The start of a new year is a great time to clean up your KPI dashboards. It’s so easy to think of one more metric we want to track, always looking for that one piece of information that will really make a difference in our business. But, what usually happens is we add and add and add to the point that we have so many numbers floating around that none of them are treated with any importance. Here are a few tips to make sure you’re getting the most from the metrics you're tracking.
1. First of all, make sure you understand the purpose of the metric.
- Targets are future goals that you’re setting and will be striving for some period of time to achieve. These are often longer-term and sometimes strategic in nature. Examples: Annual Revenue, EBITDA, Total # of Customers/Stores/Locations.
- KPIs are Key Performance Indicators that will measure the on-going health of your company over time. These can be measured daily, weekly, or monthly, and will often reveal important patterns in your business. Examples: On-time Delivery, Client Health Index, Net Promoter Score, Quality, AR days.
- Critical Numbers are special metrics designed to drive a company priority that will be highlighted for a short period of time for the purpose of improving a specific area of the company. Examples: # qualified leads generated by a new marketing program, Average $ sale during a sales promotion, # new hires during a high recruitment time, could be any of your KPIs or something entirely new.
2. Look for the Leading Indicators. Leading Indicators are metrics that are predictive in nature, and Lagging Indicators report the results. You need to know what you’re striving to achieve (your Targets), but identifying the Leading Indicators will help guide you in your day to day operations, and can give you a glimpse into the future, many times allowing you to make adjustments mid-stream that can positively effect your outcome. In order to find your Leading Indicators, begin with the end in mind. Ask yourself “what are we trying to achieve?” Then, start peeling back the layers of the onion to determine what actually causes that result. These are the things you want to track with great frequency.
3. Red/Yellow/Green your success criteria. For each area you measure, whether it’s a Target, a KPI, or a Critical Number, you and your team need a clear understanding of what success looks like. Green is your goal, Red is an unacceptable result, and Yellow is the warning zone between Green and Red when you still have time to make adjustments before it’s too late. You should also identify a SuperGreen target. This is a goal above green and should signify a time to celebrate. You also want to think about what actions you will take if at some point your results start falling into Yellow or Red. If you have KPIs that consistently fall into Yellow or Red, and there’s no action or sense of urgency from the team, then it’s likely you are measuring something that isn’t important after all, or you have set the wrong success criteria. KPIs should drive action.
4. Make sure you have a few KPIs established in all key areas of the business. On the People side, make sure you have KPIs to monitor the health of your relationships with employees, customers and shareholders. On the Process side, make sure your productivity is high in operations, sales and record keeping. Having between one and three key metrics in all six of these areas will give you a good idea of the overall health of your company.
We would love to hear how you're using KPIs, Critical Numbers and Leading Indicators in your business.