The body has four main vital signs that doctors use all around the world to determine the condition of a patient. The four vital signs are body temperature, pulse rate, respiration (breathing) rate and blood pressure. These are measurements of the basic functions that keep you alive. They need to be functioning properly in order for anything else to work, including your brain! These metrics are just four of the hundreds of potential measurements that a doctor could use to assess the health of a patient. However, the four vital signs are the most important elements of a patient’s current state of health. Once the vital signs are stable, the doctor can begin to diagnose the long-term treatment of the patient, but they don’t do that until they know the vital signs have stabilized.
Just like your body, your company has a series of vital signs that help you to quickly understand the underlying health of your company. Rhythm Systems has three main types of metrics that it recommends that clients use: Targets, Critical Numbers and KPIs. Each measures a different component of the current and long-term success of your company. Properly working on each one can help your company avoid the use of vanity metrics - things that you measure, but don’t really track the health of your company.
Different Types of KPIs
- Targets are longer-term goals that give your company something to strive for at a certain point in the future.
- Critical Numbers are important metrics that you want to concentrate on to drive your short-term priorities and make a change in the business.
- Key Performance Indicators, or KPIs, are ongoing metrics that track and measure the health of the company over time.
This post will concentrate primarily on KPIs, but be on the lookout for future blog posts that will go into the other Rhythm Systems metrics. Although the actual KPIs can vary from business to business, the basic ingredients are the same. KPIs are metrics that represent the vital numbers your company tracks to help solve problems or give insight to the current and future health of your company. There are two types of KPIs: leading and lagging indicators. Leading indicators guide you and give you a glimpse into the future and highlight areas where you may need to make adjustments, such as a Qualified Sales Lead. Lagging indicators report the results of our company’s actions at a fixed moment in time based on previous activities, such as Sales Revenue. A great set of KPIs for your company will include a healthy mix of leading and lagging indicators.
KPIs need to be KEY performance indicators, meaning they need to be the most valuable metrics that drive the overall growth of your company. We recommend that you have 8-12 KPIs to track your performance. You want to measure what you want to move, not everything that moves! If you have more than this currently, you need to whittle down the least important metrics. If it is tough for you to get rid of them all at once, set a goal to eliminate one each quarter until you get it down to the right number. It doesn’t mean that you don’t track those other metrics, they just aren’t the Key Performance Indicators. Just as a doctor has literally thousands of things they can measure, they only have four vital signs that are the most representative of the overall health of the patient. If doctors can save your life with four metrics, you can make your business thrive with 12!
4 Step Guide to Creating KPIs
Step 1: Determine What to Measure
- What are the key metrics that tell you if your business is healthy?
- What metrics do you look at to know if our company (or department) had a good week?
- Is there a specific problem you need to solve?
Step 2: Set Clear Success Criteria
- How will you know if you’ve achieved success?
- What’s the goal you are trying to reach?
- When do you know you have a real problem?
Rhythm Systems has its trademarked Red-Yellow-Green success criteria that gives every Rhythm user a quick visual cue as to the performance of each of the KPIs. Green means you are meeting your success criteria; Red is an unacceptable result and may represent a real problem that needs to be addressed. Yellow is between Green and Red and signals that an adjustment needs to made to get the KPI back on track. SuperGreen means it is time to celebrate as you have significantly exceeded your success criteria!
Step 3: Set Data Standards
Your data is only as good as what you enter, so be sure you are all reporting it the same way!
- Make sure you are all measuring the same way.
- Agree on a quarterly, monthly or weekly time horizon.
- Decide on a deadline for updating status and hold the team accountable.
Step 4: Review Your KPIs
- Do you have a good mix of leading and lagging indicators?
- Were you blindsided by anything last quarter?
- Are you talking about the right things in your Weekly Meetings?
Creating KPIs isn’t easy if you do it right, but it is well worth the effort and can be refined over time to make sure that you are measuring the key indicators. To help get you started, Rhythm Systems has a KPI creator tool and a plethora of additional free KPI resources in our Rhythm Resource Center. These tools will help you guide you down the path to creating the KPIs that drive your business to success.
Here are some KPI Examples to help get you started!
People and Relationships
- Employee Churn Rate
- Revenue Per Employee
- Employee Net Promoter Score
- Customer Net Promoter Score
- Client Health Index
- Customer Retention Rate
- # Months cash runway
- Total Annual Return
Productivity and Process
- Quality / Bugs
- Supplier Mistakes
- On-Time Delivery
- Sales - Actual Versus Plan
- Number of New Qualified Leads
- Opportunity to Win Ratio
- Accounts Receivable Days
- Net Profit
- Revenue Growth Rate
Looking for some KPI Examples to help get you started? Check out our additional resources:
Rhythm Systems KPI Resource Center