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Measure it, then manage it
by Andrew Wordingham on 23 January 2012
Our experience of working with successful businesses shows there’s a strong correlation between monitoring key performance indicators (KPI’s) and the profits generated by a business. It really is true that if you can measure it, you can manage it.
Does KPI mean less to you than KFC? Here we serve up some key takeaways for your business.
Keep your eye on the KPIs
If your business is small enough to know every customer, what they’re buying – and what they’re not buying – what every one of your employees is contributing, then you’ll instinctively be monitoring some of your business KPI’s.
Owner-managers tend to know what’s going right and what’s going wrong and take action but it’s not always possible to keep close personal touch. Beyond a certain size you can’t possibly know everything that’s happening and you can’t rely on your bank statement or monthly management figures to keep your business on track. You need to employ tools that enable action to eliminate problems – or do more of what you’re doing well to become an even bigger success.
Would you ever sack a customer?
It sounds drastic, but it could be good for your business, there’s no rule that says you’ll keep a customer forever and every owner-manager accepts that sooner or later it’s bound to happen.
Establishing KPIs means you have a more accurate idea of why the customer left and address damaging issues long before disaster strikes. If a particular customer is performing well below par, then getting rid of them could make quite a difference to the overall performance of your business. We regularly encourage clients to think about key statistics they can use to measure performance, not just profit levels.
It doesn’t apply to you? Think again!
If your initial reaction is that it doesn’t apply to me, then we strongly advise you to think again. There will be useful performance indicators for every business. They will not all be the same, but there are some obvious common ones.
Most KPIs are financial, such as the gross profit percentage, but do you monitor how long it takes people to pay you, cost changes of raw materials and stock turnover? For an internet based business, it’s likely to be search engine optimisation costs per sale, and a haulage firm will be keen to know how much fuel and repair costs vary from vehicle to vehicle and also from driver to driver.
Analyse what is crucial to your business, find out the reasons for shortfall and then eradicate them. KPI’s also highlight products, services and staff that are performing above expectations and you can use this information to improve your business further.
But don’t fall into the trap of sticking to your KPIs too rigidly. As your business changes you’ll find that the old ones no longer necessarily apply.
We recommend all our clients to adopt KPIs. We can’t manage without them at Haines Watts, but we’re not letting you know what ours are!
If you want any further information on this blog post please contact us.
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