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All businesses and organisations need to have targets. It helps them to have a focus, progress towards higher goals, and measure performance. Having targets in business allows you to innovate so that you remain fit for purpose and relevant in contemporary society.
The most common and most effective way of doing this is by using key performance indicators (KPIs). Key performance indicators are quantifiable targets that you set in your business to support you to meet the aims highlighted in your business strategy. A business strategy is a long-term plan that sets out your overarching business vision, goals and objectives.
It can be difficult to know what decisions to make in business. So key performance indicators can help to gather data to support decision-making. When used correctly they can have a huge impact on moving your business in the right direction, providing insight into how your business is performing; ensuring that it is performing as anticipated. With regular monitoring, they can help to identify issues sooner rather than later, so that changes can be made to help you reach your goals.
We have outlined some key reasons to measure business growth below:
- For small businesses and start-ups, it helps to obtain funding from investors. [Investors will usually use performance reports to justify whether or not to invest in you].
- For larger businesses, having methods to measure growth helps to track each area of business. The larger the business gets, the more difficult it is to control each area, so KPIs can highlight business strengths and weaknesses in an easy-to-read snapshot.
- For businesses to innovate, KPI data can help when applying to secure funding for future growth. It can be an easier way of showing your progress history, making your capability and success easy to view.
- For decision-making. You can make adjustments to any area of your business that you are measuring, depending on the outcome of your KPI data. This can help you to boost strengths and fix weaknesses.
How to create key performance indicators
What you base your key performance indicators on largely depends on the type of business you have (such as selling products or providing services) and the industry that you work in. When you are deciding which parts of your business to track using a key performance indicator, you can look to your goals in your business strategy to help you pick out key areas.
You can consider the following areas:
- Your share of the market.
- Obligations to stakeholders.
- Workforce growth.
- Revenue growth.
- Profit margins.
- Marketing budget and return on investment.
- Customer acquisition.
- Customer retention.
- Business hours.
- User journey.
You can have several KPIs for different business operations so that you can track the efficiency of different tasks in the organisation. For example, each team in your business could have a number of their own KPIs, as well as the entire business having its own KPIs.
This is a common way for businesses to use key performance indicators as it allows you to measure individual tasks that collectively work to reach the goals in the business strategy. It also helps you to increase productivity at work.
We will share some examples of key performance indicators for different industries further on in this guide.
How to measure key performance indicators
When you have decided on the part of the business to measure using KPIs, you need to create a process for monitoring them. Without proper monitoring in place, the data collection will be wasted.
The data must be used regularly to identify:
- What is working well?
- What business areas are falling behind?
- What business functions could be streamlined?
- Is the workforce positioned correctly?
The best way to monitor and use the data derived from KPIs is through reporting. You may choose to have individual team meetings to report on KPIs or ask teams to send KPI reports to senior management. The process you create depends on the size of your business and the current stage it’s at.
If you have investors involved, you should make KPI reports easy to read in a format they can understand so they can clearly view the business’s progress.
Once you have reporting routes in place, you can use the data to help you steer your business to success. You can use the insights to motivate teams, make business decisions, and keep your business on track.
The data derived from your KPIs can also be used for your end of year reporting. In the UK, all listed companies have a requirement under the Companies Act 2006 to prepare, distribute and file annual reports and accounts. You KPI data could support your preparation of these (depending on the areas of business you have monitored).
What are individual key performance indicators?
When thinking about KPIs in the work and business world, it feels completely natural. But setting KPIs on an individual basis doesn’t sound as common. Goal setting is important on an individual basis because it supports you to learn new skills, develop existing skills, and make progress in your life and career.
Many people want to achieve all of these things, but rarely follow through with them properly because the goals are not set effectively. However, by setting key performance indicators for yourself on a personal level, you can achieve the focus required to meet your goals.
Just like in the business world, if you set a KPI that you can monitor, manage and report on, you are more likely to work towards your outcomes; and make lifestyle changes where necessary to achieve this.
You could ask yourself the following questions to help you identify your personal KPIs:
- What do you want to achieve?
- Why do you want to achieve it?
- How can you measure this?
- What does success look like in reaching your outcome?
- How often will you review your progress?
These questions will help you set a SMART KPI that is fit for purpose. SMART stands for Specific, Measurable, Attainable, Relevant and Time-bound. The corporate finance institute states that making goals SMART helps you to focus your efforts and increase your chances of reaching your goals.
What are key performance indicators in healthcare?
In healthcare, KPIs are used across all service areas. They provide an efficient way to manage a huge organisation. The King’s Fund reported that as at 2019, there were over 1 million members of staff working for the NHS. An organisation of this size would be impossible to manage without reporting processes such as KPIs.
KPIs in the healthcare sector aim to achieve a number of targets, including:
- Improving patient waiting times for services.
- Increasing patient satisfaction.
- Maximising spending.
- Streamlining record keeping.
- Improving multi-disciplinary working.
The targets listed above are some generic goals of the healthcare sector. However, when creating a KPI, it is important for it to be SMART, so that it can be measured effectively.
