Tips on Implementing KPIs in Small Business
'KPI' stands for Key Performance Indicator. They are measurements used by a business to drive performance. There has been increasing interest from business owners and managers about how to set effective KPIs. Here are the 5 basic steps you need to take. These steps are based on the practical experience at EWO Consulting. We help businesses with 5 to 50 people implement strategic management systems to drive growth in their business.
1. Map Your Core Business Processes
Before you can drive the performance of your business, you need to have a clear picture of the core processes. Draw a flow diagram that shows the major steps you go through to generate revenue. This may include steps like:
- Take an enquiry
- Provide a quote
- Order supplies
- Assemble the order
- Deliver the order
2. Establish Roles, Responsibilities & Critical Success Factors
You now need to allocate a role to each step in your core process. Who actually completes that step? For instance, the Sales Manager might take the enquiry and provide the quote, the Operations Supervisor then orders supplies, and so on. You then need to look at what that person needs to do successfully in that role to ensure the business is able to achieve its goals.
For instance, the Sales Manager may need to:
- Be polite, courteous, efficient, and professional on the phone
- Accurately complete enquiry forms
- Submit the enquiry for Ops Supervisor within 1 hour
- Get the quote back to Customer within 24 hours
- Win the order
- Follow-up and ask for a repeat order
- Win a repeat order
3. Choose the Basis of Your KPI
Once you have completed Step 2, you may have a list of 5 - 10 critical factors that need to be addressed to ensure that role is completed successfully. From that list, you now need to select your KPIs. You should try to have only 1 or 2 KPIs per role. If there is a person already in the role, we suggest you include them in discussions and the decision process. There are some vital factors that need to be taken into account when selecting KPIs.
- The person in the role needs to have full control over achieving that KPI
- You need to have hard, objective data
4. Set the KPI
Having completed the analysis outlined above, you should arrive at 1 or 2 options. Choose the ones that are most critical for business success. In our Sales Manager example, winning an order and getting a repeat order are selected as the KPIs. Therefore, the KPIs become:
- KPI 1: Ratio of successful orders to enquiries
- KPI 2: Number of customers submitting a repeat order in 12 months
5. Set the Target and Review Date
Your final step is to set the performance levels. These need to align with your business goals but also need to be considered achievable by your team members. Ideally, you set the targets in consultation with those people who will need to achieve them.
- KPI 1: Ratio of successful orders to enquiries, Target = 75%
- KPI 2: Ratio of customers submitting a repeat order in 12 months, Target = 80%
Once you and your team members have established the targets, you then need to set the review dates. The ideal frequency for review is highly contextual. For instance, it may make more sense to review repeat purchase rates annually rather than monthly depending on the buying habits of your customers. You also might like to consider some form of reward or incentivization for achieving goals. Sometimes this is as simple as a gift voucher or a dinner. Other options are profit-sharing and bonus payments. Make sure you discuss any incentivization options with your team before implementing them; don't assume to know what they want or what motivates them. Time and again, making these assumptions has proven to be a very costly mistake. You may be surprised just how simple the reward may need to be.
From India, Hyderabad
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35'KPI' stands for Key Performance Indicator. They are measurements used by a business to drive performance. There has been increasing interest from business owners and managers about how to set effective KPIs. Here are the 5 basic steps you need to take. These steps are based on the practical experience at EWO Consulting. We help businesses with 5 to 50 people implement strategic management systems to drive growth in their business.
1. Map Your Core Business Processes
Before you can drive the performance of your business, you need to have a clear picture of the core processes. Draw a flow diagram that shows the major steps you go through to generate revenue. This may include steps like:
- Take an enquiry
- Provide a quote
- Order supplies
- Assemble the order
- Deliver the order
2. Establish Roles, Responsibilities & Critical Success Factors
You now need to allocate a role to each step in your core process. Who actually completes that step? For instance, the Sales Manager might take the enquiry and provide the quote, the Operations Supervisor then orders supplies, and so on. You then need to look at what that person needs to do successfully in that role to ensure the business is able to achieve its goals.
For instance, the Sales Manager may need to:
- Be polite, courteous, efficient, and professional on the phone
- Accurately complete enquiry forms
- Submit the enquiry for Ops Supervisor within 1 hour
- Get the quote back to Customer within 24 hours
- Win the order
- Follow-up and ask for a repeat order
- Win a repeat order
3. Choose the Basis of Your KPI
Once you have completed Step 2, you may have a list of 5 - 10 critical factors that need to be addressed to ensure that role is completed successfully. From that list, you now need to select your KPIs. You should try to have only 1 or 2 KPIs per role. If there is a person already in the role, we suggest you include them in discussions and the decision process. There are some vital factors that need to be taken into account when selecting KPIs.
- The person in the role needs to have full control over achieving that KPI
- You need to have hard, objective data
4. Set the KPI
Having completed the analysis outlined above, you should arrive at 1 or 2 options. Choose the ones that are most critical for business success. In our Sales Manager example, winning an order and getting a repeat order are selected as the KPIs. Therefore, the KPIs become:
- KPI 1: Ratio of successful orders to enquiries
- KPI 2: Number of customers submitting a repeat order in 12 months
5. Set the Target and Review Date
Your final step is to set the performance levels. These need to align with your business goals but also need to be considered achievable by your team members. Ideally, you set the targets in consultation with those people who will need to achieve them.
- KPI 1: Ratio of successful orders to enquiries, Target = 75%
- KPI 2: Ratio of customers submitting a repeat order in 12 months, Target = 80%
Once you and your team members have established the targets, you then need to set the review dates. The ideal frequency for review is highly contextual. For instance, it may make more sense to review repeat purchase rates annually rather than monthly depending on the buying habits of your customers. You also might like to consider some form of reward or incentivization for achieving goals. Sometimes this is as simple as a gift voucher or a dinner. Other options are profit-sharing and bonus payments. Make sure you discuss any incentivization options with your team before implementing them; don't assume to know what they want or what motivates them. Time and again, making these assumptions has proven to be a very costly mistake. You may be surprised just how simple the reward may need to be.
From India, Hyderabad
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Key performance indicators (KPI).doc
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Key indicators.ppt