Insights: Article

The Importance of KPIs

By Jenni Huotari

February 09, 2018

You have a business and you want it to be successful. GREAT! But how do you measure it? Yes, it’s easy to say, oh I know what success is. But do you? Do your employees? Would you all define success for your organization the same way?

We’ll let you in on a secret … it’s not the same for every company. The definition of success is unique to you and by defining it, you can make sure everyone in your organization has a clear vision about what’s important and also how to achieve that standard of success. 

Enter KPIs (also known as Key Performance Indicators), which allow you to quantify what success means to your business.

What are KPIs?

Quantifiable measurements, agreed to beforehand, that reflect the critical success factors of the organization.

 So why are they important? Well here are a few reasons …

They help you measure success. Once you’ve defined your overall business goals, the next step is to identify KPIs to make sure those goals are met. KPIs are measurable so you can track how you’re currently doing and what action you need to take (or not take).

What do we mean by measurable? Well you can’t just say we’re going to be the best at customer service. How do you measure what “the best” means? But you could say, we’ll have a 95% retention rate for new customers during their second year of service. This is something that can actually be measured and can determine key action steps to make sure you’re on track for success. 

So everyone’s on the same page. One of the reasons why KPIs are agreed upon beforehand is so everyone has a clear definition of where the company is going. This only happens if you’re communicating your KPIs to your team and helping them understand how they are helping to drive the success (or failure) of the company. Define your KPIs for your team and provide them with a clear vision of what is important.

They hold people accountable. Your team now understands the KPIs for your organization. Great! But the next question is, why should they care? Make sure your team not only understands what your KPIs are, but how their daily activities and work affect them. So tie your KPIs back to performance. Make sure your employees know which KPIs fall within their department and use them to measure performance and provide direction. In this way, your team can clearly know what success looks like, both individually, and for the organization as a whole.

Make sure someone is directly responsible for the success of each KPI. For instance, if one of your KPIs is an increase in revenue dollars, it would make sense to give the responsibility of this KPI to your lead sales person.

They give you the path to move forward. KPIs reflect the factors critical to your company’s success. But they can’t be accomplished in a day. So ask yourself, what daily activities do we need to do to contribute to the success of our business? If you have defined KPIs, this success should be easy to define and track. It can also show you areas where adjustment is necessary.

KPIs are not set in stone. So if you need to change them up, you certainly can. This is another reason why tying KPIs back to daily activities is so critical. When you’re looking at them daily, you can see where strategy changes are necessary and where measurements need to be adjusted.

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