Key Performance Indicators, or KPIs, are used in a wide variety of industries to help businesses drill down into the metrics that matter.
Metrics, more broadly, are any of the quantifiable elements of your business, from the amount of hours worked to the total revenue earned to the number of clients you've taken on. Once you get started tracking elements of your business, you may find yourself with mountains of data. But what do you do with all that data? Analyze it.
KPI metrics are a subset of metrics that allow you to understand your data holistically, instead of only looking at disjointed numbers that don’t tell the whole story. Some metrics sound impressive ("We've added 70 clients this quarter!") but only without context ("...because we already lost 100 other clients this year."). KPIs give a real picture of how your business is doing relative to your goals.
KPIs, when used well, are the metrics that are most directly tied to the success and profitability of your business. Selecting KPIs and performing KPI reporting requires skill, because isolating particular statistics can give the impression of growth where there actually is cause for concern.
Reporting KPIs regularly helps you avoid losing insights into important trends in a sea of other data.
It's important to report even negative news about KPIs, because it helps your company identify and troubleshoot problems as early as possible, so you can nimbly change your strategic direction.
On the other hand, you also want your KPIs to show clearly when your service business is doing well and operating profitably because that allows you to make decisions that expand or grow your business based on the knowledge that your model is working.
Here, we explore what KPIs are, how you measure them, and how reporting KPIs can help you make strong decisions even when you only have a small set of relevant details at hand.
As mentioned above, Key Performance Indicators are values or data that are directly tied in some way to the success of your business.
Companies usually have big-picture goals like "Generate XX% profit through strong resource utilization rates above YY%." The KPIs to track for this big-picture goal, therefore, might be expenses and revenue, as well as resource utilization rates for each of your employees.
Businesses also have more team-specific or individual-specific goals, such as "generate XXX leads per quarter that yield a Y% conversion rate to become customers," or "achieve a 1% error rate or less when issuing payments."
These goals require you to track different data — namely leads, conversion rates for leads, and error rates.
In a given service business, it makes sense to focus more or less on each kind of goal and therefore on each kind of KPI. The bigger-picture goals are easier to achieve when you have an idea of which individual or team goals are "moving the needle."
When you aren't sure why, for instance, profits are down this quarter, you might have to analyze a few different pieces of data before determining which data is relevant to the dip in profits.
Because KPIs are raw data and can be used to construct a story of what is happening at your company, it's important that you select them carefully and then measure them meticulously. Most businesses begin by analyzing a variety of indicators and then zeroing in on the ones that are most relevant.
While you might be tempted to see total profit or total revenue as the KPIs in all situations, a more granular look at data can often give you more useful information.
For example, if you're working on the project management side of your business, and you are trying to improve your company's reputation for a professional experience, you might be focused on "percentage of projects completed on time" or "percentage of projects completed under budget."
At first, these might be your KPIs, but perhaps after they plateau at acceptable percentages, you'll need to look for other markers that would indicate a positive, professional experience for your clients.
Other parts of your business have other goals to achieve. Marketing teams have to decide whether their goals are best expressed in terms of how many leads they generate, the percentage of those leads that are converted to customers, or the length of the relationship new customers have with the company.
Sometimes you need more than one of these indicators in order to get a full picture, creating ratios like "average length/value of customer relationship per converted lead," to determine whether you should shift the focus from acquisition to retention.
For detail-oriented departments, error rates can be a major KPI, and for companies whose overhead costs must be carefully controlled, the ratio between operating expenses and revenue may be a KPI to note every month. Even in companies without high overhead, personnel costs and utilization are relevant indicators of success.
In consulting or other service roles, you want to see that your billable utilization rates are good, but that information may not be enough if it turns out that you're not billing at a high enough rate. In such a case, you'd really need to see utilization alongside revenue growth to understand the bigger picture.
KPIs, as you might expect, cannot be subjective measures. If they were, they wouldn't be much use. If your company "feels like it has momentum," or "really seems to be ramping up in productivity," those subjective experiences don't do the important work of recording every new client, new project, or new invoice paid.
The values that govern KPI measuring are also connected to the acronym SMART, which is used to create goals. SMART usually stands for "Specific, Measurable, Achievable, Relevant, and Time-Bound."
KPIs clearly need to be measurable, but the other four elements give us some valuable guidance in measuring for the most useful of KPIs. Here are just a few ways to make sure your KPI measurements give you valuable, clean data:
It doesn't make sense to start from scratch every time, and inconsistencies in formatting of your KPI report can cause confusion among stakeholders. Instead, develop a report template.
Figure out the key questions about what you want the report to achieve, and then create a reusable file that lets you quickly report monthly, quarterly, or yearly numbers. You can then easily pull your KPI reporting numbers when you need them, such as before key meetings.
Templates that are generated online can become dynamic dashboards, a valuable feature of Accelo's cloud-based platform. Online dashboards can show you more patterns over time versus the current statistics with the click of a button.
As you work on your template, take some time to define your KPIs. Remember, you must mention what is and isn't included, why you chose this KPI, and any factors in gathering this data that might affect the results, such as a month where some data was lost or incorrectly gathered.
Consider what format would make the KPI data most compelling while still visualizing it honestly. Do graphs, tables, percentages, or another form of visual design work best for those with whom you'll share the report? Keep them in mind.
Finally, create a sample draft of the KPI report and share with some or all of the key stakeholders who will evaluate it. Take some notes on what confuses or helps them most, and create a final version to use for regular reporting.
Keep in mind, however, that KPIs can be revised, so make an effort to revise the report structure when that happens.
All the emphasis on measuring, reporting, and responding to KPI data is an attempt to avoid information overload, which can mask important directions that your business needs to take.
As you strive for greater utilization and profitability, drilling down to the right KPIs and reporting them effectively will save you time and money.
In your workplace, every minute spent on disorganization or locating anything from invoices to retainer documents is costing you, impeding your growth. Using a cloud-based platform to track KPIs and allocate resources effectively and with maximum organization will help you stay on track to reach your goals.
Sign up for a free Accelo trial today to see how it can help you effectively report on your KPIs and move forward with purpose!