Key Performance Indicators (KPIs)

Calculator How does breaking the world down into numbers help the soloist? Many accountants talk of KPIs, this is the acronym for Key Performance Indicators, and these are the main indicators you use in your business to identify your strengths and weakness.

But more importantly key performance indicators (KPIs) can be used to forward your expansion and achieve your financial goals.

Let me show you how.

One of the most common faults I see is business owners taking opinions as fact. This is a gross error. We all get bombarded daily with opinions, from suppliers, employees, journalist, reporters, family and professionals (such as accountants!) – and when we tend to hear the same thing more than once it starts to take the form of a fact – but it is just an opinion, it’s what somebody thinks. Here’s an example, “the economy is bad, business is slow at the moment” this one I hear only from those who are having a rough time. Yet someone from the same industry or business then comes to me and says, “My biggest problem is coping with the demand!”

So what’s the difference? Well to get to the truth we need to look at the facts and this is done by looking at the numbers.

What are your total sales for the week?
How many new customers came in the door this week?
How many bought something?

By looking at these facts you can then work out how to improve your business. Here’s an example:

If you had 100 new customers and 20% bought a service or product, with total value of $20,000 gives you the following: 100 x 20% = 20, if your product or service is $1000 then 20 x $1000 = $20,000.

Okay so what if you want to increase sales? The first thing you should focus on is the front end, more customers. If you got 150 in the front end then the number work out this way.

150 x 20% = 30, therefore $30,000 in sales.

Now if you focused on increasing the conversion rate, which is to say, improved your selling process, either through training or seeing what is more successful, then you might be able to get a 5% better conversion. So the picture now looks like this:

150 x 25% = 37, therefore you’d have sales of $37,000

So by identifying the Key Performance Indicators of your business, you can increase your production and become more viable.

This philosophy also applies to your suppliers, what are their numbers, what did they produce in a given time frame?

And although it’s unemotional, a good hard look at your KPIs will in itself be rewarding. It’s the soloist’s path to prosperity!

Tony Melvin is the MD of Chan & Naylor Australia - the industry leader in areas of asset protection, tax minimisation & self-managed superannuation.They believe that simple, applicable education is the best method of dissemination for soloists.

3 comments | Add your own

re "It’s the soloist’s path to prosperity!" I agree that we must separate truth from opinion. Although the article is great for those of us who sell products, how do you relate that to service industry soloists? More customers is not necessarily the answer (unless they give up sleep altogether). Do you have a suggestion for those soloists in service industries? Thank you. Karen from Springwood NSW
HI Karen,
Good question. More customers aren’t necessarily the answer if demand is already high. But that is when you then turn your attention internally and start looking at how to improve the efficiencies within your business. An example of this is looking at a conveyer belt where raw material is placed on one end and through a series of changes, a finished product comes out at the other end. Which part of this process do you think requires the most attention? Front, middle or at the end? The answer is where it is slow. Even if servicing clients, if you can speed up the flow of a client through your business by improving areas of inefficiency you will expand. Tony Melvin from Australia
I agree with Tony - as a soloist it is too easy to say how busy we are, and not look at busy doing "what" KPI's keep a lot of things on track and (as a primary offender in the not tracking what I do stakes) I know I should create a few more. Karen Dempster from Melbourne Australia

3 comments | Add your own

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