What Are KPIs?
KPIs are quantifiable metrics that reflect how well a business is achieving its key objectives. Financial KPIs focus on monetary performance, while operational KPIs track efficiency, productivity, and other non-financial aspects of the business. Financial performance is an outcome of operational performance, and our
financial management and reporting service helps businesses connect the link between day-to-day activity and financial results.
Professional sport is constantly measuring operational KPI’s. As an example, an AFL team will be measuring contested possessions, pressure rating, missed tackles, etc. These are effectively “lead indicators” which should correlate to better performance on the scoreboard. In the same manner, businesses should be measuring operational KPI’s. The old saying is that what gets measured gets managed. You don’t need to measure everything, just the important numbers! That’s why things like financial forecasting and analysis of working capital and cash flow can make a huge difference. Each business should tailor its KPI’s to suit their industry. It will never be a “one size fits all” solution.Common Examples of Operational KPIs
- Customer Satisfaction via a “Net Promoter Score”.
- Employee Turnover Rate: Tracks how often staff leave and are replaced, impacting continuity and morale.
- On-Time Delivery Rate: Assesses the percentage of orders delivered on schedule, important for reputation and customer loyalty.
- Inventory Turnover: Shows how often inventory is sold and replaced, indicating efficiency in stock management.
- Measures of Production Efficiency: Measures output relative to input, helping identify process improvements.
Implementing KPIs in Your Business
- Select Relevant KPIs: Choose KPIs that align with your goals and reflect critical success factors. There is a constant trade-off between simplicity and complexity. Three of four critical KPI’s may be more effective than measuring, say, ten. Concentration of effort can be important.
- Set Targets: Determine realistic benchmarks for each KPI, considering industry standards and historical performance.
- Monitor and Report: Regularly track KPI outcomes. We often see dashboards set up as a traffic light system with red (below target), amber (neutral outcome) and green (above target)
- Improvement Processes: All well and good to measure KPI’s, but the real key is to understand where your systems may be breaking down and preventing optimisation of all KPI outcomes. An executable plan to improve your processes is key to building a bigger and more successful business.
Common Financial KPIs
- Gross Profit Margin: Shows the percentage of revenue remaining after deducting cost of goods sold, helping assess profitability.
- Net Profit Margin: Expresses net profit as a percentage of revenue, giving insight into overall profitability.
- Debtor Days: Indicates how quickly customers pay their invoices, affecting cash flow.
Read more about utilising margins to your advantage here. KPIs in Practice:
Consider a local professional services firm. Financial KPIs, such as wages/revenue, debtor days outstanding, work in progress, and net profit margin, help the owner understand profitability. Operational KPIs like staff utilisation rates, staff turnover, and client turnover. By monitoring these metrics, the firm owner can change their approach if necessary to maximise outcomes to improve utilisation, client engagement, etc.If you want support putting a KPI framework in place, our packages outline how we help businesses build reliable reporting systems that scale with them.
Financial and operational KPIs are powerful tools for driving business success. By selecting appropriate KPIs, regularly monitoring them, and acting on the insights they provide, businesses can improve performance and boost profitability. For more information or to book a consultation. Contact us today!
