WTF . . . Is a KPI?!

If you’ve read my blog or worked with me before, you know I’m all about demystifying financial jargon and turning it into plain, simple English. 

Because here’s the thing . . .

As an entrepreneur, you CAN – and should – be able to understand those vague terms the “finance gurus” make out to sound like an impossible challenge. 

They’re not. This isn’t the Rosetta Stone. 

So today, we’re getting to get crystal-clear on the definition of a KPI, and why these three letters are so important for your business. 

 

KPI Stands for Key Performance Indicator 

And if your ears just perked up at the word “performance,” then you’re on the right track. 

You see, most companies use KPI’s to measure all of the important factors that contribute to the success of their business. Imagine just how much money you can make (and save) when you’ve got a system in place for measuring performance. 

However . . . It’s not as simple as deciding you want to slap a KPI on every task and wait for the results to trickle in. 

Here are the top three things to keep in mind when you decide to start implementing KPI’s for a more successful business.

 

Don’t Follow the Crowd

Just like you wouldn’t use the same metrics to reflect the success of a relationship, you can’t rely on the same metric to measure the success of your business.

Think about it like this: what’s important to you today might change over time. For example, if your primary goal right now is to increase your quarterly revenue, that’s what your KPI’s should focus on. If you decide at some point that you’re more focused on net profits, you’ll want to change your KPIs. 

Don’t just pay attention to what your biggest competitor is doing. Focus on the goals that make the most sense for the success of your business, where it currently stands. 

 

Don’t Over-Complicate Things

Many business owners make their KPI’s so complicated they can’t tell up from down. 

And that’s the exact opposite of what you want to be doing. Remember, the whole goal here is to make your finances work FOR You, and not against you. 

Make sure your KPI’s are easy to define and trackable. The easier is it to locate and gather the data, the more time you’ll have to analyze it as a springboard for better business decisions. 

 

Have Just the Right Amount

Some companies go overboard with KPI’s, trying to implement them for the most granular and irrelevant levels of performance. Others keep things way too general and get abstract answers in return. 

In choosing your KPIs, consider what information is most crucial to understand to drive your business forward.

If top-line growth is your main goal, then measuring revenue alone won’t give you an accurate reflection of your current standing. In that case, you’d also want to get a good idea of your customer base, because they’re the ones driving your growth. 

So you’d implement a KPI to measure average customer size, traffic sources, or their demographics. 

But be selective. You don’t want too many measurements leading to paralysis by analysis, where it becomes nearly impossible to piece together a story from the data. 

And don’t forget that even the most sophisticated data dashboards need human intervention before they can provide anything worth analyzing. So unless you want to hire a full suite of brainiacs to inspect every nook and cranny of information, it pays to be choosey with what you decide to measure. 

Above all, remember this: 

The best KPIs will reflect your current thought processes and strategy. Context is everything. 

Not sure what to focus on? Hire a professional to help today!


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Taking It Back to Basics

At the most basic level - when it comes to finances - all businesses are the same. What you make, minus what you spend, is your profit.

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