What do your KPIs Indicate?

KPIs can be one of the strongest sources of information available to a business. In fact they do exactly what their name suggests, Key Performance Indicators:  they are all about how well your people are performing.

Despite that, it’s so easy to get them wrong and rely on numbers that really don’t provide any valuable insight. So where are so many businesses getting it wrong?

KPIs vs. Targets:

Recently I’ve noticed many businesses putting commission-dependant targets on activities. Whilst commission is obviously a key aspect of most sales jobs, the activities themselves should not be a target. Commission should indeed be based on clear targets, but targets should be high-level figures such as turnover, rather than KPIs which reflect the activities.

KPIs are there to help managers help their team: if targets are not being hit then KPIs are used to understand why. For example, if a sales person is expected to generate £20,000 new business per month but are only achieving £15,000 the KPIs will indicate that although they may be closing every meeting they attend, they’re only spending 50% of the time expected on the phone generating leads. Therefore the KPIs tell us that focusing on increasing call volumes will help to hit the target.

Choosing your KPIs:

It’s easy to fall into the trap of setting KPIs based on what you think is the right number: “I normally have 5 meetings per week so my team need to be booking at least that much”. This is of course one way to do it, but it will only give you arbitrary numbers as a result. The most effective way to implement strong KPIs is to work backwards. Start with your business target for the year and break that down into all your sales groups. From there you can work out what you need each sales person to achieve in a year. Continuing breaking this number down until you have a daily or weekly target. At this stage you’ve still only got a target, to create your KPIs you need to look at historical numbers and trends. How many meetings does it take to generate that turnover? To book that number of meetings, how many calls need to be made? How many emails should be sent out? All these numbers can be broken down from months to weeks to days to hours. It’s these numbers that act as KPIs and demonstrate the exact volume of sales activities required to achieve your overall targets.

Using the Information:

Broadly speaking there are two key benefits to implementing strong KPIs into your business: Forecasting and Management.

Being able to accurately forecast sales expectations is a core requirement for business growth. It allows you to plan for potential downturns in sales and understand when you’re going to need to recruit, plan a marketing campaign or strengthen your IT software. KPIs tell you if you’re going to hit your targets, and the answer to that influences the questions above, and many other areas of your business.

On a day-to-day level KPIs give your team a consistent activity goal, as soon as they get into the office in the morning they know what’s expected of them and they know when they’re under or over achieving. But more than that, KPIs give you as a manager a clear understanding of your team’s strengths and requirements for training. They provide a clear structure for 1-2-1s and allow you to review your team impartially and create training programmes based on the areas they aren’t performing in.

So once you’ve created the right KPIs for your business and you’re reviewing them effectively, what else is the point of them? Well, it really is down to you: many people believe that as long as the targets are being hit it doesn’t matter what the team are doing to achieve them. Others argue that enforcing KPIs to be hit is vital to the success of their business, even if targets are hit without meeting the KPIs.

We’d love to have your take on this, please let us know your thoughts in the comments section below.

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