A KPI is a Key Performance Indicator. These are metrics that show the progress your business is making toward your goals. The end goal is important but even more important is the steps it takes to get to that goal. KPI’s is one of the best ways to track the steps keeping you on track, or to see when you are losing ground.
First, you need to figure out which KPI’s are important to reaching your goal. For example, if you are trying to reach a revenue goal of $1M for the year but you don’t track your progress the likely hood of reaching that goal will decrease. For most businesses, this means you would need quarterly billing of $250K or monthly of $84K to reach that goal. If you have a seasonal business, you need to track both the good and bad months to make sure you stay on track. Ski areas rely on making their goal in a shorter time frame so those monthly and quarterly goals would need to be adjusted to make sure you are on track.
There are a few KPI’s which all businesses, no matter the size or goals, need to track.
- Accounts Receivable aging. – this is how fast or slow your clients pay you. Not only is this important for cash flow which keeps your business alive and healthy, but it also will alert you if there is a problem that needs addressed such as a client who is extremely late paying or one who may not pay you at all.
- Who is your most profitable Client – this is called the Realization rate? It is important to know if you are charging a client $1000 a month but paying your employee $1500 for doing that clients project. then you are losing money and even a great client who has been with you since the beginning will eventually put you out of business if you are undercharging.
- Utilization Rate – how much time is your employees or yourself spending working on projects for your clients vs. administrative work such as marketing or bookkeeping. If your employees’ job is to do marketing this is not a problem, but if they are designing a clients new landscaping but spending all their time on administrative work are you really utilizing your employee to the best of their ability.
Set up an appointment now to discuss your goals and how best to track them.