Key Performance Indicators (KPIs) provide measurable insights that help business owners track performance, identify opportunities, and make data-driven decisions for growth and efficiency. As helpful as they can be, getting started may feel daunting. To simplify the process a bit, here are some basic pointers to get you headed in the right direction.

1) The first step is to identify the critical factors that drive your business.

Following are the most common KPI categories. Considering your company’s overall strategy, choose the ones that are most applicable to your business and start with no more than five.

• Finance
• Sales
• Marketing
• Operations
• Revenue/Profits
• Information technology
• Human resources/employee retention
• Customer service

2) Next, identify a few specific leading or lagging indicators for each category.

Leading indicators provide data that predicts future performance and can often be adjusted quickly to influence future outcomes. Examples related to marketing may include the following:

• Specifics such as website traffic
• Social media engagement, such as open and click-through rates for emails and newsletters
• LinkedIn likes and comments

Lagging indicators measure past performance in each area. Examples for marketing include:

• Revenue growth
• Return on marketing investment
• Customer retention rate

3) Once your KPIs are in place, 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.
• While choosing your KPIs can be difficult at first, take an iterative approach by reviewing data and narrowing them down to those that are most critical to your company.

4) Change strategies and processes to improve performance as needed.

KPIs are an essential tool for measuring objectives that align with specific strategic goals for a defined period of time, and drive business growth through the intentional review and analysis of your unique issues. 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 stay or get back on track.

Here’s an example of how KPIs can help specifically, as shared by a member of our Exit Planning Peer Advisory Board:

“I have two KPI worksheets that I maintain. One is for weekly sales and margin along with my total AR and AP and cash. This helps me see how the month is going and if I need to address the gross margins before the month end. It also helps me keep an eye on our cash situation and how much we are drawing on our Line of Credit. I can see quickly if something needs to be reviewed and addressed or if I need to look more closely into something.

The other KPI’s complete my financials. I have a yearly one that gives me quite a few KPI’s including Inventory turnover, current ratio, quick ratio, AR turn, and average collection period. I find this useful to see how we are doing year over year and if my goals to decrease or increase these have been met.”

There’s more to KPIs including ratios and calculations for those ratios. But this overview will get you started. I would welcome the opportunity, from my CPA and strategic planning perspective, to help you define the strategic objectives you want to track, identify the KPIs that will most effectively do so, and help you dig deeper into what KPIs can do for you. 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.