Guidelines for developing business Key Performance Indicators (KPI’s)

Managing and growing a business involves many essential things. There are specific periods when you need to measure how your business is performing. This is where key performance indicators or KPIs can do wonders for you! KPIs can be categorized as either drivers – indicators that measure present and future activities; or outcomes – indicators that measure the result of past activities. But while there are various key performance drivers and outcomes, it’s important to know and use the best indicators for your business’ goals. From an accounting and business advisory standpoint – our number of rule is “You cannot manage and improve on something you don’t measure”.

With the right KPIs, you will be able to effectively monitor different business areas and know which ones are performing well or not. This way, you can take necessary actions and make informed decisions to improve your performance and achieve your specific goal. Here are some tips to help you identify and use the right KPIs. In this article we discuss general business KPI guidelines. Some of our other articles focus specifically on KPI’s for specific businesses such as SaaS or Ecommerce business models.

  • Identifying KPIs

KPIS should help you identify which parts of your business are performing effectively as well as highlight those business processes or areas that need improvement. KPIS should also focus on those areas that you can control.

  • Use the S.M.A.R.T. rule

SMART – developed by George T. Doran, stands for S- Specific, M- Measurable, A – Achievable, R-Relevant, T – Time Bound. Your KPI should be Simple and Specific so that your metrics and results will be clear. You and your staff should interpret it the same way in order to come up with the same and correct conclusions. An effective indicator should also be Measurable to define an actual value for it, as well as Achievable. It has to be Relevant to your company’s performance status, too. Lastly, it should be Time-phased or Timely because the frequency of measurement and success assessment within a predefined period are vital.

  • Brain Storm – Involve the whole team

It’s best for the management and employees to brain storm and work together to assess the business’ performance and identify the relevant indicators. With this team effort, you’ll get different opinions about successful business as well as the less successful ones. By doing so, everybody will be engaged and have a clearer understanding of the company’s objectives. This will make them more committed to achieving those goals.

  • Do not measure everything – Prioritize

Find out which goals are the most direct and provide the most quantifiable results. Then link three KPIs per goal. It’s important to limit the number of KPIs so you can manage them actively and effectively. For example, if for SaaS businesses, if your goal is to boost the number of customers, the best KPIs would be customer acquisition cost, customer lifetime value, and customer satisfaction and retention.

  • Review and modify as needed

Different factors surrounding your business tend to change, so you have to be nimble. There will come a time when you need to adjust your KPIs. And when you do, make sure that you use the S.M.A.R.T. criteria.

KPIs are a useful ad valuable tool not just for measuring your business’ performance but for also creating a successful organization.  Consider the tips and steps we discussed so you’ll be able to implement the best indicators for your current and specific goals. The right KPIs could be the key to your business’ growth and success!

If you need help defining your business and financial KPI’s – we can help.