Using KPIs to Manage Business Growth
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Key Performance Indicators (KPIs) are crucial metrics for managing business growth and success, encompassing both financial and non-financial measures. They enable better decision-making, help set goals, and improve understanding of business performance across various sectors. The document also emphasizes the importance of clear KPIs tailored to individual business circumstances to drive improvements in profitability and operational efficiency.
Using KPIs to Manage Business Growth
- 1. Passionate about your business Using KPIs to Manage Business Growth
- 3. • KPI stands for ‘Key Performance Indicator’ • ’A Key Performance Indicator is a business metric used to evaluate factors that are crucial to the success of the organisation’ • ‘A Key Performance Indicator is a type of performance measurement’ • ‘A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives’ • Note the words ‘business objectives’, ‘measurable’, ‘success of organisation’ Background - What are KPIs?
- 4. • KPIs are both financial and non financial measures • No accounting rules or regulations specifically defining KPIs • KPIs are measured and reviewed frequently • Action should follow ! • What the KEY KPIs are for a business will depend on the individual business Background - What are KPIs?
- 5. • Provides a structured platform to drive improvements in turnover, margin or profitability for your business • Provides a simple and speedy ‘snapshot’ of business performance • Highlights the importance of ‘hidden’ activities to business performance e.g. marketing, customer service/retention, existing client base • Opportunity for better and faster decision making on the business Why Would SMEs Use KPIs?
- 6. The suite of KPIs used by an SME will be determined by business sector e.g. goods, services, ecommerce and the business stage i.e. earlier stage business may have less data readily available: SALES • Number of sales of different products/service • Average value of each product/service • Gross margin % per product/service • Growth in recurring or non recurring revenues NEW BUSINESS • New clients per month/per annum • Meetings to client conversion % So What Do Typical KPIs Look Like ?
- 7. MARKETING • Number of new leads per month • Leads to meeting conversion % • Cost of acquisition of a new client CUSTOMER SERVICE • ‘Churn rates’ i.e. lost subscribers • Number of customer complaints FINANCIAL/OTHER • Number of clients • Average value of client per annum • ‘Client lifetime value’, • Overheads to turnover % • Number of services taken by client • Headcount So What Do Typical KPIs Look Like?
- 8. • SMEs experiencing significant periods of growth • When the business owner steps back from the ‘day to day’ running of the business • Expectation of a future investment or potential exit When Are KPIs Most Suitable for SMEs ?
- 9. 6 Benefits of Including KPIs as Part of Your Reporting include : • Understanding the Profitability of Products and/or Services • Simpler Annual Budgets • Goal Setting throughout the Whole Business • Better and Quicker Management Decision Making • Encouraging and Supporting Delegation (by Business owner/Founder) • Adding Credibility or Supporting Business Valuations on Exit Benefits of Using KPIs
- 10. • Entrepreneur led business which, over a period of 3 years, grew from 2 businesses in the UK with a combined turnover of £5m, to 18 businesses across 4 countries and a turnover of £70m +. • Significant growth month on month, increase in staff numbers, additional offices etc. • Over a period of 12 months, identified & clarified KPIs, amended processes and captured information MARKETING SPEND EVENT BOOKINGS EVENT ATTENDANCE MEMBERSHIP PROPERTY SALESMORTGAGES PROPERTY LETTINGS Case Study – Property & Financial Services
- 11. The suite of business KPIs included: • Weekly & Monthly - number of Event Attendees, New Member subscriptions, number of Property sales by jurisdiction, Mortgages completed, Properties Let • Monthly reports - Marketing spend, Bookings for (upcoming) events, Cancellations/dropouts from events and property sales, Mortgages written • Other (Averages) – Event attendee fees, Membership fees, Property sale fees, Mortgage/Letting fees, - Cost of events, Property sale commissions , Overheads (by country) • Other – ‘life cycle’ of a typical client and the average value of that client to the business Case Study – Property & Financial Services
- 12. The outcomes for the business of KPIs : • Every department clearly understood it’s weekly/monthly targets • Confirmation of turnover and profitability for the month circa 24/48 hours after month end • Performance could be ascertained immediately in comparison against the budget • Mid morning on a Monday each week, the KPIs provided management with performance of the business • By Wednesday’s Board meeting, actions had been decided upon based on the week’s KPIs • Understanding the lifetime value of clients, ensured an investment in Customer service function to improve retention • Response to increasing property cancellations and reducing attendee conversion rates (into members), resulted in use of Customer service team and changing events/event speakers Case Study – Property & Financial Services
- 13. KPIs are an unstructured activity for both businesses and their accountants, so a lack of balance can remove the benefits of using KPIs • Mistake 1 – Forgetting about the Key in KPIs • Mistake 2 – Providing too much detail on each KPI i.e. keep it simple • Mistake 3 – No balance in your suite of KPIs i.e. financial and non financial • Mistake 4 – Obtaining the data takes too long Words of Warning
- 14. Step 1 – Clarify your business goals for the next 12 months Step 2 – Consider the factors that will ensure the business meets the targets for the next 12 months Step 3 – Can these individual factors be measured now, or can these measurements be put into place in the near future ? Step 4 – Communicate the purpose and pass responsibility to the appropriate individuals to capture and provide the data each week/month/quarter Step 5 – Start measuring and reviewing the KPIs and know that you may amend the measurements or add/change them as you go along How to Identify KPIs for your business?
- 16. Passionate about your business T: 0207 952 1230 E: damian@sakurabusiness.co.uk