What is an effective key performance indicator?

Given today’s disruptive and competitive business environment, the ability to leverage company data has never been more important. A strategic plan is better when your data includes customer insights that set your products apart and often this data is proprietary to your business which helps you create a defensive barrier around your patch. The most effective way to manage this data is with the use of KPIs (key performance indicators) as signposts that keep the company going in the right direction.

KPIs to chart the path for success

KPIs can help executives lay out a clear path to achieve business success. You likely have goals in mind for the year so by identifying the big picture items will help you break down the specific actionable steps you must take to help meet these goals.

For instance, everyone has a revenue target they’d like to achieve. Set a Revenue vs Forecast KPI for a specific branch, region or customer. The KPI is further refined by setting it for a specific period or sales team, and for each product for all target industries. The KPIs give your sales team something to strive for. As you monitor the Revenue vs Forecast KPI, you will see whether your customer behavior combined with market conditions helps accurately determine ongoing demand for your products or services.

KPIs focus everyone on the same goal

KPIs can be company-wide metrics or they might target individuals or departments that relate to how those parts affect the whole. Focusing everyone on the same goal creates a sense of unity found in most successful companies. Set individual KPIs concerning your larger objective so your employees understand that they are responsible for their own KPIs. This keeps the company’s overarching goals in sharp focus.

For instance, monitoring your profit margin will tell you how effective your company is at generating a profit on each dollar. In addition to seeing the big picture, or the overall profit margin of your business, it’s important to have your sales reps monitor margins across individual products, product lines, and customers. With this information, your team will be able to adjust pricing strategies and costs to serve .

KPIs promote accountability

KPIs hold employees accountable for working toward the goals under their control as KPIs provide them with a benchmark to measure their performance. They provide employees with a way to quantify their contributions and managers can use the KPIs to identify strong and poor performance.

Setting realistic goals based on recent performance and resources is a good way to measure progress toward long-term goals. Goals can be short-term or far-reaching but are designed to motivate your team. Experts suggest setting ambitious goals that you and your team believe they can achieve. Managers can then evaluate the team’s performance against long-term targets to promote accountability.

What KPIs should you monitor?

As a manager, what you decide to measure will depend on your expectations and goals for your company. First and foremost, the KPIs you choose should steer your teams in the direction you want your business to go. Your KPIs should include financial metrics, operational metrics, relevant sales and marketing data, and essential customer information. Whatever KPIs you choose, they should tell you whether your company is growing. Your company’s future success depends on you knowing the answer to that question.

To learn more about the 7 KPIs every mid-market executive should measure, click below to download our free eBook.