A winning business strategy needs regular assessment on its progress, often done by setting KPIs. But to track KPIs for your business is another story. It can sometimes feel like new year resolutions. You start the year off setting enthusiastic goals, but throughout the year your efforts get muddled by unexpected problems and day-to-day struggles.
Or, you may find that the targets you set did not match what your business really needed to monitor in order to succeed.
There are many reasons why setting business goals can fail. But the most successful businesses that set KPIs and achieve them have many things in common:
- They set quantifiable, realistic KPIs
- They track a focused set of KPIs that are aligned with their main business objectives
- Their targets are customer-centric
- Their targets are clearly communicated with their staff
- They track their business performance in a timely manner
Throughout this article, we will explain these points using a retail business example, but a similar thinking process can be applied to achieve success if you are in a different industry.
What are KPIs, and why are they so important?
KPIs or Key Performance Indicators are metrics or values which are used to assess effectiveness or progress towards business goals and objectives. When you set your core business objectives for the future, these metrics help you determine if you’ve reached your objectives within the time that you’ve set.
They are also useful to measure progress, and identify opportunities to improve your progress. For example: You’ve set a KPI to increase the number of repeat customers in your business by the end of the year. You find that 2 months in, one store doing much better than the other stores. You can focus your analysis on this store: the location, the staff, or the promotions, etc to see what makes this store succeed more than the others.
Without tracking KPIs in your business, not only will it be difficult for you to ensure your business objectives are met, you won’t be able to find opportunities where your business needs to improve. The year would pass, and you wouldn’t know why you weren’t able to succeed.
Why is it important to set quantifiable, realistic KPIs?
“I want to start an eCommerce channel and significantly increase my sales growth by the end of 2020.”
“I want to increase my market share by 10%”
Both of these KPI targets are a bit problematic.
The first one specifies a deadline, but “significantly” is not something that can be easily quantified. It’s hard then to determine if starting an ecommerce site really helped you reach your targets.
The second one quantifies the KPI, but doesn’t specify when it needs to be reached.
Having a fixed deadline and quantity is important in making a KPI actionable. It makes it easier to determine how far away you are from that goal, and whether you are moving fast enough. You can also check the SMART framework, which has been proven very useful to make actionable KPIs.
But are they realistic?
That depends on where your business is right now. What was your revenue growth like in the last year? What’s your current business size compared to your competitors?
Knowing this will help you devise the series of actions or strategies you need to achieve even the most ambitious of goals. From there you can optimize between the risk you’re willing to take and the likelihood you can succeed. The plan to track and achieve your KPI targets becomes more concrete, which makes achieving your goals easier to put into action.
What key KPIs should I focus on tracking?
Having a long list of KPIs is not always helpful, because it diverts focus, or is likely to confuse people on what needs to be achieved first. To improve likelihood of success, you’d need to assess your current business’ position and pick your battles. For the purposes of demonstration, we’ll be giving examples in the retail industry.
KPIs to track based on the stage of your business
Early stage businesses are looking to ensure there’s a good product-market fit. The goal is to hone your key offerings and achieve that fit. This end-goal means:
- The product/service is providing good value to their target market
- Your initial customers are satisfied enough to recommend your business to other people
- You experience steady, or even exponential growth over a short period of time.
Good KPIs to track could be: Quantity Sold, Number of Customers, Sales by referral, store traffic conversion rate, and Revenue growth
Medium stage businesses and beyond are looking for ways to scale growth and optimize current business operations. They have their stable clientele, so the question is what needs to be done to increase that market share. Lots of experimentation would likely be done to identify the next frontier, so it's important your KPIs can measure across these strategies.
- Your sales volume is sizable enough where you can start doing A/B testing
- You may need to venture into unfamiliar territory and refine your KPIs as you go along
- You may be competing with other direct competitors, so monitoring what strategies they are doing is very important in staying competitive.
Good KPIs to track could be: Customer Lifetime Value, Revenue growth from strategic categories, ROI from promotions, Average profit margins.
How do I make sure my KPIs properly reflect Business Performance?
If your KPIs are good, but your business is not improving, this is a red flag that you need to scope out your KPIs more carefully.
There is a quick test you can make to verify if your KPIs aren’t good enough:
- Does my KPI directly relate to growth in revenue or improved customer satisfaction?
- Is viewing the number in my KPI good enough to tell me how my business performance is doing at a glance? (e.g. needs no explanations or other KPIs supporting it)
- How easily can I narrow down the source of the problem when my KPIs aren’t doing well?
Asking these questions will help you make sure you’ve set useful, meaningful KPIs that you can use to directly improve your business.
How often should track my KPI targets?
This depends on how long the customer buying cycle is, and the time it takes for strategies to show proof of success. It also depends on the volatility of the market. For many online businesses, it is crucial to track business KPIs every day to better understand market fluctuations. A good business hack is to get a solution that automatically alerts you whenever there is a day-on-day, or week-on-week change in your KPIs. This is so that you can quickly respond to business events you might otherwise miss, and stay on target with your KPIs.
If you can’t get the data in as regular as you’d like, aim to get in as often as your system allows. Many modern POS, ERP, and ecommerce websites today do offer real-time data on your business performance, however measuring KPIs as often as you can is much better than not measuring your business’ KPIs at all.
I’m a small business. How can I make KPIs work for me?
When your resources are limited and your team is small, the best success is when everyone is on the same page, and working together. This means you should have a small set of focused KPIs that is communicated well across the entire team. The key problems often lie in having the data ready, and measuring it regularly enough to know when you’re getting behind.
We at Konigle built a KPI management solution in our app that not only makes it easy to track KPIs everyday, it also automates a lot of admin work to calculate them. It does not change any of the existing processes a business has, and everyone from top management to store staff can view progress towards their personalized targets with ease. We know that this daily visibility of KPIs is powerful, because businesses using this feature today have seen 8% increase in sales in less than 3 months. (Fun fact, this is also one of Konigle’s KPIs!)
There’s a lot of thought that goes into setting successful sales targets. But following this guide will help you set them right.