Should You Focus On KPIs For Your Business?
Here's a nice buzzword in the accounting industry recently - KPI's. It's seen on almost every accountant's website along with "proactive". However, are KPI's just the next marketing phrase for some accountants or do they serve to improve your business. I believe they do but only if used correctly.
What is a KPI?
A KPI, first and foremost, is a Key Performance Indicator. These can be financial (like a Gross Profit Margin or staff cost to turnover ratios), and they can be non-financial (such as average wait times for customers or their satisfaction scores). This opens up KPI's to pretty much measure and track anything in your business so picking key ones for your industry and sector, along with ones that are useful for YOUR business are imperative.
Choosing your KPIs
First of all, you need to choose the KPI's right for your business. If you're a retail store, then you're going to be looking at your staff on the shop floor against your daily sales, as well as your customer experience scores and measuring your average daily takings. If you're a delivery service that focuses on being quick, then you are going to want to keep an eye on your average delivery time and your customer satisfaction. These two go hand-in-hand as the rush to be faster with your delivery could lead to accidents or breakages which in turn reduce your customer satisfaction score and reduce your sales as people go elsewhere. Having these KPI's in place to spot this pattern and take action before it spirals out of control though is why we track and monitor KPI's in the first place.
It's entirely possible for the above scenario to be adapted to different industries and most will focus around your customers or clients as they are your lifeline at the end of the day. It's not often businesses can get away with unhappy customers and making an absolute fortune at the same time. Those are left to the few elite like Apple, Amazon and Google. So, assuming you aren't quite there yet, you are going to want to be focusing on the non-financial KPI's to ensure you have happy, satisfied customers that are returning and coming back because repeat business keeps you in business.
When KPIs can be unhelpful
You can go too far and focus on too many or the wrong KPI's entirely. Usually, it's the financial KPI's that can be your downfall and there are some "advisors" out there that believe cost-cutting is the answer to everything. Cheap is the way forward and these wantrepreneurs, along with their KPI's, can ruin a business. Focusing on increasing your Gross Profit Margin, for example, comes down to two things. Increase your sales or decrease your costs. Believe me; it's easier to come up with ways to decrease your costs, and before you know it, you're using poor quality materials and cutting corners to make a poor product that then doesn't sell well and leads to unhappy customers and poor sales. You've managed to lower your costs by 30%, but your sales are down 40% too.
To recap, you must ensure that the KPI's you choose to monitor are in line with your business goals - what you want to achieve or even keep doing, if you're already brilliant at customer service for example, then you want to keep that up. Your KPI's will be in line with your business goals and ambitions so anything that isn't helping to that cause should not be tracked. It's crucial that you sit down with your accountant or business advisor and put some KPI's in place for your business if you have not done so already or you feel you need to reevaluate them after reading this. They should be relevant to your business and industry and in line with your aspirations.
If you need help with KPI's or want to discuss what KPI's might be relevant for your business then feel free to contact us here.
Share below if there's a KPI you've found useful for your business or if there's one that you are thinking of trying.
About the author
Ben Nacca is an accountant but is nothing like the stereotype you have visualised in your mind! He has worked in the accounting industry for almost a decade and is CEO here at Cone.
Ben loves travelling the world, playing video games and playing his acoustic guitar whenever he finds the time between spending time with his two chihuahuas, Hugo and Pablo!