How to Make Key Performance Metrics a Top Priority for Your Organization

June 4, 2020 | Article

Benchmarking has always been a best practice for businesses and organizations. Identifying and analyzing metrics that are important to your operation and comparing them to peers and those in your industry allows you to craft realistic goals, maintain team accountability and plan for the future.

In a time of significant uncertainty, this practice is not only necessary, it’s critical.

Defining What Success Looks Like
The significance of identifying what success looks like first cannot be overstated. Clarity of purpose and mission is critical to determine measurements for success. Without an understanding of your overarching goals, it will be difficult to evaluate and tweak your metrics.

It also takes collaboration—both within your leadership team and externally with trusted advisors. In a time of uncertainty, it’s important to have people who challenge you to think differently and to question your goals and metrics for success. A trusted business advisor should be able to have a strategic conversation with you and give you constructive feedback on your proposed strategies.

The type of data you use to define success is important. Here’s how operational analytics can help you lead through a downturn.

Understanding Your Target Market
Success is also contingent on understanding who your product or service is for and addressing the problems they face.

Having a clearly defined, reasonably sized target market can allow your business to put time and effort in to those who are interested in the business, especially during a time when many are looking at cost containment strategies. Without having a clear picture of who your target market is, you may be wasting time, money and energy on the wrong people—people who won’t even think about buying your product.

The Importance of KPIs
Once you have identified what success looks like, you can begin to identify key performance indicators (KPIs) that work for your organization. KPIs allow you to quantify what success means to your business. They are measurable, so you can track what you’re currently doing and what action you need to take (or not take.)

What are KPIs?
KPIs are quantifiable measurements, agreed to beforehand, which allow you to identify what success means to your business.

Specifically, KPIs:

  • Ensure everyone’s on the same page. KPIs give definition to where your organization is going. Defining these metrics and communicating them to your team gives an understanding of the company’s vision and direction, even in times of disruption. More than ever, communicating outcomes and measurements with your team will be a critical component to your business strategy.
  • Hold people accountable. Your team must understand how their daily activities and work impact these metrics. KPIs need to be tied back to performance and the objectives for your functional teams. Furthermore, make sure someone is directly responsible for the success of each KPI.
  • Give you the path to move forward. KPIs reflect the factors that are critical to your company’s success. By defining an overall goal, you can better align daily activities to the success of your organization. When you look at them daily, you can see where strategy changes need to be made.

In the current economic climate, an understanding of your KPIs will help inform your decision making and move you forward. This understanding will also help you make decisions about the health of your organization and where to make necessary adjustments.

How to Choose Key Metrics During a Time of Uncertainty
Determining key metrics for your specific business is a process. We suggest starting with 3-10 quantifiable metrics that will help measure if your business is headed in the right direction and alert you about modifications that may need to be made.

In a time of disruption, revisit common problem areas in your organization. While they may have caused issues before, they have the potential to dictate success or failure now.

Cash Balance: How much money do you physically have right now? Don’t forget to be cognizant of deposits in transit (money you have received but hasn’t been deposited in the bank) and outstanding checks (checks that you have written but haven’t cleared the bank).

Accounts Receivable: How much money is owed to you by your customers? What portion is greater than 30 days past due? How is this affecting your cash flow?

Accounts Payable: How much do you currently owe? How is this affecting your cash flow?

Inventory: How many days, on average, is your inventory sitting on your shelves? Are there any slow-moving inventory items? Do you have any significant back orders? What is your return rate?

Sales Revenue: What are your gross sales? What does your sales cycle look like?

Gross Margin & Net Income: How high is your gross margin? Are you turning a profit on the goods you sell? Is your gross margin enough to cover your cost of operating? Do you know your gross margin by profit center (e.g. product line, customer, job, etc.)?

Customer Service: What ratings are you seeing via customer service surveys? How many support tickets are open or have been resolved? What does your retention of existing customers look like? Did you receive any referrals?

Why Measurements Are So Important
In an environment of increasingly limited resources, it’s important to know what success looks like and to track the proper metrics to achieve your overarching goals.

As you review and create KPIs, ensure you are surrounded by advisors whose end game is to help your organization become better and pursue its metrics for success.

KPIs are also critical to cash flow and cost containment considerations. We’ve developed an eBook to help sort through what this means for your organization.

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