business kpi's - key performance indicators

Key Performance Indicators(KPI’s) for Business Growth

Business metrics such as Key Performance Indicators (KPI’s) help corporations achieve their strategic and fiscal goals. They aid business owners and managers to make better decisions and evaluate the effectiveness of their business operations. Metrics are also used to address specific interests of the business’s stakeholders. Here’s how KPI’s can assist in business growth.

What are KPI’s?

A Key Performance Indicator (KPI) measures a company’s performance against its primary business objectives. There are many different types of KPIs, each working in its own way. For instance, high-level KPI’s focus on financial performance metrics, such as net profit margin and revenue growth. While lower-level KPI’s focus on operational processes, products, customer acquisition or churn, etc.

KPI’s can influence decisions, such as whether to adjust a sales plan based on how well a product is performing in the market. They also reveal trends that impact future strategies. A company doesn’t need to monitor too many KPI’s – no more than 10 as a general rule. Measuring too much clouds the picture of what’s most important to the organisation.

Popular Financial Key Performance Indicators

Depending on an organisation’s objectives, measuring growth will differ from one company to the next. Choosing which metrics to track depends on a business’s needs, objectives, and its industry. However, these are some common financial KPI’s that are relevant to most businesses:

  • Gross Profit Margin – This measures the amount of money left over from product sales after subtracting the cost of sold goods. The cost of goods sold is the total amount to produce a product or service, including materials and labour. A higher gross profit margin indicates the company is efficiently converting its product or service into profits.
  • Operating Profit Margin- This shows the percentage of profit a company makes from operations before subtracting taxes and interest. Increasing operating margins can indicate better management and cost controls within a business.
  •  Cash Flow – This is the amount of cash a company generates through typical operations. This metric can give a business a sense of how much cash it can spend in the immediate future and whether it should cut down costs. It can also reveal issues like customers delaying payment of their bills or not paying them at all.
  • Working Capital Ratio – This measures the liquidity of a business to determine if it can meet its financial obligations. A working capital ratio of 1 or higher means the business’s assets exceed the value of its liabilities. Companies often target a ratio of 1.5-2, and anything below 1 signals future financial problems. The working capital ratio is also known as the current ratio.

Popular operational KPI’s

Operational KPIs show how well your business is running. Improved internal business processes and metrics lead to more satisfied customers, which is imperative for growing businesses.

Some of the common operational KPI’s include:

  • Cost Per Unit – This is how much a single unit of product costs a company to produce or buy. It is best used in companies that manufacture or sell large amounts of the same product. Knowing the cost per unit helps companies understand if they are making products in a cost-effective manner, how to price products and when they’ll turn a profit.
  • Lead Time – This measures the amount of time that passes between the beginning and end of any supply chain process. This could be the time between a business ordering a product from a supplier and receiving it, between a customer placing an order and receiving it or between the start and end of a production process.
  •  Perfect Order Rate – This is a measurement of how many orders a company ships without any issues, like damage, inaccuracies or delays. While every company aspires to a perfect order rate close to 100%, what’s realistic for your organisation will vary. This metric is strongly linked to customer satisfaction and operational efficiency.
  • On-time Shipping Rate – This shows how often orders go out to customers within the promised shipping period. Tracking this metric is important in assessing the efficiency of your order fulfilment and shipping processes. It can also help you pinpoint the proper on-time delivery benchmarks for various products.

Key Performance Indicators for business growth

Before a corporation can select which KPI’s are needed for business growth, it is vital to first set out its overall goals. Thereafter, selecting the correct KPI’s will assist a business to gauge if it is working towards its objectives. A good KPI measures achievable goals rather than unrealistic targets. This could mean that the data needed to calculate the KPI is available, accessible, trusted, and presentable to stakeholders. Without a goal, the KPI is just a metric, not an indicator.

Selecting good KPI’s for a business requires analysing many different areas. Like knowing where a business is in its life-cycle for example. The metrics for a growing business, for instance, might center on customer feedback and business model validation. KPI’s for more established companies could be monthly recurring revenue, customer retention, and customer acquisition cost.

BPO for financial metrics and KPI

Monitoring even basic metrics can become stressful with spreadsheets or manual methods. It is difficult to keep all this information up-to-date, especially as a business grows. Manually calculating more complex metrics, such as financial and operational KPI’s, is even more challenging and error-prone.

Outsourcing business processes like these can save a business so much time and costs and facilitate business growth. Business process outsourcing (BPO) is also more accurate and creates greater efficiency in a company.

LinkedERP’s superhero team is well-versed in the intricacies of outsourcing business processes. They have access to all the data needed to calculate KPI’s that a business might want to track, displaying all the information in dashboards that update in real time. Book a session with a superhero today to learn more.