Whether you are an owner of a small local business, a manager of a department, or a CEO of a large corporation; you must have quantitative measurements in your business. These are called Key Performance Indicators or KPIs for short. KPIs must reflect critical areas of your business that you track for your overall company’s success.
You must be able to measure and track the growth of your business or department in several key areas. Now what these key areas depend on the business you own or manage, but they must reflect critical areas of your business.
By tracking specific KPIs will show you where your company stands so you the owner/manager can analyze your business from various aspects to determine where your focus is needed most. Make adjustments as needed and have a baseline to start from.
Common KPIs are a goal to measure against, current performance versus a previous performance and cross-selling.
KPI Volume In Product sold
For example, let us say you are the owner of a local distribution warehouse. You have a goal to sell one million cases. You want to see if you are trending to make the goal.
You need to measure your volume in You would take your previous year’s sales and compare the current year’s sales. This will identify your trend.
- 2018 Soda Sales Volume 500,000 Cases
- 2019 Soda Sales Year to Date 700,000 Cases
- 700,000–500,000 = 200,000 growth in cases sold.
If you want to find out average growth by month:
- 200,000 divided by 10 months = 20,000 average increase each month.
- Projected 2019 year-end growth is 240,000 or a total of 940,000 total cases sold.
KPI Volume in Dollars
Another example of volume would be total loan volume in dollars for the finance industry.
For example, let us assume we have a loan volume goal of $100,000 in loans for the fourth quarter.
You can measure our performance verses, prior year, month to date previous year, and month to date. Combine these components, and we have a real workable KPI.
If the volume is first, then turnover would be the second most important KPI for many of the same reasons, especially negative turnover.
- Negative turn over is when an employee is either terminated or leaves the company of their own volition.
- Positive turnover is when an employee is promoted within the company.
While positive turnover is a great driver for your business in terms of moral and keeping good employees, it still leaves a void in your staffing. Turnover is worth considering a KPI. There are several reasons to justify this.
One reason is that according to the Society of Human Resource Management, companies spend, on average, “$4,129 to hire new employees with around 42 days to fill a position.”
Now take into consideration the loss in your productivity with a vacant position for 42 days and the impact this has on your other KPI of volume. So, in reality, the cost can be exponentially higher than $4,129 lost.
Secondly, turnover can create a morale issue within your company. In instances where turnover is high, it often requires your remaining employees to take on additional tasks without additional regular compensation.
This can cause even the most loyal employee to become disgruntled and leave your company. Now resulting in multiple positions open, higher recruiting cost, and lost productivity. All are resulting in lost volume for your company.
Let’s say the average regional turnover for loan officers is 10%, then you should set your KPI goal at 8%, thus giving you an aspirational yet attainable goal to measure your turnover within the same metrics as mentioned earlier to identify trends or causes of turnover ideally.
The third KPI that is crucial to any business related to sales would be a cross-sell index. In nearly any retail or sales business, the goal is to sell the customer additional products or services beyond what the customer initially planned to purchase.
For example, when a customer opens a new checking account at a local bank, they rarely purchase just the checking account alone. Often the new account rep cross-sales the customer various products and services such as online banking, debit cards, mobile banking.
They also often ensure that they introduce the customer to their in-house consumer lender as well. Thus, after the transaction, they have cross-sold four to six additional products or services to that customer.
Why is cross-selling important enough to be considered a KPI?
A new customer can cost up to five times more than keeping your current customer.Tweet
The more products or services a customer purchases from your business, the less likely they are to change whom they make purchases. Thus, creating repeat business for your company.
The cross-sale index can be measured in all the metrics mentioned above. As well as down to specific employees in all the same parameters, thus highlighting high performers and those who require additional training.
KPIs for a Measurement of Success
These are just a few of the most common KPIs used in business today, especially in sales-related business.
However, a company can have many KPIs as they deem necessary without becoming redundant or convoluted.
Remember, KPI stands for Key Performance Indicator. Thus, meaning you as the owner/manager must determine what is the key to the success of your business.
Your KPIs ideally should be in place when you first open your business, so you know where you stand in all vital areas.
However, even for the existing business, it is never too late to implement them.
In fact, in today’s hyper-paced environment, we can consider KPIs keys to success in their own right.Tweet