You may know that tracking KPIs, or Key Performance Indicators, will help you to grow your small business. In spite of this, we’ve noticed that a lot of businesses aren’t tracking them. Those that do, often don’t know what to do with the information. That’s why we set out to demystify the process of tracking KPI’s. In this article, we will tell you what they are and why they are important. We will give some guidance as to how many you should have. And we will offer some tips on how to use them effectively.
What is a KPI in business?
KPI stands for Key Performance Indicator. Simply put, a KPI is something that has value and can be measured to help you see how your business is moving towards achieving its goals.
Why is it important for a business to use key performance indicators?
Key Performance Indicators (KPIs) are important to track and use because they help you to know whether or not your business is achieving the goals you set for it. When you are tracking KPIs, you can quickly see when an action your business is taking is not creating the expected result. Then you can change your strategy quickly, without wasting time, energy, or money on something that doesn’t work.
How many KPIs should a small business have?
The number of KPIs you set for your business depends on a lot of factors. However, if you are a small business owner who is new to using KPIs, we suggest keeping it simple. Start with 1 or 2 goals, and set 2 to 3 KPIs for each goal. Once you become more comfortable with using them, you can expand and have more.
How do I set KPIs for my small business?
Start by defining your goals. What do you want to achieve in the next month, 3 months, 6 months, and year? Make sure the goals you set are SMART goals. SMART stands for Specific, Measurable, Achievable, Relevant, Time-based. An example of a SMART goal would be: “We want to sign on 1 new client a month for the next 6 months.” Or, “We would like to sell 10% more doodads in Quarter Four than we did in Quarter Three.” A non-SMART goal would be “We want to more sales.” or “We want to sell a million dollars worth of doodads!” when you’re only selling $50 worth each month.
Once your goals are set, you should look at how you would achieve each of those goals. For example, let’s say you wanted to sell 10% more doodads. You review your sales from Quarter Two and see that most of them come from Facebook. You also have a significant number of people finding your product on Google. You’re on Amazon, but you don’t see a lot of sales from them. So you decide to focus on generating sales from Facebook and Google for now.
Then you can set your KPIs. An example of a KPI here would be: “Increase Facebook clicks to our e-commerce website by 50% by December 31, 2020.” and “Get 100 more visitors to our e-commerce store from Google by December 31, 2020.” and “Turn 1 out of every 5 visitors to the e-commerce store into a sale between September 1, 2020, and December 31, 2020.”
What can I do to use my KPIs more effectively?
If you want to use your KPIs more effectively, then you need to commit to regularly reviewing them and adjusting them if they aren’t working. If you find that a KPI that you set isn’t helping you achieve your business goals, then you need to change it.
Using the example above, let’s say you review your KPIs On October 1, 2020. Since your goal was to increase sales for Quarter Four, checking in on your KPIs after a month is reasonable.
You realize that your sales have only increased by 2% so far. You managed to bring in an additional 50 visitors from Google already as the result of an aggressive ad campaign. However, visitors from Google aren’t buying. You realize that you are only getting sales from 1 out of 10 visitors from Google.
Visitors from Facebook, on the other hand, haven’t increased as much. But a larger percentage of Facebook visitors turn into sales. You are getting sales from 1 out of every 3 visitors from Facebook.
You decide to back down on your focus on getting sales from Google and focus on Facebook more instead. When you check in on November 1, 2020, you see that the adjustment worked and you are now on track to meet your original goal of increasing doodad sales by 10% in Quarter Four.
Congratulations! Now you know how to use KPIs for your small business. If you have any questions or comments, let us know! We’re happy to respond.
If you want help with setting and tracking financial KPIs for your business, then contact the team at Accounovation, today! We help business owners meet their goals by providing a simple and efficient analysis of their financial statements.