8 Reasons why you need KPIs

Key performance indicators or KPIs are essential measurements that lead to improved business performance. Here are eight reasons you need to develop them.

No. 1: KPIs simplify management. When you run a business, there are lots of things to keep track of. It can be overwhelming. KPIs simplify the process because they are essential measurements. When you go to a doctor, the first thing checked is heart rate and blood pressure.  These are KPIs. If they are out of a defined range, something is wrong and extra time is merited to discover the reason and improve the overall health of the person. Similarly, if a business KPI is off, management needs to drill into the problem. If it’s in line, management can focus on other issues.

No. 2: KPIs improve performance. Business writer, Michael Le Boeuf says the greatest management principle is what gets rewarded, gets done. He’s absolutely correct. With the KPIs, business performance will improve because people are managing to the numbers, doing what is necessary to boost performance. 

No. 3: KPIs boost focus. When you identify a KPI, you declare it to be important. It draws attention. It becomes a focal point. You try to improve it. Before buying a fitness tracker, exercise was somewhat haphazard for me. Once I purchased the tracker, I began focusing on a daily step count, which I never considered before.

No. 4: KPIs objectify decisions. Decisions can be made with our without data. When they are made without data, they are made based on gut feel. While this does reflect information observed by your subconscious, it is not always correct. Data is data. Measurements are measurements.  You can manage by the numbers or you can manage by intuition. 

No. 5: KPIs can be position specific. There can be multiple sets of KPIs in a business. Some are important for overall business performance. Some are important for a specific position. For example, incoming call conversion rates are important for CSRs. And while this might be important for the company, it might not be part of the management KPIs. Daily sales or average daily revenue per truck might be better measurements. If these begin dropping, management invests the time to dig in and discover the cause. One of the questions should then be about the number of calls. If the call volume is down, the next question is why. Is the phone ringing? If it is, the call conversion rate would be the next metric to look at.

No. 6: KPIs provide accountability. If you have one plumber you believe is underperforming, it can be difficult to coach improvement. He might argue that he’s doing just as good as the other guys. However, if this average invoice trails the rest of the company by $50, this is undisputable.  The question then becomes how he can meet the standard. The KPI improves accountability.

No. 7: KPIs deliver continual feedback. Financial statements provide critical information for business owners. Unfortunately, they are not timely enough for daily management. KPIs can be established that are virtually real time. Management can and should incorporate KPIs into a daily report.

No. 8: KPIs provide more wins. Because KPIs are more frequent, they provide more opportunities to celebrate small victories. This boosts morale. By doing certain small things, every day, large goals are achieved over time. Remember, the way to eat an elephant is one bite at a time.

Compare yourself: With KPIs on the company level, you are largely comparing yourself against your past. The problem is you do not know what is possible or even, what is normal for the industry. Similarly, individuals are only comparing themselves against others in the company.  The guy with the highest average ticket in the company may think he’s hot stuff, but how does he compare to other plumbers in other companies? You can improve the effectiveness of KPIs by getting involved in a best practices group that shares business and positional performance data across companies.

Matt Michel is CEO of the Service Roundtable. For a free copy of “4 Key KPIs for Driving Contractor Performance” visit www.FreeForContractor.com.  For information on the Service Nation Alliance best practices group, visit www.ServiceNationAlliance.com.