What are Key Performance Indicators

Key Performance Indicators - Complete Controller

The key performance indicator is a measurable value used to determine how efficiently and effectively an organization is achieving its business goals. KPIs are used by companies at different levels to evaluate their success to achieve their particular milestones. Focuses of low-level KPIs are on the processes running in the departments of marketing, call center, or sales. Whereas high-level KPIs have their main focus towards the organization’s overall performance. Check out America's Best Bookkeepers

In the simplest term, KPI is a way to measure the progress of a company as far as their business objectives are concerned. KPIs are used to provide the most crucial information related to the company’s performance that enables the organization’s understanding. This understanding helps keep track of whether the company is moving as per the stated objectives or not. For such purpose, KPIs play the role of the navigational instrument by defining the current performance picture of any organization defining that where the company is standing right now compared to where it should be.

KPIs are considered a useful tool to make a business decision because they help reduce critical scenarios by raising the organization’s performance. To define KPI in a better way, an organization needs to consider the following questions. 

  • Company’s desired outcome?
  • Does this result matter?
  • How to measure the company’s progress?
  • How to manipulate the outcome?
  • Who is responsible individually for the business outcome?
  • How would you get to know whether you have achieved your outcome or not?
  • How often your company’s progress will be reviewed. Check out America's Best Bookkeepers

Answers are mentioned below for a better understanding of the term “Key Performance Indicators.”

  • To increase the company’s sales by 30% this year.
  • This would help the company to make more profit.
  • It will be measured as per the increment in revenue.
  • By hiring more staff, particularly for brand promotion.
  • Chief Sales Officer.
  • By measuring revenue, that would be increased by 30%.
  • It will be reviewed on either a monthly or weekly basis.

Key Performance Indicators as Key decision-making tools:

It has been understood by active decision-makers that there’s a need for information based upon some key values to make core business decisions. Creating an association between effective KPIs with strategic business objectives will help you answer complex business queries. It is essential to identify Key Performance Questions (KPQs) specifically for each strategic objective. After identifying KPQs, you will then be able to select or develop those KPIs that are best for your organization and efficiently answer your questions. This approach will make KPI meaningful, relevant, and strategic.

Importance of KPIs: Check out America's Best Bookkeepers

There are several reasons why your organization need KPI, and they are as follows:

  • Measure your Targets:

KPIs are not referred to as an organization’s goal or targets, but they are a method to measure targets and goals for any organization. For example, if your company’s objective is to sell tickets at a certain amount every week, the KPI would tell you how close you are to reaching your target. In this instance, KPI would indicate that your sales team generates only 15% of revenue. As a manager, it is your responsibility to check whether this revenue is as per your desired target or not. If you start measuring your organization’s goals this way, it enables you to check whether you’re moving on the right track or not.

  • Create a learning atmosphere:

Incorporating KPIs into your organization will help you create an educative atmosphere because measuring KPIs leads to meaningful conversations. This way, you get a chance to interact with other team members to discuss that particular KPI.

KPIs are significant for reaching the company’s objectives and allowing you to make timely and systematic adjustments per your company’s requirements. But you have to make sure that your company’s goals have enough potential to use KPI strategies. You need to develop particular goals that enable you to create the most critical KPIs to improve overall business performance.

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