Key Performance Indicators (KPIs)

- July 22, 2006 2 MIN READ

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?

Want more articles like this? Check out the performance section.

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!