What KPI will improve your Profit?

By Ben Nix - September 22, 2017

Following on from my article 'Outsourcing your businesses financial management', one of the key drivers of highly successful projects is setting KPI’s and targets.

Read: Outsourcing your businesses financial management'

Key performance indicators (KPI’s) are targets that may assist business owners identify areas to improve the company’s productivity and ultimately profit. Real time monitoring of KPI’s also highlights the strength of controls within your business. This becomes especially relevant if you are looking at succession planning.

Core benefits of using KPI’s

Assigning responsibility and accountability
Supporting the decision-making process
Helping management gauge performance of individual teams and staff
Serving as an early warning sign within the organisation

Setting a Target

Once you have decided on an indicator to measure, you should set specific goals for your employees, teams and organisation. The most appropriate place to start in determining a KPI is to review industry benchmark. If you are currently below the benchmark, a concerted effort should be made to raise your organisation to this level.

Set a specific date by which the necessary improvements must take place. You can set your KPI targets by individual/team/division or for the entire company. Individual and team-level targets allow you to drive competition. Bonuses or remuneration can then be linked to reaching KPI’s to ensure you are driving the desired outcomes within your organisation.

Above all, employees need to believe the new goal is achievable. Without their buy-in, the process is set up for failure.

Revise and Monitor your Goals

In order to get the most out of your KPIs you need to implement a continual monitoring system. At Pitcher Partners we provide dashboards and regular contact meetings to ensure that you are monitoring your KPI’s. Regular meetings allow strategies to be implemented to improve productivity prior to the problem becoming a critical issue. For example, we identified a client that had significantly increased their advertising spend; however there was no correlation with increased revenue. Through representing this visually to the client, it allowed them to refocus their marketing strategies and get the most value from their marketing spend.

Relevance

As the name indicates, the KPI you choose must be a central contributor to the company's success. If the individual/team or division in question can operate below the industry benchmark, without affecting its overall productivity then the KPI will not be useful. The KPI should be a predictor of future performance as opposed to just a tool of historical analysis. Above all, it must also be a factor the company can control.

Examples of Industry KPI’s

Construction	Real Estate	Childcare	Medical
$ value of contracts signed per month	# of new sales agreements signed	Occupancy Percentage per day/week/month	Consolidated monthly profit across trading and service entity per month
# new sales enquiries per month	Commission Income vs. Commission Expense	% of Salaries and Wages to Revenue	Patient waiting time (minutes)
% projects completed under budget per month	Market Share % of local market	% of Rent expense to Revenue	Number of lost productive hours
Gross Profit per month	# of Properties Sold per Month	# of parent complaints per month	Number of billable hours per month
Net profit per month	Average days on market	# of reportable incidents per month