What makes a good business KPI?

Business
May 20th 2020

It’s important to create business objectives to help your business grow, but how do you know you’re achieving your goals? KPIs, or key performance indicators, can help you monitor your progress so that you know you’re on track, but what makes a good business KPI?

A good business KPI should follow the acronym SMART. That is, your KPI should be specific, measurable, attainable, realistic and time-bound. These key factors form the basis of an effective KPI for any business, additionally model your KPIs to support decisions, instead of creating more questions, with your desired result or business objectives in mind.

What is a KPI?

KPI stands for key performance indicator, a KPI is a measurable value or metric that indicates how effectively you or your company are achieving your key business objectives. Plenty of metrics in business can be used as a KPI, so long as that metric is applicable to your business objectives.

Why should small businesses use KPIs?

KPIs for small businesses let you know if what you are doing is working, in the sense that you are achieving your business objectives. By measuring KPIs, you can determine what is and what is not working your business, so that you can make the changes necessary to successfully operate your business.

How do I measure KPIs?

How you measure your KPI will depend on what you’re measuring; for example, if your KPI is net profit you may use your accounting software to measure your KPIs, whereas if your KPI is project cycle time you would use a time tracking application. The key factor of measuring KPIs is to make sure you have a plan for reliably collecting the relevant data, and implementing that plan for the period you want to analyse or compare your performance.

What is the difference between KPIs and smart goals?

While both a KPI and a smart goal uses the same SMART acronym as their basis, a KPI is a metric that communicates whether you’re achieving your goals, whereas a smart goal communicates your desired final outcome.

What are some examples of KPIs?

Following the above answer for what makes a good business KPI, here are a few examples that may be useful for your business:

  • Net profit for the quarter.
  • Average sales per sales person for the year.
  • Employee churn rate for the past 3 years.
  • Average time spent on projects for the quarter.
  • How much time your team spent on non-billable projects for the month.

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