KPI (Key Performance Indicator) -measurable values which demonstrate how efficient a corporation is at attaining key objectives of the business. KPIs are used for the evaluation of success in the attainment of targets.
KPI must be
- Well-defined and measurable
- Well communicated to all departments of an organization
- Vital to achieving goals.
- Valid to Line of Business
Financial metrics
- Revenue: it is one of the most significant performance indicators to evaluate the success of the organization. Bookkeeping helps you in evaluating revenue.
- Expenditure: calculate cost-effectiveness to find out the best methods for reduction and managing of costs. Expenses are determined by good bookkeeping practices.
- LOB profits vs. objective: it is an evaluation of actual profits and projected profits to identify the performance of a department.
- Expenditure Of supplies Sold: evaluate profit margin by calculation of production costs and assess product markup and actual profit margin.
- Day transaction Outstanding: better the accounts receivable, the better is the efficiency of the organization.
- Sale by area: analysis of sales area-wide helps in making better strategies in areas where sales objectives are failing to achieve.
- LOB operating expense Vs. Budget: comparison of forecasted budget and actual overheads helps in creating an effective budget for the future.
Customer metrics
- Client Lifetime Value (CLV): CLV helps determine the value received from a long-term client of the organization. This is useful in keeping the best customers.
- Client Acquisition Cost (CAC): it helps in evaluating the cost-effectiveness of a marketing campaign.
- Client Satisfaction & custody: by making customers happy and satisfied, you encourage them to become permanent customers.
- Net Promoter Score (NPS): make a survey quarterly and evaluate the company’s growth for long periods.
- Several clients: this is a simple and straightforward KPI like Profit. The number of customers gained or lost determines whether customers’ needs are met or not.
Process metrics
- Client Support Tickets: analysis of CPT helps in creating a successful customer service dept.
- Percentage Of manufactured goods defect: lesser the number, the better is performed.
- LOB effectiveness evaluates: Efficiency is measured by the number of products manufactured in specific periods.
People metrics
- Employee Turnover Rate (ETR): high ETR requires investigation and evaluation of packages and organization culture.
- Percentage of Response to Open Positions: many applicants indicate that the organization is doing well and that people want to work with you.
- Employee Satisfaction: the larger the number of happy employees, the healthier the organization.
- Retirement Rate: This is important for developing strategic workforce plans.
- Knowledge Achieved with Training determines the value of employee training and knowledge enhancement.
- Internal Promotions vs. External Hires: this metric is valuable for determining succession planning of the organization.
- Salary Competitiveness Ratio (SCR): used to assess the competitiveness of compensation options.
Customer metrics
- Customer Churn Rate: determines the percentage of customers who stop purchasing or availing of the service.
- Contact Volume by Channel determines the number of customer requests and the method adopted by the customer for communication, i.e., email, phone, or other.
- Percentage Of Customers Who Are “Very” Or “Extremely” Satisfied: Determines the opportunity to survey customers’ expectations.
- Several New Vs. Repeat Site Visits provides differentiation of prospective clients and website traffic.
Financial metrics
- Cash Flow from Financing Activities: demonstrates financial strength.
- Average Annual Expenses to Serve One Customer: the average sum required to serve one customer.
- EBITDA (Earnings before Interest, Taxes, Depreciation, & Amortization): Formula: (Revenue) – (Expenses Excluding Interest, Tax, Depreciation & Amortization) = (EBITDA).
- Innovation Spending: the higher the spending figure, the more the value of innovation in an organization.
- (Customer Lifetime Value) / (Customer Acquisition Cost): this value should be greater than one.
Conclusion
Periodic evaluation of KPIs helps make a better strategy for entrepreneurship. It guides in adjusting necessary for growth and expansion.
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