Key Performance Indicators (KPIs)

How would you feel about driving a car that had no dashboard?

You could run out of fuel without warning, get caught speeding or even suffer an overheated engine without warning.

A business uses KPIs in the same way motorists rely upon the speedo, fuel gauge and temperature gauge on our vehicles. They help us to monitor performance at a glance and if there is anything we don’t like the look of we can take remedial action.

The KPIs a business uses vary from business to business and from industry to industry; they will change depending upon strategic priorities.

Keeping an eye on Gross and Net (Operating) margins are common KPIs as are those that measure how quickly accounts receivable (debtors) are paying or, how quick we are paying our own creditors (accounts payable). Stock, or inventory, turnover tells us how long our stock sits on the shelves and return on capital ratios measure how hard the capital in the business is working.

In fact KPIs can be used to keep track on many many areas of the business. But, avoid the temptation to keep adding measures - keep track of the indicators that will tell you at a glance how the business is performing. Remember its KEY, not MANY performance indicators - contrast the car dashboard with the array of dials and gauges faced by an airline pilot; sure the pilot needs all that info but fortunately we don't need quite so many data feeds to drive our cars. Check out our Understanding KPIs course to help identify the key measures to help keep your business on track.