How to Choose the Correct Key Performance Indicators for Your Company

John Krautzel
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Key performance indicators form the most important statistical background of your business. The right mix of data gives you a snapshot of how well your company is doing at any time. How well you interpret this information can lead to your firm's overall success or failure. You need to use the right KPIs so you know where your business is going in the next week, month and quarter.

Start With Your Goals

What are the goals you have for your company? If you want to start turning a profit within six months, your data should include numbers related to sales, revenue and expenses. These numbers break down further into the prices of your products, how much you sell and how much it costs to get these products in the hands of customers. Tweaking any of these aspects of your business changes the KPIs.

Go With Your Successes

Which of your goals ended with success? Did your sales team do really well to increase revenue? Make sure you run a KPI for your sales pipeline. Did your online marketing pushes increase your revenue by 10 percent in the last month? Focus more attention on conversion rates.

Choose KPIs that play to your strengths. That way, you can show which metrics you can alter quickly and easily to achieve better results in the future. Do your clerks deliver great customer service to get repeat business? Have KPIs that show this aspect of your firm. The key is to have KPIs that you can measure and act on if something changes.

Measurable and Actionable

Your business goals should be measurable because you need those numbers to know how to act on them. It is not enough to actually get the right KPIs. You need to interpret them and take the right steps to make things better. For example, you notice a greater increase than expected in sales from one week to the next. Do you know what changed from week to week, and, if so, can you keep that momentum going? Knowing what factors you can and cannot fix goes a long way toward making your business successful.

Determine What You Can Control

Choosing the proper KPIs comes down to combining your goals versus what you can control about your company. For instance, if you own a coffee shop in a great downtown location, you can control aspects such as the portion size, the prices of each portion, the ingredients that go into your product and the ambiance of your place. You cannot control factors such as the owner raising the rent and suppliers increasing prices.

Tweaking the aspects you can control helps deal with things you cannot. Do you raise prices of your products if suppliers raise theirs, or do you lower your own profits so you keep customers coming in the door? The answers to those questions depend on your goals and how often you run these KPIs. If you notice a dip in sales one week after you change prices, consider altering another KPI to see what happens.

The KPIs you choose to run periodically reflect your business model. It all comes down to revenue and profits, so the most relevant KPIs include any factors that lead to higher profits.

Photo Courtesy of Stuart Miles at FreeDigitalPhotos.net
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  • Nancy Anderson
    Nancy Anderson •

    Thanks for the great comments. @Mike every company is going to have a different answer. I would think that you wouldn't want to go for more than a month or so - three months max - before you make a correction. In my experience, KPIs were visited weekly so that any changes could be made - quickly - and then disseminated to the entire team. @Delaney of course it goes without saying that progress can be measured on many levels - outside of the KPIs.

  • Delaney O'Neil
    Delaney O'Neil •

    Unless I am misunderstanding the intent of this advice, I have to disagree with focusing primarily on KPIs for consistently strong aspects of your business. Of course it's critical to pay attention to the parts that are working — so that rapid course corrections can be made if performance begins to slip — but it's also very beneficial to measure your progress in areas where you traditionally struggle, especially as you try new tactics.

  • Mike Van de Water
    Mike Van de Water •

    After choosing which KPIs to base your business strategy off, how long should you go before revisiting your benchmarks and possibly shifting company focus? It seems like there has to be enough data to pinpoint why a particular KPI isn't an accurate barometer of profit, but you don't want to take too long to react to the information, either.

  • Jacqueline Parks
    Jacqueline Parks •

    I love data and for me running KPI reports is a fun way to assess and improve a business. My biggest concerns are focusing too much on the data without keeping an eye on the people, both customers and employees. To makes sure I am not over-focusing on data, I try to spend an equal amount of time using assessments with a people focus, including talking to customers and employees to hear personal views and stories about a company's strengths and weaknesses.

  • Abbey Boyd
    Abbey Boyd •

    KPIs should be used at all times, even when you think your company is achieving optimal success. Don't overthink your goals. If you start measuring one goal, then realize something else needs to be analyzed, you can always change. You can analyze many different aspects of your company at one time. Use the congregated data to decide what your company most needs to work on and how to do it. As time goes by, you will find the aspects that require the most attention. Don't worry about narrowing down your KPIs if it's difficult to do so.

  • Lydia K.
    Lydia K. •

    I definitely agree that business goals are essential. These shouldn't be overlooked even if you're small and just launching your business. If you don't turn a profit in 6 months, your KPI data can help you understand why. I think small businesses should also look at bigger picture trends. For example, what are the overall patterns in your business location or specialty area? These external factors can give insight to your KPIs?

  • Jay Bowyer
    Jay Bowyer •

    I couldn't agree more with the concept of starting with a goal in mind. Archers don't shoot randomly into the air — they aim at targets, and so should we. When we have a clear vision of where we want to take our companies, we can build a formula for success.

  • Erica T.
    Erica T. •

    While I agree with many of the points made in this article about the value of KPI's, I would caution business owners, especially new business owners, to give it enough time, say a three to six-month period, to see a realistic snapshot of the factors affecting their business. For many businesses, sales go and up and down based on buying cycles or consumer confidence, so analyzing KPI's over a three or six-month period, rather than a just few weeks, can give business owners a better idea of the improvements needed to increase quarterly or year-to-year sales and profits.

  • Jacob T.
    Jacob T. •

    Should you really be altering your company's KPIs after only a week of poor performance or unwanted results? Constantly shifting the focus and metrics doesn't allow employees any time to gain traction with new programs or customers to find the value in the product or service being offered.

  • Jane H.
    Jane H. •

    KPIs are a tricky subject. It's too easy to initiate a race to the bottom, especially on price, while trying to increase sales. One of the great contrarian notions that really works is to raise prices, as long as the quality is high. This doesn't work in all fields, of course. Retailers frequently compete on price because they are selling the exact same product as their competitors. In other fields, such as those involving creativity and consulting, the key is to craft a compelling offer. I have personal experience increasing prices with a concomitant increase in sales using this approach.

  • Nancy Anderson
    Nancy Anderson •

    Thanks for the comments. @William keep your employees involved. Ask for their input. Include them in the process as you are formulating your KPIs. After all, without the employees involvement, what do you have but a bunch of words printed out and posted on a bulletin board somewhere. If you need to hire, that's fine but there's no reason why you can't direct your current employees to move in the right direction. KPIs are not written in stone but will change as the needs of the industry change. If you hired the right staff based upon your current KPIs, what would you do with that staff if your indicators drastically changed?

  • William Browning
    William Browning •

    How do you get your employees to turn their skills into KPIs? Measuring how your employees perform is one thing, but how do you get them on board for seeing the end goal? Should you just hire the right staff or convince the staff you have to move in the right direction? You might have to balance KPIs with the right type of training modules to achieve success.

  • Shannon Philpott
    Shannon Philpott •

    KPIs are valuable when measuring profit margins, but as the article notes, you do have to be flexible and willing to make changes to both your goals and KPIs. Variables often throw off strategic plans quickly. Business owners who are open to change and willing to experiment with new practices can better serve their customers, their employees and hopefully, boost their bottom line.

  • Duncan Maranga
    Duncan Maranga •

    I like the idea of starting with goals as a way to, wisely, choose the key performance indicators of a company. This is because I strongly believe in structured progress that results from deliberate efforts and intentions to advance the company through the levels. Furthermore, properly set goals are actually the back bone and driving force of all developmental projects that a company intends to deploy.

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