December 14, 2016 | 4-minute read (687 words)
"If you can't measure it, you can't manage it."
KPI’s, or key performance indicators, are important. Odds are you have heard of and are familiar with them, but are you using them?
These indicators show the health status of your startup. Like how tracking what you eat, how you sleep and your blood pressure increases your likelihood of having a strong well maintained life, KPI’s help illustrate how a business is connecting with the needs that keep it strongly humming along.
KPI’s are all the trackable elements that let you see where to find your greatest areas of opportunity, as well as where focus may have drifted and is needed. It can be easy to overlook tracking KPI’s, or even setting up a track list to begin with, since they are repetitive measurements. Despite that, they remain essential to the smart manager or leader because it is in the routine that the base is secured for achieving the grand goals ahead.
There are two different types of major categories that KPI’s can be broken into. The two types are known as leading and lagging.
With leading indicators, you are setting the marks to aim for; these are the future goals. Since they are oriented on what is to come, they are more challenging to measure accurately, yet easier to influence. An example might be the number of new prospects scheduled for engagement in the following week.
By setting a target number you can track how well your sales team is engaging and getting in front of faces. The higher the number of meets the more potential for conversion into clients and revenue.
Often sales can achieve a big close one week and lose focus the next on maintaining the drive to prospect. This won’t show up immediately if you just look at revenue, but that’s the beauty of having a lead indicator. Similarly, you can further break this down to more granular KPI’s such as:
- Number of cold calls daily setting up engagements
- Number of follow-ups with previous clients for further services
- Revenue goals per salesperson
Leading KPI’s are input oriented, They represent numbers to aim for. They are useful for setting culture and expectations with employees.
Lagging indicators are output oriented. They are easier to measure since they are based on what has already taken place. Often these are more internal, such as a KPI of burn rate or new employee growth per quarter. While you can measure many dimensions of accomplishments and benchmarks through all departments a solid core range of financial KPIs is especially useful for startups.
Lagging KPI’s allow you to take stock of how things have been running. This aids firms when seeking investors. Many times, they will be used in tracking the financial health of the operation. Lagging indicators can make up a monthly or quarterly report card on how well your strategy and efforts are being achieved. Investors like firms to back up promises of potential with charted previous outcomes.
Lagging and leading KPIs work best when you bridge them together into a matrix for the firm. While one states your vision as realized accomplishments, the other breaks down the activities that create those accomplishments. If you see a steady rise in one without a rise in the assumed corollary, then you know it is worth reevaluating your strategic hypothesis.
Other benefits of consistently charting what is aimed for, together with what has been accomplished, is that as new processes are rolled out you can compare previous endeavors against new ones and get a full 360-degree view of your updated plans efficiency in action.
The takeaway is that KPIs are great at the company level, department level, and employee level; setting them up and running them is one of the surest ways to create repeatable solid success.
For further information on how to incorporate them into your organization's financial processes, reach out to us for a consultation. We are big on setting them up and making them as painless and profitable as can be.