issues. This enables you to better solve problems, speed up decision-making, evaluate progress, and maintain the general health of the company. While choosing your KPIs can be difficult at first, taking an iterative approach by reviewing data and narrowing them down to those that are most critical to your company can help you continue on a growth or improvement trajectory.
I would welcome the opportunity, from my CPA and strategic planning perspective, to help you define the strategic objectives you want to track and identify the KPIs that will most effectively do so. Contact me for a complimentary consultation.
Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting, expertise in financial reporting, income and estate planning, and tax compliance makes him a valued and trusted advisor to his clients.