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Key Performance Indicators - Complete Controller

The key performance indicator is a measurable value used to determine how efficiently and effectively an organization is achieving its business goals. KPIs are used by companies at different levels to evaluate their success to achieve their particular milestones. Focuses of low-level KPIs are on the processes running in the departments of marketing, call center, or sales. Whereas high-level KPIs have their main focus towards the organization’s overall performance. Check out America's Best Bookkeepers

In the simplest term, KPI is a way to measure the progress of a company as far as their business objectives are concerned. KPIs are used to provide the most crucial information related to the company’s performance that enables the organization’s understanding. This understanding helps keep track of whether the company is moving as per the stated objectives or not. For such purpose, KPIs play the role of the navigational instrument by defining the current performance picture of any organization defining that where the company is standing right now compared to where it should be.

KPIs are considered a useful tool to make a business decision because they help reduce critical scenarios by raising the organization’s performance. To define KPI in a better way, an organization needs to consider the following questions. 

  • Company’s desired outcome?
  • Does this result matter?
  • How to measure the company’s progress?
  • How to manipulate the outcome?
  • Who is responsible individually for the business outcome?
  • How would you get to know whether you have achieved your outcome or not?
  • How often your company’s progress will be reviewed. Check out America's Best Bookkeepers

Answers are mentioned below for a better understanding of the term “Key Performance Indicators.”

  • To increase the company’s sales by 30% this year.
  • This would help the company to make more profit.
  • It will be measured as per the increment in revenue.
  • By hiring more staff, particularly for brand promotion.
  • Chief Sales Officer.
  • By measuring revenue, that would be increased by 30%.
  • It will be reviewed on either a monthly or weekly basis.

Key Performance Indicators as Key decision-making tools:

It has been understood by active decision-makers that there’s a need for information based upon some key values to make core business decisions. Creating an association between effective KPIs with strategic business objectives will help you answer complex business queries. It is essential to identify Key Performance Questions (KPQs) specifically for each strategic objective. After identifying KPQs, you will then be able to select or develop those KPIs that are best for your organization and efficiently answer your questions. This approach will make KPI meaningful, relevant, and strategic.

Importance of KPIs: Check out America's Best Bookkeepers

There are several reasons why your organization need KPI, and they are as follows:

  • Measure your Targets:

KPIs are not referred to as an organization’s goal or targets, but they are a method to measure targets and goals for any organization. For example, if your company’s objective is to sell tickets at a certain amount every week, the KPI would tell you how close you are to reaching your target. In this instance, KPI would indicate that your sales team generates only 15% of revenue. As a manager, it is your responsibility to check whether this revenue is as per your desired target or not. If you start measuring your organization’s goals this way, it enables you to check whether you’re moving on the right track or not.

  • Create a learning atmosphere:

Incorporating KPIs into your organization will help you create an educative atmosphere because measuring KPIs leads to meaningful conversations. This way, you get a chance to interact with other team members to discuss that particular KPI.

KPIs are significant for reaching the company’s objectives and allowing you to make timely and systematic adjustments per your company’s requirements. But you have to make sure that your company’s goals have enough potential to use KPI strategies. You need to develop particular goals that enable you to create the most critical KPIs to improve overall business performance.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

Red dart arrow hitting in the target center of dartboard with modern city and sunset background. Target business, achieve and victory concept .
A Key Performance Indicator helps a company or organization in measuring their performance. The goal is to achieve key business objectives. With the help of key performance indicators, a business would be able to set up an objective and measure whether the company is on the right track to achieve their goals or not. Different businesses use different KPIs to evaluate their success. However, there are some high-level and some low-level KPIs, both are equally important. High-level KPIs focus on the overall performance of the organization. Low-level KPIs focus on processes/areas like marketing, call center, sales and more.

How To Set Up Key Performance Indicators

Setting up KPIs for your business can be tricky. It is important to keep in mind that there are financial and non-financial KPIs that almost all businesses have. In order to develop strong KPIs, first, you have to make sure to understand what your company’s objective is and how you plan to achieve it. This process involves feedback from all board members and department heads. Once you have a better understanding of the company’s objective, your next step is to find out which process/areas need to be measured with key performance indicators. Keep a few questions in mind when deciding on the KPIs:

  • What is your company’s desired outcome?
  • How to measure company’s progress?
  • Who is accountable for the outcome?
  • How to influence a positive outcome?

Different processes or departments need different KPIs. For example, let us say the goal is to increase sales revenue this year; it will be known as the Sales Revenue key performance indicator. The question is how are you going to define this KPI?