One example of an operational KPI in healthcare is the following:
Our aim is to reduce the length of time it takes for adults to be discharged from their hospital beds back into the community. We can do this by improving communication with adult social care to reduce delays where patients require support to be arranged in the community prior to discharge.
This KPI will support our overarching goal of ensuring that there are adequate levels of hospital beds.
We can measure this by completing weekly reports for management, tracking the time it takes for patients who are ready to be discharged to leave hospital. It should be measured in conjunction with readmission rates to ensure that patients are not being discharged prematurely.
Success in this KPI will be patients being discharged within 2 days of being assessed as ready to be discharged.
This will be reviewed by senior management on a monthly basis.
What are key performance indicators in retail?
Key performance indicators in retail are mostly focussed around sales. They are an excellent way on checking that your business will make profit, with regular monitoring. You can track your customers shopping trends, compare how different locations or products are performing, and check the user customer journey is working efficiently.
Here is an example of a KPI for the retail sector:
Each sales employee to achieve a daily sales value of £500.
This KPI will support our business goal of increasing revenue in our health and beauty product sector. It will also support team productivity with some healthy competition in the team.
This can be measured by employees recording their end of day sales value onto the reporting database at the end of each working day. At the end of each working week this can be sent to management for review.
Success will be recognised as all employees achieving the £500 of daily sales.
This can be reviewed on a quarterly basis.
This KPI can uncover valuable data to support your retail business in a number of areas such as:
- Employee productivity and skills.
- Product pricing.
- Workforce planning.
- Customer purchasing trends.
What are key performance indicators for SEO?
Marketing teams value the use of KPIs to track how their marketing campaigns and content are performing. In marketing, a lot of time is spent on research, to understand your audience, buying personas, appropriate tone of voice, and relevant keywords to include. The keyword research forms part of Search Engine Optimisation (SEO), which is how businesses use words to rank higher in online search results.
SEO is an extremely valuable tool used by many businesses, but it can be difficult for business leaders to see the value in the investment. That is why 95% of leading marketers agree that marketing KPIs should be linked to wider business goals to be truly acknowledged.
You can monitor the marketing function and then link it to a strategic goal to help non-marketers in your organisation understand its importance. This will support your marketing efforts by knowing when something is working or not.
Some examples of KPIs to support your SEO efforts include:
- Tracking organic website traffic.
- Monitoring your Google ranking.
- Lead generation.
- Bounce rate.
We have included an example of a KPI for SEO below:
Increase the conversion rate by 10%.
This KPI will help us to attract more customers to take action and convert to making a purchase.
This can be measured through using Google Analytics data to track customers on our website. We can monitor the bounce rate and number of website visits.
Success will be recognised by an increase in sales, website visits, and reduced bounce rates.
What are key performance indicators for education?
The education sector use KPIs in a variety of ways to help them evaluate their performance. They are heavily relied upon to ensure that outcomes for children and young people are met, and funding is being spent appropriately to support students. From a business perspective, they are used to monitor finances (such as administrative spend per student). From a student perspective, they are used to track student outcomes.
An example of how an education provider may use KPIs is included below:
We will achieve a student attendance rate of 90%.
This will help us to attain better outcomes for students as they will be present for more teaching which can help to reach higher grades.
This can be measured each term by reviewing attendance data reports to track how close students are to the target. Any students who are not achieving this target can be identified and supported.
Success can be recognised by students having better attendance.
What are key performance indicators for sport?
In the sporting field KPIs are crucial in helping sports men and women reach high performance levels. The sporting field is based on competition, requiring members to push themselves and make constant progress.
KPIs in sport can relate to individual sports men and women, or apply to entire teams (depending on the sport in question). Having SMART KPIs for the sports industry can help to zone in on areas of weakness to get ahead of your competition.
Here is an example of a football team’s KPI:
We would like to have at least 5 opportunities to score a goal each half of the game.
This will help us to apply drills from training sessions with the hope to score more goals.
This can be measured by the number of shot opportunities per game and by comparing this data to previous games.
Success can be recognised by players being in better positions on the pitch and using drills to create shot opportunities in play.
What are key performance indicators for business?
As we have seen in this guide, a business can have a KPI for any part of its operation. However, we are yet to mention the importance of using KPIs to track the financial health of your business. Having a good understanding of how your business is operating financially allows you to adjust your goals and meet strategic aims.
Financial KPIs should be reported on through formal channels, as the data collected is key for management decision-making. Your board of Directors, Senior Management Committee, and Stakeholders will all be interested in these results, so creating a method to share regular updates (such as through a dashboard) can streamline the process.
Some of the figures that finance KPIs can focus on are:
- Return on asset.
- Economic value added for shareholders.
- Working capital.
We have included a working example below:
Increase the ratio for accounts receivable to ensure that money is collected from credit sales in a timely manner within the 30-day time specification. We can do this by creating automated chase emails.
This will support our cash flow by ensuring that monies are recovered when expected. It will also support our accounting, with monies being paid to us in the correct quarter.
This can be measured monthly by reviewing cash flow dashboards.
Success can be recognised by having fewer outstanding invoices.