Taking your business to the next level isn’t something that just happens—it requires hard work, dedication, and the right information. When it comes to grown, one of the most valuable basic business principles is measuring how your actual performance is relating to your main objectives. Are you meeting these objectives and goals as thoroughly as you believe you are, or do the numbers show that you’re actually way off base?
In order to tell, you need to analyze your key performance indicators.
What are Key Performance Indicators?
First, you need to understand exactly what a key performance indicator is. On the surface, it’s a way of indicating how effectively your business is meeting its objectives, but that’s fairly vague. These indicators need to be measurable, which means your goals have to be measurable.
A goal of “create a successful business” has no key performance indicators because “successful” isn’t defined. Does that goal mean you want to make a certain profit every year? Have a specific number of customers? Grow your business within a set amount of time? Without some kind of measurable outcome, you can’t have a performance indicator, and without these indicators, you can’t really tell how well your business is actually doing.
Break it Down into Basic Business Principles
Many businesses break down their key performance indicators into smaller measurements, often called business metrics. Everything your business does will have a number of business metrics associated with it. These measurable metrics may include things like sales leads, new advertising venues, sales, purchases, overhead expenses, employee salaries, benefits, etc. When you take a number of these metrics together, they can become a key performance indicator.
For example, if your goal is to make X amount of dollars of profit every year, your key performance indicator would be the actual amount of profit you made. You would arrive at that number by looking at the business metrics for your income, the expenses associated with your products or services, the amount paid to employees and for employee benefits, and any overhead costs.
Don’t Wait until the End of the Year
Some key performance indicators need to be monitored more often than once a year. That’s because they should be more than just an indication of whether or not you met your yearly goals—they should be guides you can use to modify your business practices. Looking at these indicators yearly may help you shape the next year’s budget, but by that time, it’s too late to try to make any corrections to this year. Review your key performance indicators quarterly at a minimum so you can see if you’re on track to meet your goals.
Some of your indicators may need to be monitored even more closely than that. For example, if one of your goals is to grow your SEO marketing by bringing in a specific number of visitors to your site every month, you will want to keep on track of the different business metrics and key performance indicators associated with your website. That’s because SEO keywords have to be constantly tweaked on a monthly basis. If you only look at this area every three months, you may never meet that goal. Overall customer retention, on the other hand, may be something you can only evaluate quarterly or every six months because customers may not need to return to your business that often.
What questions do you have about your business’ key performance indicators? Want to learn other crucial, yet basic business principles?
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