Key Performance Indicator – KPI’s
Key Performance Indicator
KPI "Key Performance Indicator" are quantifiable, outcome-based measures that you need to track in order to measure your company progress towards a defined goal and keep it aligned side by side with your strategic business objectives. KPIs are one of the most effective Business Intelligence (BI) applications for identifying trends, providing a metric, and evaluating tactical options. When your company understands how various metrics are used and how different types of measures contribute to the picture of how the organization is doing, you are now is on the right track to get the best out of the business intelligence strategy that you adopt.
Who can use KPIs?
All levels of your organization must ensure to analyze KPIs metrics in its operations. From the highest level (company KPIs) to assesses the whole company’s performance to the lowest level (team KPIs) to examine the effectiveness of specific departments.
Why should you measure KPIs in your business?
To consider your organization to be a successful one, you must have a clear and solid strategy in place, furthermore, you need to set out your goals & track them with a definite purpose. And to achieve that you must guarantee that you are employing the Ultimate, correct goals by measuring KPIs indicators in your firm. By providing you with our KPIs services, we can help you make better decisions and improve your business's performance, allowing your company to monitor and share progress in a clear, objective manner; it will provide a numerical evaluation of any activity that is important to your company's operations.
The process you must adopt if you are intending to measure KPIs in your company:
- Identify a relevant set of KPIs metrics to track in your company or your business unit.
- Create a dashboard to measure and display KPIs Results.
- Evaluate how business goals are being met based on the KPIs.
- Change strategies and process as needed to improve performance.
- Asses whether the KPIs still align with goals and adjust them if needed.
How you will benefited from applying KPIs to your business:
- You can track progress for a definite time series.
- You can easily identify trends, strengths, weaknesses, and opportunities.
- Make better decisions
- Help manage the company to achieve specific goals.
- Create focus on your organization’s strategy and priorities
- Identifying errors through KPIs dashboard.
- Create an environment of learning & improvements.
- Create focus on how well your business is doing.
- Keeping employees focused on business initiatives and tasks that are central to organizational success.
- Assess the overall health of your business.
The structure of KPIs must include:
KPIs need to be customized to your own business situation and should be developed from time to time to make sure of its effectiveness and making the best fit of the changing needs of your business.
Every KPIs must include:
- A Measure
- A Goal
- A clear defined Data Source
Data needed to analyze your KPIs:
KPIs are metrics; so any quantifiable kind of data that is important to your company in any department can be used as a base to be analyzed and presented in the KPIs dashboard.
These are some examples of data that must be obtained in these four areas:
Data about Sales growth, revenues, Inventory movement, revenue per sale , sales target.
Data about user’s browsing patterns, social media activity, online purchase behavior, Customer Data, Competitive Intelligence, Market Research, Commercial Transactions, Customer Feedback, Preferences and Interests.
Data about short-term/long-term assets, liabilities, equity, income, expenses and cash flow.
customer feedback surveys, call transcripts, and any text messages (SMS, social media posts.
- Data Records about employees, customers and suppliers.
Tools to measure KPIs:
KPIs tracked via business analytics and reporting tools that collect relevant data from operational systems and create reports to measure the overall performance levels.
KPI results are presented to executives on business intelligence dashboards so they are processed under BI Programs like Tableau & Cognos, etc.
Multiple KPIs also serve as the foundation for balanced scorecard frameworks, which combine sets of metrics to provide a broader view of business performance than operating income and other common financial measurements.
KPIs dashboards collect, group, organize, and visualize the company’s important metrics, it provides a quick overview of the company’s performance, health, and expected growth. It range from simple metric-tracking tools to advanced business intelligence solutions
The great deal of dashboards that they do the visualization part of the insights that have been extracted out of your over-stacked data. They convert large amounts of complex and disparate data into a comprehensible and visually appealing format.
Types of KPI dashboards:
- Industry-specific dashboards like retail and manufacturing
- Department-specific dashboards for human resources, customer service, sales, and IT.
Features of KPIs dashboard:
- You can customize a dashboard reporting that can could include a huge range of KPIs based on your time and budget.
- Dashboards are adopted to your requirements. Noticing the difference between KPI dashboards made for IT project manager’s from the marketing department’s dashboards, with each highlighting the insights most relevant to their role.
Categories of KPIs you should decide on before setting out your measures:
Leading or lagging
Qualitative or quantitative
The most important KPIs metrics you need to analyze in your business:
Before you start to set out the most critical measures you need for your company you must ensure that you choose a SMART KPIs (Specific, Measurable, Attainable, Relevant, Time-bound) plus you need to select from 5-7 KPIs for each department.
· Gross/Net Profit Margin
Gross profit = Net sales – Cost of goods and services (COGS)
Net profit = Gross profit – (Total operating expenses + Taxes + Interest + Depreciation + Amortization)
· Sales revenue
Price per unit sold x Number of units sold = Revenue
· Customer retention
Subtract your “customers lost” figure (CL) from the number of customers you’ve gained (CG).
· Churn rate
Divide the number of customers you’ve lost/gained (∆C) during a period (∆T) by the total number of customers you served (C) in that time:
Customer churn = ∆C / ∆T x C
· Year-to-date sales growth
You can calculate year-to-date (YTD) sales growth (and many other YTD comparisons) with this standard formula:
(VC – VS) / VS x 100 = ∆V%
· Customer acquisition cost (CAC):
CAC= (total marketing expense + total sales expense)/NO. of new costumers acquired.
· Customer lifetime value (LTV):
LTV = Avg. sales per costumer * Avg. of times costumer buy per years * Avg. lifetime of costumer
· Digital marketing ROI
ROI=(sales growth – marketing investment)/ marketing investment
· Landing page conversion rates
Conversion rate = (conversions / total visitors) * 100%
· Return on Sales (ROS)/Operating expense ratio
Return on sales = (Earnings before interest and taxes / Net sales) x 100%
· Operating Cash Flow Ratio (OCF):
Operating cash flow ratio = Operating cash flow / Current liabilities
· Working Capital: it is a liquidity measure that used in conjunction with other liquidity metrics, such as the current ratio.
Working capital = Current assets – Current liabilities
· Current Ratio: This shows a company’s short-term liquidity. It’s the ratio of the company’s current assets to its current liabilities.
Current ratio = Current assets / Current liabilities
· Debt-to-Equity Ratio: This ratio looks at a company’s borrowing and the level of leverage.
Debt-to-equity ratio = Total liabilities / Total shareholders’ equity
· Earnings Per Share (EPS): This profitability metric estimates how much net income a public company generates per share of its stock.
Earnings per share = Net income / Weighted average number of shares outstanding
· Return on Assets (ROA): This efficiency metric shows how well an operations management team uses its assets to generate profit.
Return on assets = Net income / Total assets for period
(Number of Promoters ÷ Total Number of Customers in the Sample) – (Number of Detractors ÷ Total Number of Customers in the Sample)
· Service level :
(Number of Calls Answered in Y seconds ÷ Total Calls Received) x 100%
· Customer satisfaction:
Customer satisfaction score is the ratio of Very Satisfied and Satisfied to the total number of survey respondents.
· Customer Retention Rate (CRR):
(Number of active customers at the end of a given period – Newly acquired customers during the same period) ÷ Number of customers at the beginning of the period X 100%
· Cost Per Call (CPC):
Total Cost of All Calls ÷ Total Number of Calls