New Zealand

Manage and measure what really matters…business performance

Business performance measurement enables you to monitor the speed of growth (or decline), protect your business against otherwise unforeseen issues and provide useful information to stakeholders including boards, investors, potential buyers and lenders.

To measure business performance, you need to develop Key Performance Indicators (KPIs) across different areas of the business, which define and calculate how effectively the business is achieving its key objectives.

Developing KPIs

1. Identifying what you want to measure

The first step in developing meaningful KPIs is understanding what you are trying to measure, for example the business’s strategic priorities or key operational aspects of the business. Your KPIs should be reflective of the business in order to provide relevant information that can be used to assess performance. A good place to start when identifying the measures that matter is with the question, ‘What criteria is important in achieving success?’

2. Assign achievable targets to each KPI

Assigning a target to each KPI is also called defining the KPI. This is important as it gives you and your team a goal to reach and ensures everyone understands what’s expected. These targets need to be achievable – if they are unrealistic, it can be demotivating when you don’t reach these goals. To help define your KPI targets, look to market research and your sales growth history.

3.  Set a timeframe for each KPI

Setting a timeframe for each KPI ensures you’re tracking your KPIs regularly and allows for better evaluation. Comparing periodically enables you to identify profitable times and external factors that might impact on sales. For example, when seetting timeframes for sales growth KPIs, these could be set quarterly so that you’re keeping a record of revenue and sales growth for each quarter. You can then compare these quarters year-on-year to explore and identify trends.

4. Evaluate and update your KPIs

Tracking KPIs means you can evaluate their effectiveness and change them when necessary. If you exceed a target over and over for example, this might tell you that you need to increase taregts as you’ve may have set the goal too low. Conversely, you might be underperforming each quarter which might tell you that you’ve been too ambitious with your target.

Assigning ownership and communicating KPIs

Once you’ve developed your KPIs, ensure to assign ownership to relevant staff members or departments. 

It is important to communicate your KPIs with your team and explain the reasons behind them – your team will then understand why the KPI has been set and also what’s expected of them to met targets.

Following are some common KPIs for your business to consider, categorised by business area.

Financial KPIs

Financial
Liquidity Inventory turnover
Gross profit margin Earnings per share
Net profit margin Accounts receivable days
ROCE – Return in Capital Employed Accounts payable days
ROTA – Return on Total Assets Debt to Equity

While financial KPIs (lagging indicators) are important, it is the KPIs below (leading indicators) that really drive business growth

Customers/business development
Customer service

  • Acquisition
  • Retention
  • Loss
  • Satisfaction
  • Profitability
Number of referrals and source
Unsolicited enquiry rate (number of new customers making cold enquiries)
Number of media references
Human resources/growth
Labour measurement

  • Average length of service
  • Employee satisfaction
  • Staff turnover
  • Reasons for departure
  • Absenteeism rates
  • Injury rates

 

 

Productive efficiency
Training hours offered/attended
Research systems
Training systems
Investment in research and development
Internal business controls
Inventory ageing Production cost as % total cost
Order lead times Volumes produced vs. volumes budgeted
Number of orders in system Lost time
Defect rates Quality control
Wastage

Identifying profit drivers is the most critical aspect of utilising KPIs – to find out how we can assit you with the performance measurement process contact us us today

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