Key Performance Indicators — the how and what
As the developer of Business Plan Quick Builder I am often asked by entrepreneurs “what measures should I monitor in my business”. Key Performance Indicators are the equivalent of the petrol, temperature and speed gauges in your car; they should give real-time information on how the business is performing in vital areas. Ideally the information will be regularly gathered, presented and be quantifiable. They do not need to be complicated, but they do need to reveal information about areas of the business that are vital for success.
Key Performance Indicators vary by business, each business needs them tailored to their situation. They also need to be relatively easy to generate, and monitor. To give an example, imagine we are running a coffee shop, the key performance indicators might be:
Turnover — indicating the scale of the business and likelihood of covering fixed costs. Recording these figures will allow trends to be plotted, the yearly cycle of business to be understood, and time based comparisons to be made. For example, if the turnover in April this year is 25% higher than last, then things appear to be going well.
Customer satisfaction — measured quantitatively through a simple card at the table that people tick and post in a box, or perhaps through the proxy of tips left at the table. This will indicate if service levels are being maintained, and also may show issues when certain staff are on shift.
Gross Profit Percentage — a small coffee shop is unlikely to have the systems to calculate gross profit accurately on a continuous basis. They may only do it once a year when the accountant “does the books”. However a guesstimate could be made weekly or monthly, by taking the sales and calculating the cost of sales as purchases that period plus pening stock minus closing stock. These can be ballpark figures just to give an indication, this is better that than no figures. Look for broad trends. Is the gross profit percentage decreasing significantly? If so why? Have our costs gone up and we have not increased our prices? Are we buying too much perishable stock and it is being wasted? Are our food portions getting larger and reducing our margins? Have we changed the menu in a way that has badly affected margin?
As you can see, Key Performance Indicators do not need to complicated, but they do need to established, measured and acted upon. Deciding on what to measure is only the start, continually reviewing and acting upon the information is the crux. Many larger businesses have sophisticated Management Information Systems that produce and monitor indicators, but there are often too many variables and measures, consequently management do not really value them and do not act upon them. Keep it simple, targeted and actionable.
Lew Perren — Developer of www.businessplanquickbuilder.com
Perren Consulting Ltd — further blogs on our website at www.perrenconsulting.com
