If you ask a business owner what helps them set their priorities, you’ll probably get a few different answers. Customer expectations, owner wants, and greater profitability are commonly cited answers. The problem with these answers is that they are reactive reasons: the business owner makes them based on an outside force acting upon them. Instead of being in control of their own ship, their direction is set for them based upon which way the wind blows. This isn’t necessarily a bad thing – all of these are valid reasons for having certain priorities in the first place. The problem with these kinds of priorities, however, is that as your business matures, its growth will become hampered if your priorities are always determined by somebody else.
What if instead you decided what your priorities are?
What if, instead of letting somebody else tell you what your goals should be, you set your own goals by using the facts given to you?
Business owners who chart their own business’ course make use of what are known as Key Performance Indicators (KPIs). A key performance indicator is a quantifiable measure a company uses to determine how well it meets the set operational and strategic goals.These are metrics of your business that you are able to act upon and proactively change. Tracking how many customers you have is not a KPI – it is a result, not a driver of your business.
By making use of KPIs, you reap a whole new set of benefits and gains that you can’t have under a reactive goal system.
1. You gain complete mastery over your finances
KPIs commonly include goals like average dollars per sale, profit margins, and the number of times clients buy from you. Being able to increase these metrics requires you to understand the full nature of your cash flow and product margins, as well as have a fleshed out balance sheet and income statement. Your future actions will be tied back to these indicators, which in turn will keep you completely informed as to what it going on at any point of the day, week, month, or year.
2. You become more receptive to your customers
Another common KPI is a satisfaction index – how much did customers enjoy doing business with you, and how much did they like what you were selling? Turning one-time customers into repeat customers is one of the most powerful goals you can set. Your sales will increase, you will hire additional people, customer satisfaction goes up, and your overall profits will go up by an appreciable amount. Increasing your other KPIs forces you to tune into what your customers really want, and that could mean the difference between failure and success.
3. Your team will move with you
Think of a wave at a beach. Do all the individual water molecules move whichever way they please? Of course not. The waves that you see on a beach occur because the water moves in cohesion, not disorganised chaos. Your team’s flow works much the same way. Without a clear set of directions and goals, your team will not be able to contribute value to the business, and you won’t enjoy the benefits of a productive team. Productivity is another common KPI, but meeting the goal that you set for it requires you to meet the goals for your other KPIs.
When you create KPIs, you set a challenge for your team – and that includes you. You set the course of your ship, and your employees will respond accordingly. If there are no plans and goals, there is no direction. Having KPIs mean that you run your business, and in a proactive way. Stick to these goals and exceed them, and you’ll be amazed at the transformation your bottom line will experience.
4. What Gets Measured Gets Managed
Although there are many factors that drive success for a business, it’s difficult to know which factors are the most critical unless they are being tracked. If you aren’t looking at something, how can you tell if it improves or not? Determining key business drivers and tracking their progress will help ensure that nothing slips through the cracks.
5. Encourage Accountability Using KPIs
Sometimes holding people accountable can be tough. Unfortunately, if everyone thinks someone else is responsible then no one is truly responsible. Holding employees accountable for improving the KPIs under their control provides them (and their managers) with a yardstick to measure their performance. Not only does the employee have a way to quantify how he or she has contributed, but managers can see which employees are contributing the most towards goals.