Key performance indicators (KPIs) are a set of metrics used to measure the progress of a business towards achieving its goals and objectives. KPIs help you identify inefficiencies and how to eliminate them in order to attain business growth.
For example, you set a goal to reduce defected goods from 3 percent to 1 percent in 2020. To evaluate and assess your progress towards achieving this reduction, you will set up a KPI known as defect rate, which you will measure and analyze on a regular basis.
KPIs vary business to business. Choosing the right KPI for your company depends on the targets you have to achieve i.e. the key areas you want to focus on to achieve business expansion.
Following are the four major groups of KPIs that will help you monitor the progress of your company:
Efficiency metrics like customer satisfaction, average handling time, defect rate, overall labor effectiveness, inventory turnover, and more will help you gauge the amount of expenses that can be avoided by keeping the KPIs in check.
KPIs can help you evaluate the rate of your business expansion. By calculating metrics like net profit margin, return on investment, repeat purchase rate, budgeted vs. actual sales, conversion rate, and more, you can easily compute an estimate of how much revenue you will achieve by the end of a certain period, and in what ways you can improve it.
A healthy business is referred to as one that can easily cover its short-term debts with the current assets it has in possession. Metrics like payable turnover, receivable turnover, inventory turnover, quick ratio, customer satisfaction rate, and more will ensure your business is liquid enough.
Resilience in business can be achieved by minimizing financial risk. Ideally, a business should be solvent enough to cover all its debts. Hence, resilience can be attained by optimizing debt to equity levels through implementing KPIs such as improving gross margin, earnings before interest and tax (EBIT), gearing ratio, debt-to-equity ratio, acid test ratio, and more.
KPIs help you achieve efficient financial management for your business. Cloud accounting software like Xero helps you calculate and track KPIs on a regular basis from anywhere. KPIs let you have a clear understanding of where your business stands and where it is going, which can be a key factor for you to succeed as an entrepreneur.
If you’re ready to have our team help you with KPI reporting, don’t wait. Get in contact with us today. For more information, click the following link to Contact Us.
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Authored by Kristen Kubank.
Founder and Director of Catalyst Cloud Solutions.