Key performance indicators (KPIs) are a measurable value that demonstrates how effectively a company is achieving key business objectives (i.e., goals). There are thousands of KPIs, so you have to be selective when you’re picking the right one(s) for your business. However, a KPI is only truly valuable when it causes you to take some sort of action.
As you’d expect, KPIs vary by industry so even if a KPI is relevant in one industry, it doesn’t mean it will have the same effectiveness in another. Make sure whatever you select to measure with a KPI is pertinent to your store, merchandise you sell and even the time of the year you’re using the KPI. And here is a bit of advice in question form — just because you can measure something, should you? It’s great that 60 percent of your customers have brown hair, but it won’t help improve your bottom line. Figure out what you want to know first and then design or select the KPIs that will help give you those answers.
Keep these points in mind when evaluating what KPIs to use:
- How specific is your objective?
- Is progress measurable?
- Is your goal attainable?
- How relevant is your goal to the business?
- What is the timetable for achieving the goal?
Many businesses use KPIs to measure business and employee performance, two key indicators of the health of a business, but don’t narrowcast your attempt at getting important data to just these two choices. To help you get started while you are evaluating specific KPIs for your business, we wanted to share some of the most common KPIs with you. They are:
- Daily sales.
- Customer returns.
- Conversion rates.
- Transaction counts.
- Labor costs.
- Stock-to-sales ratio.
- Days of supply.
- Return on capital investment (ROCE).
Some experts say the main KPI to keep tabs on is ROCE. This KPI shows what the return on investment is and if the business is worthy of investment or not. It gives you a view of a business and if they are bringing in more than what investors initially invested. This KPI can show how viable a business will be in the long run.
KPIs put your business into smaller, more digestible chunks that will help you in your decision-making process and improve your business’s overall performance. Learn more about the effectiveness of KPIs here.