The importance of KPIs in your small business

Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted. – Albert Einstein

Einstein could be talking about Key Performance Indicators (KPIs). KPIs are en vogue currently with the emergence of “big data” as a competitive advantage. Like most concepts that burst into our consciousness, they are a bit misunderstood. Most attempts to implement a KPI program are botched as well.

So, where does that leave us, as small business owners? Should we take on concept that is poorly understood and frequently fails in implementation? Of course! Because, we’re nimble, we have a sharp focus on the end result and emphasize value within our businesses. KPIs can help us both deliver great value to our customers and in return capture value in the form of revenue.

KPIs tell us how to dramatically increase performance. They are measurements that focus on success today and in the future. They aren’t outcomes, like revenue or satisfied customers, but they are the driving reason behind both. They need to be specific enough that you can trace responsibility directly to a person or team, yet important enough that each business only has a few (three or less). Your KPIs also need to be measured frequently, ideally with no more than 24 hours between updates.

KPI examples

Here are a few KPI examples. I’m a pilot and when I fly I’m very in tune with what the airlines are doing. If I was creating a KPI for an airline, my first choice might be on time departures. It’s quite important to almost all passengers that a plane departs on a reliable schedule. Think of everything at the other end of the flight that depends upon it; being picked up, business meetings, connecting flights and so on. A late departure instantly results in unhappy passengers and a cascading problem for every flight after it. If I were the CEO of an airline, I could track all departures and directly call the gate or supervisor near the gate if a flight were delayed.

On time departures would quickly develop into a focus area for the company and people would do their best to see that they happened. Nobody wants a call from the CEO asking about poor performance! On the business side, on time departures will result in higher customer satisfaction and also higher revenue.

If I ran a plumbing company, I might look at a KPI like the number of times a truck would have to leave a client site to go and purchase a part. Each time a worker has to go to the store on a job, valuable time is lost, reducing the number of clients that can be served. It might also reduce client satisfaction if a job feels like it takes to long or the plumber isn’t organized. I could call a plumber each time this happened to see what the reason was and adjustments could be made to the load of parts carried to each job. Within a short amount of time, this could have a significant positive impact on the company.

How to pick KPIs for your small business

Picking KPIs might seem like an art, but it’s grounded in common sense. Look at your business goals and think of the one to three things in your business that have the most significant impact on those goals. Don’t pick “soft” targets like customer satisfaction, because you can’t pin down a single owner that could change it. Pick concrete and measurable actions that have the greatest influence on your goals. Don’t assume that everything is important and have a dozen KPIs; if you measure too much, everything becomes proportionally less important as does your ability to change outcomes.

If KPIs are new to you, I recommend that you just pick one and run a pilot program. Capture data and see how your attention and focus on the KPI changes the results and impacts your business goals. Start simple and grow from there, but cap your KPIs at three or so. Your clarity and focus will improve as and your business results will, too!

Need help with KPIs? Check out the Small Business KPI Reporting Tool and KPI Template.

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About the Author:

cogent coach

Michael Nelson “The Cogent Coach” helps small business owners grow their revenue while reducing the challenges of small business ownership through coaching and digital marketing consulting. He is also a Managing Partner in Centripetal Network Consulting, which delivers increased revenue and business valuation to customers globally via strategic digital marketing. You can reach Michael anytime via email.

 

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Comments

  1. “If you measure too much, everything becomes proportionally less important as does your ability to change outcomes.”

    This is excellent advice, Michael! When you identify the top 3 or 4 KPIs you want to measure and track you need to make sure that your efforts are focused on just those 3 or 4, rather than going all over the map. Not only does it help you to focus your efforts on improving KPIs, but it also gives you a better sense of your company’s performance over time.

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