Most people are familiar with the term Key Performance Indicators (or “KPI”s), and know that they are a simple way of determining how your business is performing against its objectives. However, few businesses are actually monitoring the things that will make the greatest impact to their sales and bottom line.
James Richardson of Metric Accountants explains how you can ensure that you focus on the factors that make the greatest impact.
Is it a ratio? Is a metric? No, it’s a KPI.
Frankly, anyone can come up with a ratio or metric, calculate it once a month and watch it rise or fall. Perhaps some of you are doing that right now – monitoring daily page views, bounce rates, etc.
However, far fewer business people consider developing Sales KPIs that are tailored specifically to their business and their bottom line. And, at the day of the day, that’s what a Sales KPI should be – a fast way of identifying why your business is performing well or otherwise.
“Heat Seeking Missiles”
I once heard KPIs being described as Heat Seeking Missiles. That is an excellent description of what good KPIs are. If you choose the KPI wisely, it will immediately pick out the underlying reason for your success (or the issue causing your sleepless nights).
Here’s how to design your own Sales Heat Seeking Missiles:
- Understand and define your business and its objectives.
- Translate your business objectives into measurable goals.
- Design a KPI that accurately measures each of these goals.
So, if your business objective is to ‘increase sales’. Your measurable goal could be ‘to increase sales by 10% in the next 6 months by increasing the average order value from £100 to £200’. Therefore, a suitable Sales KPI would need to accurately measure the average order value per sale.
If uncertain, focus on cash
Making a sale is only half the battle. After the sale has been made, there are various things that can happen – the customer may return the product and seek a refund, they may not pay, the after-sales servicing costs may be higher than expected, etc. If the company only focuses on whether sales are going up or down, it may well be missing the key issue affecting the business.
A well organised business will develop a suite of Sales KPIs that have a laser like focus on the cash flow impact, and not the headline figures.
It’s strategy put into practice
By designing KPIs, you will have had to sit down and really think about your business and its plans. In short, you have to think strategically. Those few hours will almost certainly save you time, hassle and stress later down the line. That’s why designing KPIs is the practical side of business strategy.