Tracking KPI performance from your startup’s early stages ensures you build good business habits from day one.
Key Performance Indicators (KPIs) are measurable values demonstrating how effectively your company achieves key business objectives. In other words: are you doing what you set out to do? Is your business on the right path? Monitoring a few essential KPIs and metrics can help your startup succeed.
This article introduces how to use KPIs in a startup environment to measure and manage business performance.
Choosing the Right KPIs
KPIs provide a clear picture of how you’re doing and can help focus your attention on the right areas, allowing you to take corrective action when necessary. However, you need to choose the right KPIs for your business.
While tracking nearly everything under the sun is possible, the best KPIs are specific, measurable, and relevant to your business. If not, you’re likely wasting time and energy on low-value indicators.
There are a few things to consider when choosing KPIs for your business:
- Specify what matters most to your business: What do you want to achieve? What’s important to you? These questions will help you identify the most essential KPIs.
- Select metrics that can measure these goals. For example, imagine that you want to increase customer retention by 15 percent over the next 12 months. What metrics can show that you are on track or not?
- Identify metrics that are relevant to each different aspect of your startup.
When choosing KPIs for your business, ensure they align with your objectives. For example, if one of your goals is to increase sales by 10 percent over the next year, metrics like the number of orders received per month or average sale price will help you track progress toward this goal.
Setting Performance Targets
Performance targets are the goals you set for each KPI. Simple or complex, the most critical aspect is that they are realistic and achievable. A performance target should be specific, measurable, and time-bound.
Realistic targets for your KPIs give you a clear idea of where to focus on improving and a sense of direction to keep you motivated throughout the year.
The key to improving business performance is knowing how to set targets for your KPIs, which starts with understanding your current situation and how it compares with your goals.
The process of setting target performance levels involves a few steps:
- Identify the KPI(s) that will help you track progress toward your goal.
- Set appropriate baseline metrics for each KPI (e.g., number of sales per month).
- Define three or four target metrics for each KPI (e.g., increase sales by 20% over last year).
- Determine whether each target is reasonable, considering your current situation and resources. If not, revise them accordingly.
- Create a tracking plan that includes regular reporting on progress toward those targets.
Measuring KPI Performance
After ensuring that your objectives are measurable and each KPI helps measure a clear goal, set your target for the year. It’s time to put them into practice in your business.
Next, create a process for tracking every KPI across all departments in your business. Early-stage businesses can use spreadsheets like Google Sheets or Microsoft Excel, while more advanced companies may have ERP systems or dashboarding software to help track KPIs.
Finally, create a system for regularly measuring progress against each KPI. For example, if you have an employee satisfaction KPI with a target of 90 percent, you might ask employees every quarter to report their happiness levels.
There are many ways to track KPI performance, but there are several things that all businesses should keep in mind when measuring these metrics:
- Accuracy: Ensure your data is accurate, consistent, and easy to measure. Simple calculations and easily accessible data points can eliminate problems and confusion about the information behind the KPI.
- Consistency: Ensure that all of your data is consistent. Use the same metrics each time you measure performance and ensure consistency of formulas and methods. This will ensure that performance changes can be attributed directly to one variable rather than another.
Analyzing KPI Performance
KPI analysis is a critical part of any business plan and can help you decide where to allocate resources and how to improve operations.
When you analyze your KPIs, focus primarily on these two things:
- How well each KPI performs compared to its target value. For example, a customer satisfaction score that drops from 80% to 75% might not cause alarm unless it drops below 70%. However, in that case, it’s time for some serious intervention.
- What drove the performance change for each KPI? If revenues are flat, but expenses are down 10%, it might make sense to focus on increasing sales rather than cutting costs further (unless there’s another reason for cost-cutting).
A simple way to analyze KPI performance is by creating an Excel spreadsheet with all your KPIs and objectives on a one-page dashboard.
If you’re starting with KPIs, take time today to analyze your existing data and identify any trends or patterns affecting your business.
Taking Action Based on KPI Performance
As you measure your KPIs, you can also take action based on their performance. For example, declining sales for three months means it’s time to investigate. Consider re-evaluating your pricing strategy or determining whether the product mix suits your market.
The best way to follow up on KPI performance is by creating a plan of action before you begin measuring KPIs. This way, as soon as you see a problem developing, you can immediately work on fixing the issue.
KPIs can help businesses see where there are opportunities for improvement and areas of weakness to address immediately. Using KPIs effectively helps drive strategic business decisions that impact profitability and growth.
A retailer using sales data from their point-of-sale system and website analytics tool to create and track KPIs is an excellent example of effective KPI use. These KPIs help them determine which products are selling well and which are underperforming.
Tracking KPI Performance
KPIs help owners set and measure objectives to improve their business and drive long-term performance. Every founder and manager should know the key performance indicators underpinning their business success.
Whether you’re using simple spreadsheets or sophisticated accounting tools to track these metrics and ensure you control your business operations, regularly following KPIs helps you maintain visibility on the health of your business. At Founders, we can help you select meaningful metrics and objectives for your business and assist you in defining the systems that drive your KPIs. Contact our experts today to get started.