KPI or more popularly known as Key performance indicator is a business metric used to evaluate factors that are vital to the success of an organization and/or a team. It is a measurable value that demonstrates how effectively a company or a team is achieving key business objectives and goals. KPIs differ per organization and/or teams; business KPIs may be net revenue or a customer loyalty metric, while government might consider unemployment rates or socio-economic progress. Similarly, team KPIs could be Quality, operational excellence and people development.
A good KPI:
A good KPI should act as a scope or an opportunity, helping you and your team understands whether you’re taking the right path and steps toward your strategic and business goals. To be effective, a KPI must:
1. Be applicable to your business or team objective.
2. Be well-defined and quantifiable.
3. Be crucial to achieving your goal. (Therefore, key performance indicators.)
Types of KPI: There are two broad categories of KPIs:
• Internal KPIs – These KPIs are internally used by team members to measure and optimize their performance. Internal KPIs don’t need to be business bottom-line impacting.
• External KPIs – These are the KPIs we report to clients/senior management and use them to create strategic and tactical businesses changes.
The”big picture” view: Leaders and managers understand that they need information on the key dimensions of performance and that this can be achieved by distilling them into the vital KPIs. With the right KPIs managers can have a more focal and objective view of the key aspects of their business or teams and can measure effectiveness and performance accordingly. At a “bigger picture” level, organizations are applying KPIs at Business intelligence (BI) level to gauge business trends and advise tactical and strategic course of action. Before an organization defines top level KPIs, the following should be clearly defined:
• A clear business objective for the process.
• Quantitative and qualitative measurements.
• An active approach to finding and remedying organizational variances.
As a business owner, developing key performance indicators (KPIs) needs to be a priority. If you want good results, you have to focus on understanding how your business is doing against the performance measures you have set up. Here are the Top 5 KPIs for businesses owners to consider:
Cash Flow Forecast
Business owners perform regular cash flow forecasts so they can identify problems in the early stages and make any necessary adjustments.
This is the most obvious and easiest metric of all to measure. If your company is not making money, something needs to change.
High conversion rates indicate that you’re doing something right with your initial exposure, and that people like your product enough to become active users.
Inventory turnover measures the number of times inventory is sold or used in a given period of time, and is valuable because it reveals a business’ ability to move goods.
Life Time Value (LTV)
A key indicator to consider for any business i.e. an estimate of how much one customer is worth to your company. How much will a given customer spend over the course of their time using your product or service?