Using KPIs to Manage Your Business - Mobility Accounting Solutions

Written By Ashley Staunton | Director

Running a business involves keeping track of many moving parts and endless decision making to navigate threats and opportunities. Many business owners will use their intuition and instincts gained from years of experience to drive these decisions. While these instincts are useful and certainly have a role to play, relying on intuition alone may leave a business exposed to hidden risks and missed opportunities.

High performing business owners will also use Key Performance Indicators (KPIs) to manage their business. It allows them to cut through the data and the chaos of day-to-day operations to get real insights into what is driving their business performance. They are then empowered to make better strategic decisions for the business.

What are KPIs?

KPIs are measurable metrics that track progress toward a business’s most important strategic goals and objectives.

Why are KPIs Important?

Alignment with Strategy: KPIs ensure that day-to-day operations connect back to the broader vision and strategy. They act as a bridge between long-term goals and short-term activities.
Clarity and Focus: The day-to-day operational rhythm of a business can be overwhelming. KPIs cut through this and provide a handful of focused measures that matter most.
Accountability: KPIs provide a transparent way to track performance at both individual and organisational levels. This helps foster ownership and responsibility across the business.
Identify areas for improvement: KPIs can highlight weaknesses in the business which you can then address. They may act as an early warning signal.
Identify trends over time: They can identify, year-to-year, month-to-month or seasonal trends which may point to opportunities or hidden threats.
Drive decision making: The KPI information provides insights that empower you to make decisions with a new level of clarity and certainty.

How to Design Effective KPIs?

There are many different KPIs that can be produced. The key is to focus on a handful that are relevant to your type of business and your strategic goals. The following principles will help you to design effective KPIs:

1. Linked to your Business’s Objectives

Look at your strategic goals. For example, if your objective is to increase market share your KPIs should include some that measure new customer acquisition and customer retention.

2. Relevant to your industry type

The type of industry often will dictate what KPIs are more relevant. For example, a car dealership may focus on stock turnover ratio and average gross profit margin per vehicle whereas a GP medical practice may focus on average consult times and utilisation rates.

3. Use the SMART framework

KPIs should be:

Specific – they are clearly defined
Measurable – they can be easily measured and quantified
Achievable – they should be actionable and realistic while also being challenging
Relevant – they are directly tied to strategic objectives
Timebound – they are tracked over a defined time period

4. Include leading indicators as well as lagging indicators

Lagging indicators measure outcomes, such as gross profit margin or net profit margin.
Leading indicators can be predictors of future performance, such as number of customer leads.

Both are important as lagging indicators confirm the results of actions taken while leading indicators help you influence future results.

5. Limit the number of KPIs

Having too many KPIs can be overwhelming and diminish their effectiveness. The key is to focus on a handful of KPIs that matter most.

To get clarity we would recommend narrowing your focus to just 3 to 5 KPIs that are most important to your business and will have maximum impact on your results. If your business has different departments, you may also have different KPIs for each department so long as they all tie back to the overall business strategy.

Categories of KPIs

KPIs will generally fall into a few broad categories and businesses will often use KPIs from each of the different categories depending on what is most relevant for them. These categories are outlined below along with some examples of the types of KPI that fall under each category:

1. Financial KPIs

Gross profit margin
Net profit margin
Quick ratio
Revenue growth rate

2. Customer KPIs

Customer acquisition cost
Customer lifetime value
Customer satisfaction score
Customer retention rate

3. Operational KPIs

On-time delivery rate
Production efficiency
Inventory turnover
Percentage of billable hours per fee earner

4. Employee KPIs

Staff turnover rate
Employee satisfaction or engagement scores
Training and development hours
Absenteeism rate

5. Marketing & Sales KPIs

Conversion rate
Lead-to-customer ratio
Website traffic-to-lead ratio
Average marketing spend per lead

How to Use KPIs to Drive Business Performance?

Having designed a set of KPIs, the real value comes from using them effectively in management of your business.

1. Setting targets

Setting KPI benchmarks against which performance can be measured will set expectations within your business and provide motivation for continual improvement. You can also benchmark your KPI results against industry best practice or leading competitors in your industry.

2. Communicate the KPIs with your team

Ensuring that your staff clearly understand what the KPIs are and why they are important will help foster staff buy-in and have everyone working in alignment toward the objectives of the business. They can also be built into staff remuneration incentives.

3. Build the KPIs into your regular reporting

Once KPIs are set they should be monitored regularly to observe how the business is tracking toward them and how they are affected by the management decisions you make. This can be done by including KPIs as part of the regular reporting done on a consistent schedule to keep them in sharp focus.

4. Act on insights

If your KPIs are showing you that something isn’t working, take action to change it. For example, a low inventory turnover rate can indicate that a business is holding too much inventory or that sales are weak. Your first action will be to investigate further by comparing with other data and speaking with employees to understand the true cause of the problem. If it turns out that the business is holding too much stock then take action to set limits on stock levels, therefore reducing holding costs and the risk of stock obsolescence.

If your KPIs show something that is working well, then double down on it.

5. Use KPIs as a feedback loop for continuous improvement

Having taken action as a result of insights gleaned from KPIs, you should check the impact of that action in subsequent KPI reports. You can then take further action if necessary.

Conclusion

KPIs are more than just data metrics, they are powerful tools for managing your business and driving performance. The key is to get the design of the KPIs right and tie them to your most important business objectives. Used correctly they will give you clarity and focus needed to navigate uncertainty and position your business for long-term success.

Ready to take your business to the next level?
For our clients, we can design and implement KPIs tailored specifically to your business goals—helping you track performance, uncover opportunities, and drive real growth.

Not a client yet? We’d love to show you how a customised KPI program can reveal hidden potential in your business and set you on the path to greater profitability.

📞 Call us today on +61 7 3666 0091.

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