Formalise your KPI’s


Key performance indicators (KPIs) are the statistics you track to determine how well your business is doing. If you’ve been running your business for a long time, you will probably have developed your own KPIs, even if only on an informal basis. We think there’s merit in formalising your KPIs and setting up a system to measure and report them on a regular basis; in fact, many companies do them daily.

The first KPI we usually think of is net profit and its components: sales, cost of products and/or services sold and operating expenses. While this information is certainly interesting, it’s not much help in running the business. The information is historical and may not be available until long after the measurement period.

So let’s look at some alternative KPIs:

Sales

We need to track sales constantly. In most enterprises, sales should be tracked on a daily basis with week-to-date, month-to-date and year-to-date information. The main value derives from comparing your sales against budget and prior periods.

Cash

“Cash is King”, so you will want to track your cash balances, your accounts receivable and your collections. You will also want to keep track of your payables. The following is a simple table we have devised for several of our clients, with a report generated at least once a week (although preferably more often):

 

 

Cash

 Accounts Receivable 

 Accounts Payable 

Start of the Day

£10,000

£100,000

£80,000

Sales

 

£8,000

 

Collections

£5,000

(£5,000)

 

Purchases

   

£4,000

Disbursements

 (£13,000)

 

(£13,000)

End of the day

£2,000

£103,000

£71,000

Other KPIs that are applicable to most business include:

  • Sales Revenue
  • Number of Sales Transactions
  • Average Sales Transaction value
  • Cost of Goods Sold
  • Gross Margin %
  • Number of new Customers
  • Average Sales per Team
  • Sales income per day

These are “typical” KPIs that many businesses would benefit from tracking, however it is also important to include KPI’s specific to your industry or business.

By Andrew Rhodes 

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