/ What are business KPIs and why do they matter?

What are business KPIs and why do they matter?

Anything in business that can be measured should be measured. Why? When you have something to compare success against, you’re more likely to achieve success. A runner in a marathon uses time or mile markers just like a business needs accurate measurements of overcoming challenges in day-to-day operations to make sure they’re on track.

This is where KPIs can help. The best performing organizations have data to rely on for decision-making. That data is useless without some metric that can be turned into action. Integrating KPIs into your operations is an essential task that needs to be understood and communicated throughout the entire organization.


What is a KPI?

A key performance indicator (KPI) is a metric that measures the success of an organization. KPIs are important because they help you determine whether or not your business is achieving its goals and objectives and, if not, what changes need to be made. Your KPIs can include financial metrics such as yearly revenue growth rate or monthly profit margin percentage, non-financial metrics like customer satisfaction rating or employee retention rate, or even intangible metrics like the total number of patents filed by the company in one year.

When analyzing your KPIs over time you can use them to measure how well your strategies are working for you so that when it comes time to develop new ones you’ll have data to back up why they’ll work better than what’s currently in place.


Why KPIs matter to businesses

The benefits of KPIs are many. They can help you make better business, strategic, and tactical decisions. They can also help with operational and financial decisions. In fact, there are very few types of decisions made in a company that aren’t improved by the use of KPIs.

KPIs also help organizations benchmark their performance against industry standards or competitors. For example, if your organization has a goal to increase revenue by 10% every year over five years, a KPI might be to achieve $1 million in sales within the first year (i.e., an annual growth rate of 20%). KPI metrics like these allow firms to compare their performance against industry benchmarks in order to achieve a competitive advantage when setting goals for future growth opportunities.


Common types of KPIs

Every industry is going to be different, with needs and challenges unique to the market and company in question, but in general, you can expect your KPIs to fall into one of these categories:

  • Financial: These KPIs are related to revenue, profit, cash flow, and resource allocation of a business.
  • Marketing: These KPIs may measure consumer engagement with advertising and brand presence.
  • Customer-focused: This involves measuring satisfaction and customer relationships. A common example is how many referrals and repeat customers you have for your products and services.
  • Operations: This is more internally focused on creating new efficiencies inside of your organization. Think about using automation tools to boost productivity that is easily measured in a BI dashboard.
  • Pipeline metrics: This means different things for different niches. A financial company would think about opening new revenue streams, whereas a data-focused enterprise might consider new lifecycles and governance innovations.


How to set up KPIs for your business

Once you have defined your KPIs, it is important to then ensure that they are communicated to all employees. This has the added benefit of ensuring that everyone is on the same page and working towards the same goals.

When setting your KPIs, it is recommended that they be specific, measurable, and achievable. This will make it easier for employees to track and report on their progress. They should also align with the overall business strategy so that there’s no conflict between what each department needs from its KPI versus what other departments need from theirs.

KPIs should be reviewed regularly by upper management in order for any necessary course corrections or changes in direction to occur earlier rather than later, before things get out of hand or escalate into something bigger than initially anticipated.

As with any other process within an organization or company, communication is key. It’s essential for employees at every level to not only know but also understand how a particular metric drives success within their role.


Simple steps to KPI management

Again, every business will differ in terms of needs and challenges. A good suggestion for developing solid KPIs begins with a cross-platform team (sometimes called a hybrid team). These are members from different departments or aspects of an organization. For example, having 2 people from IT, 2 from accounting, and 2 from operations ensures a carefully thought out list of KPIs that can then be passed to upper management for revision and implementation.

The basic outline of building KPIs includes the following:

  • Understanding your unique goals (e.g., increasing sales, building new leads, and growing innovative products)
  • Establish success factors that combine a measurable activity with a specific time frame (e.g., gain 2,000 followers in 1 month)
  • Create a dashboard or reporting system to visualize these KPIs for inter-department communication
  • Collect data and metrics from related points to your KPIs
  • Review and adjust as needed

These steps will vary wildly depending on your business goals, but they should always support the overall strategy of your organization. A KPI that is not aligned with current strategies or tactics is not likely to be achieved.


Integrating your KPIs with your BI software

KPIs are a key component of a company’s business intelligence strategy and are the metrics that matter most to your business. They can help you to measure the success of your business, track its progress, identify areas for improvement, and more.

KPIs should be easy to understand while providing information that has meaning at multiple levels within an organization. For example, if you have a sales KPI in place that tracks volume over time by product line, this should tell you whether or not your sales team is performing well.

If possible (and depending on what software solutions support), integrating KPIs into your BI software can help streamline reporting across departments while giving managers access to important performance data at all times through dashboards or alerts. This is where data visualization plays an important role. Being able to clearly showcase the progression of your business toward KPIs for all stakeholders, team members, clients, and other interested parties is key to reaching a goal.

If your business isn’t measuring the effectiveness of its activities, it will be very difficult to accurately assess the direction of your company. By using dashboards that are carefully configured to display each KPI in relation to the overall strategy, you can make informed decisions about key areas of your business and ultimately drive your company towards success.


Wrapping it up

Knowing where to address the needs and resources of your business is critical to KPI success. It allows you to target areas that are not measuring up to the outlined strategy or goals of an organization. This is essentially the steering rudder of a business so that future success can be achieved by shifting goals or processes in one direction or another.

Using modern bespoke technologies like BI dashboards and reporting is a surefire way to better communicate these KPIs throughout the organization. This way, everyone from the CEO to the newest intern can be on the same page about the objectives of the company.

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