Set meaningful KPIs

Ian Tomlinson argues that more attention should be paid to setting - and using - key performance indicators (KPIs)

The answer to every problem is closer than you think. Resellers tend to look outside their business for remedies. They would do better to look inside their businesses, measuring performance and planning the future.

Effective business management relies on good information. Obviously, you need to monitor exposure to risk, cash flow and profitability. However, valuable information may not sit in the P & L accounts but derive from measuring critical indicators.

Many managers monitor financial performance and make changes based upon what they find. We think they are shutting the stable door after the horse has bolted.

Financial data records the result of strategies and tactics, but leaves little room for manoeuvre after the event.

Instead, we think businesses should measure their KPIs as they proceed.

For an online retailer, indicators could be based upon visitor traffic by time of day and duration, highlighting the pages visited and the products that provoke enquiries and generate sales.

A bricks-and-mortar retailer could measure footfall, by location, by time of day and by length of visit.

For retailers, you could argue that ‘sales made’ is one KPI.

A plasma display in my office shows me in real time how our telemarketing consultants are performing: the number of calls each makes, the total time being spent on the phone each day, the number of appointments made and, from another set of KPIs, the demonstrations that result from those calls.

I watch this data coming across the screen to spot trends, ask questions, sound alarms and make changes. Waiting for sales results at the end of the month could just be too late.

Every business is affected by scores of internal and external factors. So how do you identify your KPIs? What drives your sales figures, your costs and your cashflow, and what drives your business specifically?

Drivers can vary enormously even within the same sector and will change with time.
Analyse what would enable you to outperform your competitors and consider having these elements as KPIs.

Understand the costs of each step in your supply chain.

Investigate the effect that training and staff turnover have on your sales and measure productivity by sales person.

Good stock management means having the right stock available at the right time in the right location. It also enables you to release cash by ‘turning’ stock.

Set KPIs around product defect/return ratios and calculate how returns are eroding profits.

Make sure that your choices can highlight trends. Telemarketing activity screen or business intelligence software are different ways to do this.

If you have defined your most critical drivers and their basis of measurement the intelligence that you need should be readily available.

Measuring sales performance will not help you to make sales. We believe that understanding and acting upon the key indicators of your business is the best route to success.

Setting and using meaningful KPIs will help you judge whether your business is in poor or good health and assist you to decide on the right treatment.

Ian Tomlinson is managing director at Cybertill