What’s the Second Law of Thermodynamics? Well, the first rule of Thermodynamics is you do not talk about thermodynamics. But if you dare, the second law is explained by Henry Morris as, “All processes manifest a tendency toward decay and disintegration, with a net increase in what is called the entropy, or state of randomness or disorder, of the system.” A dirty room isn’t the same thing as entropy in physics, but it paints a nice picture and illustrates how it takes more effort to maintain organization than it does to allow things to become disorganized. Maybe that’s why I’m an avid goal setter. Goal setting is an important part of maintaining order in every aspect of life, including how you grow your business. The problem with setting goals for businesses is that many people don’t understand the process or the tools available to help them achieve their goals. That’s where Key Performance Indicators (KPIs) come in.
What Are KPIs
KPIs are being used every day by organizations that are hoping to track progress and keep order of their business. So what are KPIs? A KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives. An example of a sales KPI is new contacts rate, which gauges how well your sales people are contributing to the expansion of your business. Organizations use KPIs to evaluate their success at reaching targets. Basically, they help you understand if your company is on the right track toward success. Regardless of what it measures, the goal of any KPI is to bring about improvement.
There are a variety of KPI types that your business will want to monitor, depending on your organization and the departments within your organization. Every single department within your business can use KPIs to track your progress toward specific goals. The list of departments that can benefit from KPIs include sales, marketing, finance, and social media marketing. Even insurance companies, retail companies, and healthcare providers all use KPIs to track performance.
Large companies are doing a good job utilizing KPIs, so if you’ve worked a corporate job, then you’re likely familiar with KPIs. However, small businesses are missing out on the advantage of KPIs. In fact, a survey by Geckoboard found “nearly half of small and medium-sized business owners have failed to identify any KPIs. The same survey found that those businesses that do track KPIs regularly were about twice as likely to hit their targets.” Let me repeat that to make the benefit of KPIs in your business abundantly clear. Businesses that track KPIs are TWICE AS LIKELY to reach their goals! Let’s discuss how to help you set effective KPIs so you can reach your goals.
First, identify the most important things for your business. Be selective about the data that you’re using, and make sure you’re collecting and tracking what’s most important. Next, refer back to your business plan and develop KPIs that reflect your strategic objectives. Ask yourself what questions you’re hoping to answer through your KPIs. Another area to focus on is the collection of the data. Are you collecting data because you know it’s easy to collect? Or are you collecting data that you know will provide benefit to your KPIs? KPIs are specific, so for each KPI there should be a specific number you’re aiming for.
When Performance is Measured, Performance Improves
Once the KPIs have been established, the only thing left to do is monitor your KPIs and watch your business grow. Monitor your KPIs as often as possible. You don’t need to obsess over them, but you should be referring to them frequently. Ideally, you would set up a dashboard that collects all of your data in one place and is easy to update. Our dashboard updates automatically, has a clean user interface, and tracks the KPIs that our CEO has identified as KPIs that every business needs to be aware of. Also, our software tracks your business in real time so there’s no need to wait for your staff to take the time to compile a report. A dashboard allows you to visualize where your performance is at compared to your goals. Of course, you might need to refine your goals or your KPIs over time. If you’re constantly achieving a goal that you had thought would be difficult to reach, then you might need to set an even more aggressive goal. Startegy software is a great way to make your KPIs more visible and, therefore, more effective.
Regardless of whether or not you decide to use a dashboard to assist with your KPIs, you should at least identify a few KPIs that you want to use to track the goals of your business. I’ve outlined the process for utilizing KPIs. Now all you need to do is personalize it to your business, and then you’ll be setting more informed business goals and your bottom line will increase.