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What are key performance indicators (KPIs) and how can using them give you better business insight?
“’Key’ means main/important; ‘Performance’ – how are we doing?; ‘Indicators’ – as in a warning system. They’re very useful,” said Emma Warren, business development mentor.
KPIs should inform business decisions
KPIs help you measure the success of your business that way you know what’s going well and what needs improving. They are different for each business but the basic principle is the same – to understand the important aspects of your business so you can make effective, strategic and informed decisions and your business remains in good health.
Choosing what to measure and identifying key areas
KPIs are usually contained and calculated from your financial data, found within your accounting system.
Don’t overcomplicate things. These five KPIs will help you answer the question: how well is my business running?
Key area number 1: Cash flow
To get a clear view of your cash flow you need to start measuring things like: debtor days, average margins and net profit percentages.
Key area number 2: Repeat customers
It’s nice knowing you’ve got new customers coming in the door, but it’s even better know who’s coming back, how often and what they’re spending. This way you understand your ability to generate recurring revenue.
Key area number 3: Month on month growth rates
Having a dashboard with your monthly revenue allows you to calculate how well your business is growing.
Key area number 4: Website traffic
Improve your marketing strategy and reach by understanding your search rankings, keyword performance and traffic source of sales.
Key area number 5: Referrals
Customer referrals are probably the most important KPI you’re not measuring. This indicator is important for a number of reasons, especially given that customer referrals and social media sharing have become a major driver of revenue for online and offline brands.
Once you have set goals and selected KPIs, monitoring those indicators should become an everyday exercise.
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