KPIs, or key performance indicators, are essential tools for evaluating and measuring a company’s performance. They affect a variety of areas, whether monitoring financial results, assessing the effectiveness of internal processes or measuring the effectiveness of marketing strategies. They provide valuable information for making informed decisions.
What is KPI?
A KPI is a quantitative or qualitative indicator that measures the performance of a specific process, project, or activity. It is used to assess whether the objectives and expected results have been achieved. KPIs differ according to the field of activity and the specific objectives of the company. They must be adapted to meet the needs of each region.
So it is very important to choose your KPI properly. They should be determined according to the objectives and areas of interest of the company. KPIs should be relevant and measurable. Objectives should be inherently achievable, relevant over time and consistent with the company’s overall strategy.
For example, in the area of sales, commonly used KPIs might include turnover achieved, conversion rate of prospects into customers, average shopping cart, or number of new opportunities generated. For example, they may get away with indirectly giving you your margin based on the type of product sold. They should be selective, specific, meaningful and allow clear evaluation of performance. There is no ready made list and you have to determine a good list. Nothing stops you from asking other professionals in this field to learn about them.
Measure and track KPIs
Regular measurement of KPIs is essential to obtain accurate and relevant data. Businesses need to establish reliable data collection systems and processes. The goal is to have the performance available on your desktop in real time, even every morning. If any of the indicators flash red, there may be a problem that you need to fix.
Dashboards and business intelligence tools can make it easy to visualize and analyze KPI data. It is important to set a clear reference period for assessing performance on a regular basis. Regular monitoring of KPIs makes it possible to identify trends, deviations from objectives and opportunities for improvement.
Use KPIs for decision making
KPIs help identify strengths and weaknesses, spot trends, and identify opportunities for improvement. Based on the data made available, leaders and managers can make more informed decisions. With them, they can define concrete actions to be taken to achieve the set objectives. KPIs provide the factual basis for evaluating performance, adjusting strategies, and optimally allocating resources. For example, if a KPI shows a low lead-to-customer conversion rate, corrective action can be taken. They will allow you to improve sales processes, marketing targeting or the quality of the products/services offered.
Communication of KPIs
Communication of KPIs within the company makes it possible to organize teams and align efforts on common objectives. They should be clearly defined, understood and shared with relevant stakeholders. Regular meetings, reports and presentations can be used to communicate results and encourage transparency and accountability within the organisation. It is important to contextualize them, explain their meaning and their relevance to the entire company.
KPIs are not fixed in time and can evolve as per the needs of the company. It is important to re-evaluate them from time to time to ensure that they remain relevant and aligned with the strategic objectives. Technological developments and changes in the trading environment may require adjustments or the introduction of new indicators. It’s about reflecting the new realities as closely as possible. Businesses need to be agile in their approach and adapt to changing market and organizational needs.
Using KPIs for Continuous Improvement
KPIs play a central role in the continuous improvement of business performance. By continuously monitoring KPIs and using the results to identify opportunities for improvement, companies can create a culture of continuous improvement. KPIs make it possible to define ambitious objectives, measure progress made, and implement corrective actions. By using these as feedback tools, companies can encourage innovation, quality and operational efficiency.
Key KPIs used by companies
Here is a list of KPIs commonly used in many companies.
1/ Global ones
- Revenue: The total amount of sales made in a given period, which measures the overall financial performance of the business.
- Gross Margin: The difference between revenue and the direct cost of goods or services sold. It reflects the core profitability of the company.
- Return on Investment (ROI): The return on investment that measures the effectiveness of a company’s spending on specific initiatives. This may apply to marketing, advertising or research and development.
2/ Those related to customers
- Conversion rate: The percentage of website visitors or prospects who take a desired action. We are talking about purchase or registration here.
- Customer Acquisition Cost (CAC): The average cost required to acquire a new customer, calculated by dividing total marketing expenditure by the number of new customers.
- Customer Lifetime Value (CLV): The average financial value that a customer brings to the company over the life of their business relationship.
- Customer Retention Rate: The percentage of existing customers who continue to do business with the company over a given period of time. It is usually measured monthly or annually.
- Customer satisfaction rate: A measure of overall customer satisfaction through surveys, evaluations, or feedback.
- Churn rate: The percentage of customers who stop using a company’s products or services.
- Lead Conversion Rate: The percentage of prospects or leads that become actual customers.
- Average Response Time (ART): The average time taken to respond to customer inquiries, whether by phone, email, or other means of communication.
3/ which are internally connected
- Absenteeism rate: The percentage of work hours lost due to employee absenteeism compared to the total number of hours employed.
- Productivity rate: A measure of the efficiency of a company’s workforce, often expressed in terms of output per employee or value added per hour worked.
- Employee satisfaction rate: Measurement of employee satisfaction through surveys, evaluations, or rating scales.
- Defect or Defect Rate: The percentage of defective products or errors compared to the total number of products produced or transactions made.
In conclusion, KPIs are essential tools for measuring and evaluating a company’s performance. By choosing the right KPIs, regularly measuring and tracking results, and using them strategically to guide decision-making, companies can optimize their performance and achieve their goals. KPIs are a key element of a culture of performance and continuous improvement within organizations. Therefore it is important to integrate them into management processes and use them effectively to promote company growth and success.