Good KPI, Bad KPI? Is it time to interrogate your key performance indicators

Every business, from complex multinationals to small sole traders have key performance indicators (KPIs).

These KPIs may be as simple as a top line monthly turnover, or as complex as a cost per acquisition to customer lifetime value ratio (CPA:CLV ratio).

However, all too often we see businesses setting KPI’s for their organisation or employees, that on the face of it appear to be robust, but could be improved to better measure business performance and identify strengths and weaknesses.

A bad KPI can lead businesses into a false assessment of performance or can create issues in assessing performance of an individual or team by incorporating factors they cannot control.

Here are a few examples we often see of bad business KPI’s, and an improved alternative:

In setting good KPI’s, follow a few simple steps to avoid the traps of a bad KPI:

1. Identify your business goals and goals of teams within the business
2. Identify the critical activities that lead directly to achieving these goals
3. Set macro targets around these activities that will result in the business goals being reached
4. Set metrics which measure performance to these targets
5. Apply these targets (KPIs) to individual teams, ensuring they follow the SMART principles (specific, measurable, achievable, relevant, time bound)
6. Review and ensure any metrics outside of the control of the team/business are removed or accounted for
7. Continuously track progress, assess performance and if needed, revisit the KPI’s.

Are your budget, business plan and KPI’s up to date and relevant, or do you just need a second opinion? Contact us today to see how we can assist you in developing or reviewing these items for your business.