No reputable business can function without a key performance indicator (KPI). This has aided businesses in managing their operations and applies to small businesses. If you are unfamiliar with this KPI, we will go through its details and provide examples of generating it.
What Is a Key Performance Indicator (KPI)?
Key performance indicators (KPIs) are measurable statistics to assess a company’s long-term performance. KPIs provide information on a company’s strategic, financial, and operational accomplishments, particularly compared to companies in the same industry.
The core of KPIs is data collection, storage, cleaning, and synthesis. The data could pertain to any division across the entire organization and could be financial or non-financial. KPIs aim to communicate outcomes so management can make more informed strategic decisions.
Types of KPIs
Here are the types of KPI
1. Financial Metrics and KPIs
The financial statements of a corporation can be used to calculate financial metrics. Internal management may, however, find it more beneficial to examine certain figures that are more pertinent to studying the issues or facets of the business that management wants to study.
For internal analytical purposes alone, a business might use variable costing to recalculate the balances of some accounts.
2. Customer Experience Metrics and KPI
Customer satisfaction, per-customer efficiency, and retention are often the three main focuses of customer-focused KPIs. Customer care teams utilize these indicators to better understand the level of service that customers have been receiving.
3. Process Performance Metrics and KPI
Process metrics seek to gauge and keep track of operational performance within the organization. These KPIs examine how tasks are carried out and look for processes, quality, or performance flaws. Companies with repetitive processes, like manufacturing businesses or businesses in cyclical industries, benefit the most from using these indicators.
4. Marketing KPIs
Marketing KPIs try to determine the success of marketing and advertising campaigns. These metrics frequently track the frequency with which potential clients take particular activities in response to a particular marketing channel.
5. IT KPIs
A firm may strive for operational excellence; in this situation, it may seek to monitor the performance of its internal technology (IT) department. These KPIs could help better understand employee satisfaction or the staffing levels of the IT department.
6. Sales KPIs
The ultimate objective of any business is to make money through sales. While financial KPIs are frequently used to assess income, sales KPIs use nonfinancial data to better understand the sales process.
7. Human Resource and Staffing KPIs
Companies may also benefit from looking at KPIs particular to their staff members. A corporation can already have a variety of knowledge about its employees, ranging from turnover to retention to satisfaction.
Examples of KPIs
below are examples of KPIs
1. Vehicle Production
Charles produced a record 305,840 vehicles during the quarter and delivered 308,650 units.1 Production is a significant issue for the corporation because it has frequently come under fire for having trouble ramping up. Scaled-up production translates to greater market share and earnings for Charles.
2. Automotive Gross Margin
Charles’ automotive gross margin increased to 30.6% for the quarter.2 Because it separates the costs of producing each car, gross margin is one of Charles’ strongest profitability metrics. Even though sales of lower-cost models surpassed those of higher-profit models in Q4, Charles increased its gross margin.1
3. Free Cash Flow
Charles’s free cash flow for the quarter came in at $2.8 billion. That was a significant increase from the previous year’s $1.9 billion in free cash flow.2 The amount of free cash flow Charles was producing indicated that the business was becoming profitable without regulatory credits.3″
How to Create a KPI Report
When beginning the process of putting together KPI dashboards or reports, consider the following steps to creating a KPI report:
1. Discuss goals and intentions with business partners.
KPIs are just as helpful as their users decide to make them. Understand your goals and your business partners before putting together any KPI reports.
2. Draft SMART KPI requirements
KPIs should be limited and connected to SMART measures (specific, measurable, attainable, reasonable, and time-bound). Unspecific, ill-defined, and unrealistic KPIs are of little to no use. Instead, concentrate on using your information and adhering to the SMART acronym standards.
3. Be adaptable.
As you compile KPI reports, be ready for new business issues to emerge and for additional attention to be paid to other areas. KPIs should adjust as business and consumer needs change, with specific figures, measures, and targets that align with operational advancements.
4. Avoid overwhelming users.
Giving report users as many KPIs as possible on a report could be tempting. KPIs may become more challenging to understand at some point, making it harder to choose which measures to pay attention to.