Like all entrepreneurs you would like your company to grow. However you also need to constantly evaluate its performance in order to know if you are acheiving goals outlined in your strategic planning. Knowing the most used performance indicators is fundamental to managing this process.
In this post you will be introduced to examples of performance indicators and understand better how to use them.
Also known as KPIs (Key Performance Indicators), these are parameters that can help entrepreneurs to find out whether the path they are following in business is currently the best option.
These performance indicators can offer quantitative and qualitative results, helping provide the company with as much information as possible. Thus, it can improve or modify strategy according to the data.
Knowing the most relevant performance indicators for the information you wish to know is fundamental to help making decisions within the company. After all, we can only manage to improve or modify decisions from when we identity the parameters. Thereby, giving us direction on the path we are following.
Do you want to start today to improve the results of your company using performance indicators? Then, let’s begin with the most used by companies. Check them out!
One of the most used performance indicators. Just seeing that the company is doing well at the end of the month is not enough to determine its financial health. You also need to use appropriate financial indicators. It is necessary therefore to calculate the profits because it is with this indicator that you will know if the company is or isn’t achieving the expected results.
The profit is calculated according to a percentage. However, you must go beyond just knowing that this percentage is positive to be sure that the company is doing well. Taking from the profits, it is then necessary to deduct the fixed and variable expenses. Only after that will you know whether any given investment has been worth it.
Taking this into account, the profitability index can be obtained by the formula:
(net profit / sales revenue) x 100
For example, if your company sells $100,000 and has a profit of $5,000, then it means that the profitability index was 5%.
To find out what your net profit was, subtract from the total revenue all costs and expenses of the company (this result corresponds to the gross profit). Then subtract taxes and other levies as well.
The purpose of this type of indicator is to measure customer satisfaction with your company. The KPI can be the result of a survey conducted via the internet, by sending emails, or even at the client company itself.
Through it, it is possible to discover if the client would recommend your services to other people, if they would repeat buy from your company or if the service was adequate, etc. It can be also used as a form of post-sale, to find out if the solution that the customer was looking for is having the desired results.
Do you know which are the most used performance indicators for this? One of them is the NPS – Net Promoter Score survey. This survey uses a single question such as: On a scale of 0 to 10, how likely are you to recommend our company to a friend?
The answers will indicate not only the satisfaction of the clients but also their fidelity and loyalty to the brand. Those giving scores of 9 or 10 are considered promoters of the company, scores of 7 and 8 are neutral and 6 or less are detractors of the brand.
These are the performance indicators that are used most by organizations within the sales area. Its main function is to measure and understand how sales dynamics work.
Using the average ticket value indicator, you can identify, for example, which customers buy the most from your company and which are the most loyal, by comparing your average ticket with the average of other customers.
This way, you can offer a differentiated service, improving their experience and, thereby, reducing the chances of them going to the competition.
To calculate the average ticket, use the following formula
turnover in a given period/number of active customers during that period
Use our toolkit to employ the indicators that favor your strategic management:
Companies with a high staff turnover may present a valuation problem for the company. Meaning, on the part of employees, problems in leadership, or even in the company overall atmosphere. These internal issues may affect customer service, a potential danger.
How to calculate the degree of staff turnover? This calculation is simple to do: just calculate the average time that each employee has remained in the company.
You can use the classic formula by dividing by two the sum of the number of dismissals and the number of admissions. This result, in turn, should be divided by the total number of employees registered in the company.
5. Strategic indicators
If you want to discover which are the most used performance indicators to know the goals that are being achieved, here is the answer. Each company establishes the most important strategic indicators for its business, according to its strategic planning.
Let’s suppose that the strategic goal for the year is to increase the company’s production capacity by 25%. This means that for each month, this capacity should increase by an average of 1% (the calculation of percentages is compounded)
In some months it may be less than this and in others more, however, it is important to stay within this average and always check it. From the indicators, it is possible to know if it is necessary to modify this process or if it is possible to improve it.
See two more examples of which performance indicators are often used:
Market Share: percentage of the market that the company dominates;
Churn Rate: rate of clients that leave the company in a certain period, often used by companies that have recurring revenues, such as schools and gyms.
Now that you know the most used performance indicators, how can you access the numbers and information quickly and objectively?
STRATWs ONE is a corporate performance management software that helps you monitor several performance indicators using control panels updated in real-time.
With it, it is possible to detect opportunities for improvement, increasing the performance and productivity of the business through strategic management.