To say that there is an immense amount of planning involved in starting a business venture would be a colossal understatement. At each stage of the process, the potential business owner must plan out, in writing, the individual steps that they will take to build their business, how much they expect each step to cost, and later, how they intend to recoup those costs and begin to turn a profit through other income generating tasks. These reports must be compiled, analyzed, and adjusted as setbacks occur, plans change, and the profit potential increases, decreases, or is delayed.
Much of these early reporting requirements are ordered by the banks, private investors, and other stakeholders with a vested interest in helping the fledgling business get up and running. Should business owners continue to put time and effort into compiling these detailed reports once their business has established a foothold and there is no longer any need to solicit investment? If they are wise they will.
As a business owner, you should absolutely want to know how your business is doing at a granular level. The good news is your business should be relatively stable at this stage so it will be easier to set up a regular reporting system that will deliver the data you need without a lot of extra effort required from you, or your management team. The key to an effective long-term monitoring plan is knowing what to measure in order to generate the most valuable insights that can actually make a difference in your business operations.
Key Point Indicators (KPIs) are the powerhouse metrics that truly impactful data reporting is built on.
What’s A KPI?
In the simplest of terms, a KPI is a specific unit of some quantifiable factor that can be measured against an established benchmark, or a business target. While KPIs are generally related to productivity and profit, just about anything could be a KPI. The main requirements are that the unit you choose must be quantifiable, you must have a set target to use as a benchmark for comparison, and it should be important to your business.
How Can Tracking KPIs Benefit Your Business?
If you are a business owner then you certainly have goals and aspirations. Chances are you could easily discuss, in great detail, several concrete benchmarks that you want to achieve. However, if you were to be asked exactly where your business is in terms of achieving those goals, exactly when you plan to reach them, what specific actions you are taking to make that happen, and how successful those actions have been, you might find those queries more difficult to answer. You could certainly provide a general ballpark estimate of your business performance, but likely wouldn’t have any concrete details to discuss because many business owners only measure the most basic profit and loss data.
When you take some time to choose and track important KPIs you may be surprised by what you learn about the true progress of your business and what you can do to make sure you are on the right track
Here are a few common benefits of developing a sound KPI tracking protocol.
More Data = More Certainty
We’ll get the obvious out of the way first. You can’t truly know what your business needs if you don’t know exactly how it’s doing, and you can’t truly know how your business is doing if you aren’t paying attention to the details. It is a good thing to be in the black at the end of each quarter. Nobody is disputing that is clearly a positive sign of a functioning business. The problem is that while it does confirm that your business is performing, it doesn’t tell you how well it is performing compared to your closest competitors, or compared to the expected industry benchmarks. It doesn’t tell you where you might be leaving money on the table, and it doesn’t tell you how to boost your business performance.
Relying on simple profit and expense reports is not much better than guesstimating about the current health, and the best path forward for your business. Selecting meaningful KPIs and tracking them over time will deliver the specific data you need to make informed decisions.
Generate Team Spirit
There are no hard rules dictating which elements you must track. You can track standard productivity and profit KPIs alongside other factors that are of interest to the whole team. What those other KPIs might be will differ from team to team, but tracking team progress toward a common goal can help bring the entire team, or several teams together as one.
This can get everyone engaged in tracking performance, keep different teams all aligned toward the same goal, and promote a sense of team effort and cooperation.
Autonomy With Accountability
Oversight and team influence are strong drivers of performance. However, the best results are often the result of a team that has achieved the perfect balance of autonomy and accountability. It is important to remember that your employees are talented, skilled adults who were each ostensibly hired based on their abilities and achievements. All of these factors should mean that your staff knows how to behave in a responsible manner without the need for micromanaging or surveillance.
On the other hand, you are entrusting your team with the success of your business so you should certainly have some means of ensuring your future profitability remains in capable hands.
Engaging your team in actively tracking important KPIs, both their own and team metrics, can help facilitate a work environment that allows individual team members to enjoy maximum autonomy over their work environment, and process while still providing business owners with the means to oversee productivity and workflow.
Most people want to perform well and feel like they are a valued member of the team. When staff can see how their work impacts both their teammates and the business as a whole they are better able to see themselves as a part of the bigger picture. This is often all the motivation that is needed to encourage them to improve their own performance if they notice a performance decline.
Keep Up With The Competition
The market for most businesses is highly competitive. Even the most innovative of products or services will soon be facing off against a large group of copycats popping up seemingly overnight and designed specifically to undercut their pricing or service. The constant flux of the market means that companies that focus solely on profit and loss reporting could easily find themselves suddenly losing market share to a competitor that seems to have come out of nowhere and is managing to produce the same product or service much faster, or for far less.
Tracking key KPIs and continuously comparing results against a set of industry benchmarks, or ideally, against the available data from the competition, will help business owners gauge not just the health of their company, but also how their company is performing against the competition. This detailed reporting helps business owners spot areas where their lead over the competition has become narrower and take the steps needed to investigate and make any possible adjustments before the competition is able to lure customers away by offering a better value.
Correct Course Before Catastrophe
There is no right or wrong answer when it comes to which KPIs to track. Your interest may lie in tracking internal KPIs that measure the productivity and cost-effectiveness of individual staff, business policy, and workflow procedures. You could have a small team or one that runs like a well-oiled machine and your primary concern is making certain that your business stays ahead of the competition. Most businesses will choose a combination of both internal and external KPIs to monitor in accordance with their own unique concerns or priorities.
What you choose to measure is important, but not as important as the consistency of your monitoring efforts. Consistent tracking is the key to establishing a rock-solid baseline for how your business is currently performing under the existing structure, with the existing staff in place. This baseline creates a reference point that the results of any changes, either internal or external, can be measured against.
Why is having a reference important? It is only when you know what normal looks like, or where you started from, that you are able to easily recognize any changes . The quicker that you are able to spot the fact that something has changed the better you will be able to identify the cause of the change and take some sort of action.
If the change is positive then spotting it early will allow you to more easily track the change to a distinct cause and either continue to monitor or experiment with policies related to that particular cause in an attempt to encourage more positive change.
If the change is negative, the benefits of catching it early are even greater. The quicker that you can catch a downward trend the more you will be able to identify the cause, correct course, and limit any damage. Catching small issues before they blow up into catastrophes is one of the strongest arguments for the development of a solid KPI tracking system.
No matter which specific reasons have motivated you to start exploring the idea of tracking KPIs for your business, we are glad that your research has brought you to our webpage. Daybeam was created with a strong focus on the ability to track not just hours worked, but the time spent on individual tasks, and how the time to complete each task impacts the delivery and final cost of a project overall. This is just one example of a common business scenario where we believe Daybeam’s strong tracking and reporting abilities will offer business owners, and agency leaders a big advantage.