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Oct 29 | Posted By

How Should You Set Your Key Performance Indicators?


Key performance indicators (KPI) can be anything you choose so given all the options, how do you know that you’ve picked the right one? Establishing decent KPIs aren’t that hard, and we can provide simple guidelines for a proper setup, but fine-tuning a well functioning set of KPIs and associated actions in response to the feedback will take some work to figure out.

Key Performance Indicators

Let’s take the first step in finding out what you should be doing to make your business run the best it can:

Tunnel vision on the bottom line

At the end of the day, the bottom line speaks volumes about how you, your company, and your employees are performing so keeping an eye on your P&L is important. Basing your decisions on financial statements is a mistake as these statements are meant to capture a historical picture of your business’ transactions, when what you really need is current and predictive information on what to do next.

Tip: do not choose KPIs related to cost, sales, or other dollar amounts

Tracing business processes

Cost and income don’t appear from nowhere — they’re caused by actions. In many cases, it’s possible to pinpoint where major costs are incurred or where sales and incomes are generated.

Here are some ways to know which actions to focus on:

  • Helping your sales force make more sales
  • Improving quality of output to increase customer satisfaction
  • Making customer service better for greater customer retention

When you know what makes your company great or where it tends to fail, then you can start the path towards reaching your potential.

Having a plan of response

So you’ve selected your company’s strengths and weaknesses; now what? Even with the world’s best feedback, if you don’t know what to do with all that information, you’re basically as good as you were when you didn’t have any KPIs. Your responses should consider the following situations:

  • How to recover from mistakes
  • Maintaining standards
  • Anticipating difficulties
  • Rewarding extraordinary performance
  • Learning from the past

Generating KPIs

KPIs should be current as you’ll want to be there in anticipation of difficulties, instead of shaking your finger in the wake of a disaster and saying ‘I told you so.’ Having real-time information is great, but even daily reports are far superior to monthly or quarterly measures so make sure that the measure of KPIs are automated or a part of an employee’s tasks.