Rem Oculee is the founder and CEO of 9Q Ventures and trust asset management. He also wrote the best-selling book, The Exit Mindset.
You’ve probably heard about the importance of using key performance indicators (or “KPIs”) in your business. But how often do you really think about them? Are they woven into the fabric of your company? If not, they should be because they are crucial.
How crucial are they? Let me put it this way: you can’t scale without KPIs. If you don’t make them an integral, day-to-day part of your organization, you might as well stop wasting your time running your business, let alone trying to grow it. that is how crucial they are.
Used correctly, KPIs allow you to drive the growth of your business in a meaningful way. That’s because they eliminate ambiguity and confusion. You no longer have to doubt whether you will achieve a result that stimulates growth.
With the right KPIs you always know where you stand. When you reach your goals, you can confidently stay on track. If not, you can quickly fix the problems that are hindering your growth.
That said, though, I want to make one thing very clear: there’s an art to creating KPIs that allow you to scale. And if you want to harness their power, you have to master this art.
Create a main KPI.
When you think about KPIs, the first rule to live by is create anot tens or hundreds.
If you came up short because of that, I understand. So many entrepreneurs and business leaders think they have to follow everything. However, that is inefficient, unrealistic and impractical. Instead, focus on creating and measuring one key KPI – whatever you need to do right if you want to grow and scale.
You may know that increasing your sales will have the biggest impact on your growth. In that case, look at your sales proceeds or the number of units sold. However, do not initially try to measure how many units each individual customer has purchased and the demographics of your customers; there is time for that later in the process.
Remember, we are talking about key performance indicators here. Yes, all performance indicators are important, but if you try to focus on hundreds of pieces of data, you will quickly become overwhelmed. You won’t be able to use that much information in a meaningful way.
Look for the biggest impact.
When it comes to determining your main KPI, ask yourself how much difference tracking this one thing will make. At the same time, consider how long it will take to see the effects of measuring this particular indicator.
Often, if you ask yourself these questions, you will find that you have a big goal, but reaching that goal will take time. As you work towards your goal, keep in mind that you need to ensure that the business remains sustainable. So to determine your main KPI, you need to strike a balance between meeting your long-term goals and keeping your business healthy in the shorter term.
To achieve this balance, you may need to create short-term initiatives. You can break down your initiatives into a five-year plan, three-year plan, one-year plan, quarterly plans, and so on into a weekly plan.
However, don’t lose sight of your main KPI. If you’re not getting the results you want, ask yourself why. Is your performance flawed? Or are you measuring the wrong thing? Take the time to objectively investigate the cause of the problem. Once you think you’ve identified the problem, take steps to fix it so you can move on.
Once you’ve defined your main KPI, you can drill down to what I call “sub-KPIs” if needed. These are indicators that fall under the master performance indicator; you can use them to identify issues that are disrupting your main KPI.
For example, you may have problems with your sales. Instead of changing your main KPI, you can create sub KPIs to find out where the problem lies. You may do this and realize that although you are selling to a large customer base, you have no customer loyalty.
Now that you have determined which sub-KPI you have problems with, you can come up with a solution. After you deploy the fix, you can continue to track the sub-KPI to make sure the issue has been resolved. At the same time, of course, you should continue to monitor your main KPI to make sure everything else runs smoothly.
If so, great. If not, you may need to go to another sub-KPI to find out what the problem is and then fix it. Ultimately, it becomes a matter of repeating this process: follow the main KPI; determine if there is a problem; if yes, create a sub KPI; devise a solution for the sub-KPI; follow to ensure your solution is secure; go back to monitoring the main KPI.
More is not necessarily better.
Most entrepreneurs I speak to have far too many KPIs. They have the best intentions, but quickly get bogged down in the details. Therefore, it is much more practical to move away from the idea of measuring dozens (if not hundreds) of KPIs and focus on one KPI.
Remember, you can always create sub-KPIs or come up with short-term initiatives. Both things help you to move your business forward in a healthy, sustainable way.
The bottom line is that no one has the time or energy to devise and measure huge numbers of KPIs. Still only on one? Anyone can do that. Best of all, working with a single key KPI helps you propel and scale your business, no matter what industry you’re in.