Key performance indicators (KPIs) are one of the most important tools for businesses of any size. Small businesses directors often don't monitor the KPI's closely, but it's essential to define them if you want your business to grow. Key performance indicators can be used to help measure the growth of a business and can also be used to inform targets for different areas of the business. There are different types of KPIs that serve different purposes and can help with tracking and encouraging growth across the business.
What Are KPIs?
KPIs are metrics that your business can follow to determine how your business is performing. By collecting data on your business performance, you can measure them against your KPIs to check progress. Key performance indicators can track and measure a broad range of different metrics, from sales and conversion rates to customer satisfaction. Which KPIs you choose for your business will depend on what your business does and what your business goals and strategies are. KPIs should help to reveal what does and doesn't work within your business so that you can make improvements.
Types of KPIs
There are multiple types of KPIs that SMEs can track to monitor progress. Some of the main categories of KPIs include operational KPIs, strategic KPIs, functional KPIs, and leading/lagging KPIs. Further to this, there are also various types of KPIs that can fall into these categories, including financial, customer, process performance, marketing, IT, sales, and staffing metrics.
KPIs that are tied to a business's finances can be of particular importance to small and medium businesses. Financial metrics focus on profit margins and revenue, as well as other key financial data. They might include KPIs such as inventory turnover, liquidity, profitability, and more.
Linking Financial and Operational KPIs
The link between financial and operational KPIs is important to consider. Linking operations and finance can help to highlight business drivers, identify what is working well, and inform better decisions to help the business improve and grow. Operational KPIs are used to measure the efficiency of a business's day-to-day operations. They can include a number of financial metrics too because the business's daily performance is often reflected in its finances. Some of the financial KPIs that an operational manager might benefit from include accounts receivables turnover, operating cash flow, operating profit margin, and more.
Monitoring KPIs constantly and making adjustments when necessary is essential for businesses that want to continually improve. KPIs should provide an insight into how the business is performing, informing business decisions and enabling the right changes for the best results. Operational and financial KPIs need to be monitored at all times so that their progress can be tracked and important insights are revealed from the collected data.
If your business doesn't already have key performance indicators, especially financial KPIs, it's important to make sure you create some. Identify which KPIs will be most useful for your business and its different departments or different parts of your company. Put the necessary systems in place to track and measure these KPIs.
The video below presents an example how linking financial and operational KPIs helped on of my clients.
Get in touch for a free consultation about your business KPIs and other reporting needs.
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