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Measuring Performance With Key Performance Indicators

By: J.A.J Aaronson - Updated: 11 Oct 2012 | comments*Discuss
Key Performance Indicators Kpi Kpis

Key performance indicators are a vital planning tool in any business. As a new franchise owner you will need to constantly monitor the health of your business, using a variety of different techniques. Key performance indicators are amongst the most useful of these techniques.

But ‘key performance indicator’ can seem like something of a meaningless buzz phrase. So what are they, and how can they help your business?

What Are Key Performance Indicators?

Key performance indicators (KPIs) provide businesses with a useful, easily benchmarked way of judging how well they are doing. They encourage businesses to identify the things that are really important to their success, and measure their progress.

Key performance indicators are often metrics, like sales volume or average revenue per transaction. But they are not always numerical. Depending on the nature of your business, your KPIs might be words or images. Some firms use customer feedback as a KPI, for example.

Why Should I Measure My Performance?

It is impossible to accurately determine the health of your business without constantly monitoring its performance. Without KPIs you have no way of knowing whether you are meeting your financial targets, or whether you are on course to achieve your long-term targets.

KPIs are also very important for measuring the impact of marketing efforts. It is vital that you properly monitor the success of marketing campaigns if you are to ensure that your money is well spent.

What Should I Measure?

The KPIs you choose to measure will depend on the nature of your business. For example, retail businesses might choose to measure footfall, sales volumes, average revenue per transaction, and so on. A restaurant, on the other hand, would probably want to measure table turnaround time, customer comments, and average meal cost.

It is vital to remember that KPIs must be measured over extended periods in order to be of any use. A single ‘snapshot’ of any indicator is, on its own, useless. The data only becomes interesting when it is measured over time, and trends or changes are observed. In this way, KPIs can help you to identify problems or potential in your business. For example, if you observe a fall in revenue per transaction over a six month period, you can think about ways to remedy the situation.

What Should I Look Out For?

While KPIs are a vital part of any business management strategy, they are not without their problems. Paramount amongst these is so-called ‘information overload’. Once business owners begin to understand the importance of KPIs, many start to simply measure too many indicators. They get bogged down in data, much of which is not actually relevant. As such, it is important that you choose your KPIs carefully, and do not get tempted to measure everything.

You should also remember that these indicators are not a goal in themselves; they are a means by which you can help your business to grow. So, don’t get sidetracked by the data itself. Instead, use it to identify trends in your business – and consider ways you can use this information to improve your performance.

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