KPI, Key Performance Indicators are a strange abbreviation that is associated with corporations at first glance. However, above all, it is an indicator important for business, which enables effective measurement of whether the company’s goals have been achieved. If you have trouble determining whether your business is growing or standing still, this article is for you!
What exactly is a KPI? It can look very different: some managers cannot imagine their work without specifying the level of service quality; others are influenced by the number of customers who come in a given period of time. It is true that everyone measures success and development differently, but there are some universal ideas worth implementing.
Why should we even worry about KPIs?
Imagine a customer service office because it allows you to objectively determine what works in the company and what does not. His boss one day decided to introduce a KPI under the title “number of complaints handled.” It turns out that the department is only able to handle a hundred cases a day, while the goal is 200. Immediately afterward, the boss decided to find the source of the slowdown and, after consultations, concluded that it was an inefficient communication system. After its improvement, the KPI improved to 150 complaints a day, letting the office know it is getting better.
Without the right measure, no one would be able to tell if anything has improved at all. So what is worth checking in the company?
The average cost of sales
That’s the factor that determines the cost of every dollar a business earns. The average cost of selling in any company should not exceed 10%, as then it will become unprofitable. Here is a simple formula to calculate this KPI:
All Sales Department Costs / Revenue = Average Selling Cost
Thanks to it, you can check if your sales department is earning for itself.
Increase in sales during the month
It is a measure that clearly determines whether a business is developing, and it can be compared with the previous calendar month or any other selected period. If sales are crucial for the enterprise, it is worth implementing the following formula:
(Current Month Revenue – Previous Month Revenue) / Previous Month Revenue = Monthly Sales Growth
With this KPI, we can determine how many customers enter the sales funnel and make a purchase and how many opportunities are lost.
The number of sales opportunities won / number of all sales opportunities = Sales performance.
The efficiency on the level of 10% means that every tenth person leaves their money in the store. If we start from 2%, an improvement to 5% will almost double the company’s profits. Do you already know why it is worth measuring KPIs?