What is a KPI?

The real question is, why are they important?  A KPI (Key Performance Indicator), is really anything that you use in your company to tell you how you are doing.  Large companies can have as many as 50 in one department, and many of which can be an average of other metrics.  Many of the small companies that I have worked with only have two, revenue and profit.  Both ends of this spectrum are dangerous.  The first scenario can easily result in "death by numbers", and the second leaves you with no where to go when the main KPI's need further investigation.  I've been in both of these situations and you only end up feeling left in the dark.  The idea here is to find something that can help to be a guiding light for you to keep an eye on the direction that your business is heading.  Obviously, for the small business owner, revenue and profit are VERY important, but what we really want to do is to find some key benchmarks that are the drivers of these two metrics.  I can't tell you what your KPI's should be, but I can give you some direction about where to look.

The first place to start looking is the profit and loss statement.  If there is one category that's making a big dent on either side of the P&L, then that's where to start.  If you are in a business where salary is a large part of your expense budget, then productivity has to be one of your main KPI's.  How to measure productivity can take a library to discuss, so I won't discuss that here, but see my post earlier this week for a quick start.  One quick note; It's easy to get focused on one thing that is really important and not notice other things that start to affect the bottom line, so don't go overboard on any one KPI, or any one group that might only affect one side of the P&L.  On the revenue side, you could have an infinite number of KPI's depending on the type of business that our are in, but one that is likely to affect many companies would be related to leads and lead conversion.  Again, the idea here is to find what drives your business, then measure it and investigate ways to improve it.

If you've already identified the top KPI's in your business, then please share.