How Do You Know If Your Business Is Succeeding? The Metrics You Should Be Looking AtNovember 3, 2015
When it comes to working out if your business is a true success, you need to be looking at more than just how much money your company is turning over. You need to ensure that your business has a set number of goals and that you are meeting them. These goals must be set out each year and regularly measured throughout the year to ensure that your business is on track to meet them.
These goals should be set out as Key Performance Indicators (KPIs) and although these will vary for each business, the general idea will be the same for everyone in that, if kept on top of, KPIs will give you incredible insight into how your business is performing.
Many businesses can get carried away when setting KPIs, either setting too many so it is confusing and impossible to measure accurately or by simply setting the wrong kind of goals. It is so important to set the right KPIs since this will enable you to see where your business is successful as well as where it is not performing, therefore alerting you to potential problems nice and early.
What is a KPI?
KPIs are metrics to help you measure the performance of your business. When you are setting them you must keep in mind that they should be:
- – Relevant
- – Balanced
- – Understandable
What should you consider when setting your KPIs?
You must consider:
- – The industry you are in;
- – The size of your business;
- – Where your business is in its lifecycle; and
- – What your long-term business goals are.
Keep in mind everyone in your organisation should be able to understand the KPIs you set and also be able to relate them back to your organisation (i.e. see their relevance!) Remember not to go overboard! You don’t need a KPI for every element of your business but it is important that the following key areas are considered:
1. The growth of your business
When it comes to tracking the growth of your business, you should focus on:
– analysing the amount of website network traffic you get – this will show whether or not you’re managing to attract the right audience to your business.
– Increasing your sales – you can note the increase by measuring your gross and net revenues.
– Improving the wealth of your business – you can measure this by the amount of business equity your business attracts.
– Attracting repeat business revenue and increasing the number of enquiries your business gets.
– Calculating what your business’ market share is and working out how dominant you are in your business sector.
2. Your business’ efficiency and productivity
When it comes to making sure your business is as efficient and productive as possible, you should focus on:
– Minimising the amount of waste your business produces and ensuring the resources you have are used in an appropriate manner.
– Researching and implementing ways to ensure your staff are as productive as possible.
– Making sure that you understand what the average job or product value within your business is and how this stacks up against your competition.
When it comes to making sure your business’ finances are as healthy as possible, you should focus on:
– Ensuring that your business’ debt and equity levels are balanced out to the very best proportions.
– Making sure that your inventory levels are balanced out with trade payables – this will ensure that you get the very best performance.
– Speeding up your receipts by optimising trade terms.
When it comes to making sure your business is as resilient as possible, you should focus on:
– Optimising your debt levels – this will reduce the credit risk of your business.
– Increasing your business’ interest coverage by improving your business’ profitability.
– Increasing your business’ equity-to-asset levels by reducing your financial risk.
Having the right KPIs in place and measuring them regularly will enable you to keep track of where your business currently stands in the market place and where it is heading. To be a success, KPIs must be tracked on a frequent basis. For example if regular checking of your growth KPIs show that your business is not growing, you will have time to consult a professional for help before it’s too late, i.e. a bookkeeper or accountant.
Ultimately measuring your KPIs will provide you with a more in-depth understanding of your business, right from the top down to the bottom. This knowledge and insight will enable you to make better informed, effective, tactical decisions, which will, hopefully, lead to a successful business!