  • Increase sales revenue by 25%
  • Hire an accountant for bookkeeping
  • Motivate customers to buy new products
  • Sales officer is responsible to review KPI, which will be reviewed on a monthly basis
  • Achieving the target will be beneficial for the business

The most important factor in any business is bookkeeping. Keeping a track of the business accounts could be challenging, however, if you already have a good track of your funds, it will be easier for you to come up with KPIs.

Do Key Performance Indicators Define Success?

Whether it is a small business or a huge organization, both need KPIs to set up their objectives. In order to follow their objectives, they need a strong strategy that will help them in achieving their goals.

Many business owners believe that KPI practice is old-fashioned; however, they do not realize that it is only effective when it is an inspired action. Some businesses just adopt KPIs without even practicing them and then wonder why it did not reflect any positive outcome for their business.

Key Performance Indicators are a form of communication. For example, when you are planning for a new project, you discuss the pros and cons with the team. Next, you come up with the strategies that will help you obtain success; the communication that you and your team hold is similar to setting up key performance indicators. You have to communicate with your team and different departments in your organization to achieve the successful outcome; the more clear and relevant the information is, the more easily it is acted upon.

The fact is that KPIs are effective when you make them valuable, as it requires time and effort. Best-selling author Bernard Marr wrote in his article, “What the heck is a KPI?” This topic sparked an interesting conversation among the audience. However, conclusions remained the same – that KPIs value remains in favor of those that use them.

Keep in mind that every action in the business counts. Your business strategies should be strong and must be followed to produce a positive outcome for your business. Your key performance indicators could be a door to success if you understand their value and find a way to implement them.  

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About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Notebook with Toolls and Notes about KPI,concept
KPIs, key performance indicators, are essential metrics that allow you to monitor and track your business performance. They help you navigate your way to success and growth that is crucial when it comes to exploiting new opportunities and tapping into new markets. Unfortunately, most companies get their key performance indicators completely wrong by copying the metrics others are using, which may be ideal for them but not you. This often results in a business losing its competitive advantage or a significant market share, which ultimately kicks the business out of the competitive race.

Don’t Copy the KPIs of Others, Follow Your Own

Although, your gut feeling matters and often yields prominent results, this is now an old strategy that no longer defines your company’s success. Running a business is no easy feat as it requires a thorough analysis of financial results. Businesses who are good at examining and evaluating their finances mostly succeed and survive in the market for long durations. According to a study, “Business metrics or KPIs display a measurable value that shows the progress of a company’s goals.” To evaluate the health of your business, specific KPIs suitable to your industry provide an ideal snapshot of where your firm is going— and whether or not it’s going in the right direction. The point is, every business is unique to some degree and businesses can’t just copy similar metrics used by others in your industry.

Profit, Alone, is No Measure of Success

Profit is not a measure of success for your business. Although it can define the financial health of your company, it is not the only thing that contributes to a company’s success. Companies have short and long-term goals and KPIs can help you make more confident decisions regarding your company’s growth and development. Profit, along with KPIs, play an integral role in defining the success of your company as a whole. Since every business is unique and has a different business model, companies need to customize the KPIs that are the best fit for their needs and purposes.

Well-Known KPIs

There are tons of KPIs you can follow to track and monitor the performance of your company, but core KPIs can really provide you the insight you are looking for. At the end of the day, what matters most is your company’s performance and how much profit it makes.

To measure and understand your customers, you need to know KPIs such as customer retention rate, conversion rate, relative market share, customer profitability score, net promoter score, etc. To measure and understand your financial performance, you need to know KPIs such as net profit, revenue growth rate, net profit margin, gross profit margin, operating profit margin, return on investment (ROI), cash conversion cycle, etc. To measure and understand your internal process, KPIs that can be used are order fulfillment cycle, project schedule variance, project cost variance, capacity utilization ration, bookkeeping accuracy level, quality index, and process downtime level. To measure and understand your employees, KPIs such as staff advocacy score, employee engagement, absenteeism level, human capital value, and 36-degree feedback score can be used.

Basic Level KPIs

Small business usually have human resources, capital, and finances to evaluate their performance against all of the KPIs mentioned above. Therefore, they usually go with the basic, yet most effective, KPIs, which include the following:

Revenue

Whether small or large, businesses track their revenue to ensure that their income maintains a steady pace. When the revenue trend shows a downward sloping, this indicates that the business needs a new marketing strategy to boost their revenue. Similarly, when revenue shows an upward trend, it means that the business’s revenue is increasing and that’s the point where businesses need to maintain the trend.

Expenses

When businesses evaluate expenses in terms of a KPI, they consider spending trends. The reduction in expenses is actually healthy for a business because fewer expenses mean a stronger income statement.

Gross Profit Margin

Gross profit margin is the percentage of each dollar you earn after subtracting direct expenses. It reveals how well you are doing in keeping a balance between your income and expenses.


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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.