Key performance indicators (KPIs) are important to every business. With KPIs in place, business owners and their management teams are equipped with data to measure a company’s progress toward meeting its strategic business goals and objectives. Understanding how to measure success through KPIs also requires effective tracking mechanisms. 

Below is an overview of the benefits of KPIs as well as how to effectively track them within your organization to help ensure you’re positioned for financial success. 

Why are KPI’s Important?

KPIs help you understand the performance of key areas within your business. Some of the most common benefits of KPIs include: 

• Enables you to focus on the key factors critical to success. KPIs can be both financial and non-financial. Determining which KPIs at both the C-suite and departmental levels are important to the company’s success and can go a long way toward measuring company performance and goals.  
• Leads to accountability throughout the company: If KPIs are quantifiable and easy to measure, they can act as a tool to evaluate both high-level and departmental company successes or failures. With realistic and measurable KPIs, it’s easier to identify how the company and departmental functions are tracking toward their goals. If departments are not hitting their KPIs, have them explain why to build and enhance accountability across the company.
• Helps a company better understand its strengths and weaknesses: The old saying, “numbers and data don’t lie,” is true. Effective and quantifiable KPIs allow companies to understand its strengths and weaknesses and where they are succeeding or failing. By continuously tracking KPIs and measuring results against them, companies are positioned to self-reflect and develop action plans to create a clearer business direction and enhance strategic decision-making.
• Allows for awareness of marketplace opportunities and threats: Measurable KPIs will also allow a company to see where they are performing well in the marketplace or struggling. Using this data, companies are positioned to identify which areas need to be improved as well as create opportunities to keep a competitive advantage. 
• Helps align key compensation and incentive structures: KPIs can help align compensation and incentive structures because they are often unbiased and easy to measure. For example, having sales revenue measures be a key KPI for the sales team in determining their bonus structure is a simple way KPIs can help tie indicators to compensation.

How Can You Effectively Track KPIs?

To ensure your KPIs are working to your business benefit, our business and CFO advisory pros encourage these best practices: 

• Put them in focus and in full view for all key employees to see: KPIs should always be at the forefront of a company’s strategic business goals, so make sure they are easily available and simple to understand. Dashboards can be an effective tool to highlight KPIs and how the company and its departments are tracking toward them overall. Dashboards typically show KPIs at a high level, but often have live data beneath the KPI that can be used to analyze and figure out reasons why one is being met or not. Often, the company’s financial system will have dashboard functions and capabilities within the tool. If not, there are several efficient and effective tools, such as Power BI or Tableau, that can help companies easily create dashboards for KPIs.
• Use them to measure results and create action plans: Tracking KPIs is one thing but using them to make decisions and create action plans is more important. If you aren’t using the KPI tracking to make decisions or come up with action plans, then they are probably not very useful. KPIs can be daily, weekly, monthly or annually, but ensuring you are measuring the results and using the data to make business decisions is vital to effectively tracking and a company’s overall success.

KPIs are a great way to measure a company’s progress toward its stated goals. Our business advisors can help you assess your current financial process, plus offer recommendations and help implement best practices based on your industry and business situation.