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Key Performance Indicators Help Create Company Stability

Monte Wyatt & Brad Sugars, Aug 29, 2019

What you measure, you can improve. Good management is about measuring outcomes to ensure that the company meets its goals. Effective managers develop Key Performance Indicators (KPIs) to measure whether team members are completing their scheduled actions every day, week, and month.

Good management measures to get numbers and to track the effects that change has on them. Good managers set about improving one number at a time, and once they’ve improved that number, they set about improving the next one. Management boils down to testing, measuring and knowing the numbers. In fact, managers should be able to predict the future with their numbers.

What happens if you don't hit your numbers? Well, you don't change your goals. You change actions. And it's the Key Performance Indicators that help you identify which actions should improve, and how. Key Performance Indicators measure the results and actions of your team members in the form of leading and lagging indicators.

Lagging indicators are typically output-oriented. They are measured after the fact, which makes them easy to measure but hard to improve or influence. Lagging indicators usually change after the economy as a whole does. The unemployment rate is a lagging indicator

Leading indicators are input-oriented and measure specific activity. Leading indicators are indicators that usually, but not always, change before the economy as a whole changes. They are useful as short-term predictors of the economy, for example, stock market returns. They can be hard to measure and easily show bias. Effective business development requires understanding both of these.

Managers are not the only ones who should know their numbers. Everyone should. Every team member should know their numbers and be able to report on them at any time. This gives clarity regarding the impact they’re having on their department and, by extension, the entire company.

Here are some typical KPIs for various areas:

In marketing:

  • Ad click-through ratio
  • Average response rates of campaigns
  • Brand awareness percentage
  • Brand credibility and strength
  • Consumer awareness
  • Contact rate (number of contacts effectively contacted / number of names in the target list)
  • Cost per converted lead
  • Cost per lead

Here are some KPIs for finance:

  • Accounts payable amount
  • Accounts receivable amount
  • Actual expenses
  • Amount due (per customer)
  • Average monetary value of invoices outstanding
  • Average monetary value of overdue invoices
  • Budget vs. Actual
  • Invoices sent promptly

Here are some sample KIPs for manufacturing:

  • Asset utilization
  • Availability
  • Avoided cost
  • Capacity utilization
  • Comparative analytics for products, plants, divisions, companies
  • Compliance rates (for government regulations, etc.)
  • Quality
  • Customer satisfaction / Net Promoter Score
  • Cycle time

Here are some sample KPIs for the retail industry:

  • Average inventory
  • Cost of goods sold
  • Gross profit budget percentage
  • Sales budget percentage
  • Discounts
  • Gross profit
  • Leads / Customers per day
  • Conversion rate
  • Average dollar sale
  • Number of transactions

Finally, here are some sample KIPs for the foodservice and accommodations industries:

  • Average income per guest
  • Average revenue per table
  • Quality
  • Labor cost per guest
  • Minutes per table turn
  • Profit per table

To recap, Key Performance Indicators help you identify which actions should improve, and how. Key Performance Indicators measure the results and actions of your team members in the form of leading and lagging indicators.

We'd love to hear from you. What have you identified as your Key Performance Indicators? Thank you for sharing.