15 Mar What Metrics Should I Use to Measure Business Performance?
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Even if your company is seeing a spike in sales, it’s difficult to know whether the business is truly performing well without understanding what metrics should be used to measure performance.
Performance metrics can help you determine where your resources are going, how they’re being used, and if areas of improvement are needed. Knowing which performance indicators provide useful information is key to making informed decisions about your business.
Why do we need KPIs?
KPIs, or Key Performance Indicators, are measurements that help you determine the effectiveness of your business. Every business should have a small selection of KPIs that together, give them a view of whether they’re on track. KPIs offer a way for businesses to evaluate their performance in terms of specific goals and objectives.
What else? KPIs do a lot of other things, including but not limited to:
Keep people focused
KPIs can help keep your team focused on the right objectives and tasks. With a clear picture of what metrics to measure, employees will be better equipped to make decisions that are aligned with the company’s goals.
Make sense of overwhelming data
It’s no longer just about data, it’s about making sense of that data and using it to make better decisions. KPIs help you focus on the important metrics, rather than getting lost in the minutiae.
With a load of information at our fingertips, it’s difficult to determine which metrics are truly important and what information can be set aside. KPIs offer a way to quickly hone in on the most relevant data and make decisions based on that information.
Track progress over time
KPIs can be used to track progress over time. By regularly measuring specific KPIs, you can identify trends and patterns in your performance. This helps you make data-driven decisions about what adjustments need to be made and how best to allocate resources.
Compare results with competitors
Comparing your results with those of competitors is a great way to get an understanding of where you stand in the market. Using common KPIs that are typically used in your industry can allow you to quickly see how your performance stacks up against other businesses.
For example, if your competitors are using a certain metric to measure their customer satisfaction, you can compare your results with theirs and take action accordingly.
Inform contract negotiations
With KPIs, businesses can better inform their negotiations with other parties. Take a vendor that supplies your business with raw materials, for example. Measuring things like:
- On-time delivery rate
- Quality of product supplied
- Return rate
These will give you an indication of whether the supplier is meeting your expectations and if there’s room for improvement. The next time a contract needs to be renewed, you can use this data to inform your decisions or determine if you should look elsewhere.
Measure employee performance
This can also include team member performance, such as:
- Number of customer inquiries answered in a given period
- Time to complete assigned tasks
- Accuracy rate for completed tasks
KPIs provide information that can be used to determine if it’s necessary to make changes in the way tasks are being assigned, whether employees need additional training, or inform salary negotiations.
Categories of KPIs
The reason KPIs can’t just be generalized is that every business has different objectives, strategies, and operations. Categorizing serves to help businesses better identify which KPIs are most appropriate for measuring their performance. Here are some broad categories of KPIs that can serve as a starting point for determining the best metrics to use for measuring performance:
- Leading vs Lagging: Leading indicators measure current performance and help to predict future performance while lagging indicators measure past performance. A mixture of both is important to get a complete picture.
- Quantifiable vs qualifiable: While most KPIs are quantifiable indicators that look closely at data and analytics, qualitative indicators such as customer satisfaction surveys and employee feedback are also important for gauging performance.
- Financial vs operational vs other: Financial KPIs measure financial performance such as revenue, expenses, and profit. Operational KPIs measure the efficiency and effectiveness of operations. Other indicators are more specific to the business such as customer satisfaction or employee retention.
- Balanced scorecard perspectives: The balanced scorecard methodology is a system for measuring performance across four perspectives: financial, customer, internal processes, and learning/growth.
While all businesses will have different KPIs depending on their goals, some common ones are used across the board.
- Revenue: The amount of money a company brings in from sales or services.
- Profit Margin: The ratio of profit to revenue, indicating how much profit is made for each dollar earned.
- Customer Satisfaction: A measure of customer satisfaction with a product or service offered by the business.
- Employee Retention: The percentage of employees who remain with a company over a given period.
- Productivity: The amount of output per unit of input, or how efficiently resources are used to produce a product or service.
- Quality: The degree to which a product or service meets customer expectations and requirements.
- Efficiency: How well resources are used to achieve desired outcomes, such as costs being kept low while achieving high levels of quality and productivity.
These sample case studies will help you get a better understanding of how different companies can use KPIs:
Case Study #1
Let’s take the example of a call centre that handles customer support for your business.
The accompanying KPIs might include:
- Number of calls handled
- Average customer wait time
- First-call resolution rate
- Customer satisfaction score (CSAT)
- Number of elevated tickets
Splitting these into categories, the call centre’s performance can be measured in terms of customer service, efficiency and automation. This can help you understand if their team is providing a good customer experience, how efficient they are handling calls and tasks, and which processes could be automated to save time.
Case Study #2
Next, let’s look at an IT department responsible for system maintenance and infrastructure.
The KPIs that should be measured are:
- System performance
- Response time
- Time between failures
- Number of automated tasks
These metrics can help you understand the IT department’s performance in terms of reliability, speed and efficiency. You’ll be able to identify areas where processes or systems need improvement or could be optimized.
If updates are causing long periods of downtime because the unit is doing bulk upgrades, then these processes need to be improved and time needs to be factored in for proper testing.
Once changes are made, the proper metrics can be analyzed to measure impact and effectiveness, further informing future decisions.
KPIs are an essential tool in any business’s toolbox, as they provide a way to measure performance and track progress over time. Knowing which metrics to measure is the first step toward better understanding your business’s performance.
One bit of caution: remember to regularly review your KPIs to determine if they are still accurately representing productivity. When too much emphasis is put on a single metric, it can quickly become a target of manipulation, leading to bad decision-making and unintended consequences.
A thorough, comprehensive assessment of several different metrics is the best way to use KPIs effectively in the workplace.
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