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KPI’s – Use Them To Run You Business

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Use KPI's As A Dashboard

Use KPI’s As A Dashboard

I recently gave some advice to someone that had recently started a business after spending his career with large companies in the corporate world. It is a big change coming from a large company to running your own much smaller company. The person I spoke with had a very good handle on his business and my advice to him was that he needed to develop some fundamental reports, data points or metrics in his business he could use to evaluate and monitor the success of his company. These are typically called Key Performance Indicators (KPI) and they differ for every business since each business is unique.

Today I thought I would share some of what I wrote to him and perhaps it might be useful for you to begin using KPI’s in your business or maybe add a new one that you didn’t realize might be useful.

A few thoughts about your KPI’s:

* Your KPI’s should be what you use to manage your business like a dashboard on your car, not necessarily traditional financial statements like income statements (P & L) or balance sheets
* You could possibly have KPI’s that are daily, weekly, monthly, quarterly and annually.
* They should be as simple as possible
* Sacrifice precision for timeliness – be close enough to spot a trend but go overboard to be exact if it is not needed (usually “good enough” is good enough)
* Ease of generating reports is a highly desirable attribute – cost of creating versus benefit derived (keep it simple)
* Not all KPI’s need to be expressed in dollars- tracking customer complaints/satisfaction by employee or supplier could be a meaningful metric
* Along the same line don’t be too focused on sales – be focused on profits. $500,000 gross profit on $1,000,000 in sales or $2,000,000 in sales is the same gross profit – with less effort!
* Don’t just count the “beans”, knowing where they come from is important too. Track referrals and other sources of sales. Consider things like sales by Zip Code over a period of time. Why are they going up or down? This KPI would be used on a periodic basis like quarterly or annually.

I hope that reading this may have triggered an idea of what you might want to add to your list of KPI’s or perhaps tweak them. If you don’t have any KPI’s think for a minute and I bet you can list items you are tracking to monitor your business. It might be a good idea to share this and make it a formal report for everyone in your company who has a part in the success of reaching your goals.

Have a great week.

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