Your business needs its five a day just as much as you. Except for your business, it’s the five key performance indicators (KPIs).
KPIs are a quick and easy way to check your business is operating in line with expectations. It is important to note that they are called KEY performance indicators for a reason, and that spending too much time calculating performance will take away from understanding the reason behind the figures.
Different KPIs work for different businesses, but MyConfidant will help you find the most appropriate five for you
1. Sales invoiced per month
This KPI investigates the number of sales generated in the last month. A fundamental measure for all businesses, and one we expect you monitor closely already, but it’s worth a mention nonetheless. Turnover is the lifeblood of any business, if this KPI highlights problems, these need to be dealt with quickly.
2. Committed orders for the next month
This KPI provides an early indicator of the next month’s or next quarter’s turnover. If committed orders are dropping, you might want to consider giving greater effort and attention to confirming orders. Whilst, if you have a high number of committed orders, you might want to consider organising additional labour to deliver the additional work. Monitoring this KPI should provide this information ahead of time, which should give enough time to obtain additional resources. You might also want to consider the pricing of orders to ensure the accuracy of the KPI is maintained.
3. Gross Margin %
Monitoring your gross margin will ensure your sales are generated at the right price, it would be illogical to confirm orders if the costs of production are not covered. This might become an issue should the sales target be calculated according to turnover; or if capacity is not reduced in the event of a sales downturn, for example, by reducing overtime or contractor spend.
You must also consider the spend on materials, close monitoring is especially important if the turnover is high, because there might not be sufficient time to use the materials as wisely if the turnover is not at its normal level.
4. Net Profit
Net Profit compares the net profit to the business’ target, calculated by subtracting the direct costs and the overheads to the sales. In some respects, this is the most important KPI; it enables the monitoring of overheads and their affordability.
5. Debtor Days
This KPI shows the time it takes for bills to be paid. Frequently, small businesses have to pay for their good upfront as well as paying their staff every month, even though their customers will typically take 30 days or more.
Measuring how long it takes for your debtors to make payment is important to ensure it does not extend unreasonably. Being aware of debtor days can help to reduce bad debts because it is far easier to clear up a dispute shortly after the work was completed, rather than six months later. Small businesses often run into trouble despite being profitable because their customers take too long to pay.
MyConfidant can help you choose your top five KPIS. Once decided, together you can create targets for each metric and build a traffic-light report to measure your performance. If all is well, your report should show green; if it’s red, you might need to take a closer look. Most days, you should be able to check your top five in five minutes.
If you would like to know your “top five”; come and talk to My Confidant.