KPIs, or Key Performance Indicators, are metrics you can use to track your company’s progress toward a specific goal. A good KPI is measurable and quantifiable, making it easy to plot progress over time.
Your key performance indicators are an important part of your overall business strategy. They help you identify strengths and weaknesses in your current operation and give you insights to make data-driven decisions.
Let’s take a look at why KPIs are important for businesses and how you can get started tracking them.
Key Performance Indicators Measure Performance
You likely have goals or objectives for your business, whether that’s to increase profits or pay off business debt. However, have you thought about how to track the progress of those goals?
KPIs provide a quantitative way to measure the performance of your business compared to your overall strategic goals and objectives. With a KPI strategy in place, you can easily track your progress toward goals.
In addition, KPIs give you insights into potential problems that could be holding you back from reaching your business goals. You can look at your KPIs to see what metrics are performing below average for your goals. This knowledge gives you a starting point to address issues and get your goals back on track.
Align Daily Activities and Overall Strategic Objectives with Key Performance Indicators
It’s not always easy to translate business goals into day-to-day activities. An overall goal, such as increasing revenue by 10%, will be difficult to reach if you don’t address what steps are needed to get there.
KPIs can help bridge the gap between daily activities and strategic objectives. Tracking KPIs naturally helps you align daily activities and decisions with the overall goals of your business.
For example, if you know you want to increase revenue you can track it as a KPI. This lets you see the ongoing progress toward your goal and identify if you’re on track or if adjustments need to be made to reach the goal.
KPIs are also helpful for employee efficiency and production. When employees know and focus on KPIs, they contribute to the overall strategic goals of the business.
Key Performance Indicators Help You Focus on Priorities
Defining and tracking KPIs lets you identify the most crucial aspects of your business. Once you’ve identified the most important parts of your business, you can prioritize your efforts and resources toward these goals.
Using KPIs to prioritize your business activities ensures resources are going to the activities or projects that will have the biggest impact on the success of the business. Without tracking KPIs, you may be putting too many resources–from funds to employee time–toward activities or tasks that aren’t actively driving your business toward its goals.
Make Data-Driven Decisions with Key Performance Indicators
Most business owners recognize the importance of making smart business decisions. Yet too often, business owners rely on intuition or emotion to drive their decision-making process.
Key performance indicators eliminate the reactive nature of emotion-based decisions. Instead, your KPIs offer a factual basis for making business decisions through pure data. You can use your KPIs to make data-driven decisions throughout your business.
To use KPIs for data-driven decision-making, simply follow these steps:
- Analyze KPI trends
- Identify patterns within the KPIs
- Use these patterns to inform your business decisions
It likely won’t take long for you to see how your choices impact the performance of your business metrics. You can use this knowledge to further help inform and drive your decisions in the future.
Key Performance Indicators Let You Spot Problems Early On
Monitoring KPIs allows you to detect and identify issues or challenges early–helping to prevent small problems from becoming big ones. Early identification enables you to make timely interventions and enact resolutions to problems, such as:
- Declining sales
- Falling customer satisfaction
- Lower production efficiency
The sooner you’re able to spot a problem, the sooner you can address it. Additionally, key performance indicators can work to help you understand if a resolution is working or if you need to try a different strategy.
Improve Customer Satisfaction with Key Performance Indicators
Customer satisfaction and retention are at the forefront of many business owners’ minds. Key performance indicators related to customer satisfaction, such as customer retention metrics, provide valuable insights into how well your business meets customer expectations.
You can use these KPIs to process and understand customer feedback. Happy, satisfied customers are key indicators of business success. Customer retention KPIs can help you easily see how customers feel about their experience with your business.
It All Comes Down to Tracking the Right KPIs
Tracking key performance indicators is essential for an efficient and effective business. Your KPIs help you make more data-driven decisions, rather than those made on emotions. Additionally, KPIs give you the tools to identify weaknesses in your business and address potential problems.
However, it’s also important that you’re tracking the right KPIs for your business. Each business is unique and may have different tracking needs. Your key performance indicators are also likely to change as the needs of your business change.
Many business owners have trouble identifying which KPIs they should track. Luckily, PlotPath can help you choose the KPIs that are right for your business. We help business owners like you identify KPIs and leverage the insights they provide to grow their businesses.
Contact us today to learn more about finding the right key performance indicators for your business!