As the head of an accounting firm, I talk a lot of about KPI’s in my day-to-day dealings with clients. But I meet a lot of clients who are just really gearing up for growth and financing who tell me stories about having to google what a KPI “Key Performance Indicator” even is. So this blog is all about KPI’s. KPI’s are great but there is no reason to track them if you are not going to use them. It is like having a mountain bike that sits there taking up space. If you want to get in shape you have to get on it. This means there is no point in tracking your accounts receivable turnover, or your churn rate (definition below), if you don’t know what it even means to your business.
KPI’s are ways to track where your business is at right now. But first, you need to think about where you want to be and create a plan to get there. You can then use KPI’s to gauge how you are doing now and compare these at points along your path. This will allow you to see how you are doing in achieving your goals and allow you to benchmark against competitors.
Four-step process on KPI creation
1) Write down your goals for your business for the next one year, three years and five years.
2) Write down specific tasks that you will do to accomplish those goals this week / this month. Check off, repeat. Tasks lists are important as they put concrete action plans in place. This should be something that is checked off on a weekly basis to ensure you are staying on track. I recommend booking the time in your calendar to ensure you are making the time for these tasks.
3) Determine how you can measure / track the success of your goals and then choose your KPI’s. This can be hard as you have to really dig in. You should include both financial and non-financial. I often recommend you start with at least four financial and at least two non-financial metrics.
- Financial: Start by looking at your own industry as this can give you a good idea on which ones are the most popular. With professional services our metrics typically include gross sales per employee whereas in our tech companies there is a bigger emphasis on churn rates (customers lost) and burn rates (rate at which you are burning through cash). The metrics chosen need to measure what your goals are so base them around that.
- Non-financial: These one’s can also vary by industry and type of business. However, if you are stuck I always guide people to two important things: employees and customers. If you can figure out how you can track employee happiness / job satisfaction you can better retain employees. As for customers, you may want to track customer satisfaction or even something as simple as understanding where your new customers are hearing about you. This will allow you to understand which sales pipelines are working.
4) Calculate KPI’s, works on tasks, re-calculate / check KPI’s quarterly. Repeat.
Best of luck in your KPI tracking. As an insider’s tip, we like to use software like Fathom HQ (https://www.fathomhq.com/) to track client’s KPI’s. They integrate with Xero our cloud accounting software of choice, but also integrate with many other accounting solutions and even can use excel imports. Good luck.
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