Why and what KPI's should I be tracking? (Part 2 of 2)
In Part 1 of this series, we covered "Why should I be tracking KPI's?". In part 2, we'll cover "What KPI's to track".
What KPI's should I be tracking? This answer really depends on the type and area of focus of your business. Generally speaking though, you should focus on tracking the performance of:
- Overall financial health of your organization
- Operational efficiencies
- Employee productivity
- Market position and marketing effectiveness
- Existing customers
With some research online, you can find common KPI's that are used by any company, as well as those specific to your industry. The following are examples of specific KPI's that you could (and should) track. Tracking these metrics will provide good insight and direction to diagnose and potentially correct issues within your organization.
Financial KPI: For any company, cash is king. Measuring your cash ratio as well as your quick ratio are good ways to get a handle on where your cash or liquid assets are trending vs. your current liabilities. If you're a smaller organization (<$10MM) I'd recommend measuring, at the very least, on a weekly basis. Getting 4- and 10-week averages will smooth out the sharp spikes and declines of your metric. If you're a larger organization that makes deposits, posts invoices and payables multiple times a week, you should measure this metric daily and recommend having a 10- and 30-day moving averages.
Operational KPI: Measuring your equipment or vehicle downtime might be especially important if you have assets that are nearing or past their normal useful life. Not only are your repair expenses most likely high, but the downtime for that asset represents revenue opportunities that are lost because it is not producing for your organization. You'll want to analyze both your repair costs plus your downtime opportunity cost versus the cost of the new asset to make a determination as to which decision to make. Measuring this KPI on a monthly or quarterly basis is common for those companies that measure it.
Employee KPI: If you have a service division where your organization handles a lot of customer calls that are then run by your technicians, you may want to consider tracking Gross Profit Per Man day (or hour). This measures not only the profitability and productivity of each technician but also in the amount of time it is produced ($/day, $/hour). Look at measuring this for each technician on a weekly basis upon processing the previous week’s work orders. You can also use this as a motivational tool for your employees or perhaps you can have monthly or quarterly spiff contests.
Another good KPI, especially if you have a larger service division, is the tracking of weekly non-billable time per man day. Using codes to specifically track travel, parts time or callbacks can be especially insightful to identifying "leakage".
If you are running large projects that will take weeks or months, you may want to consider tracking productivity by each phase code against the budget. By getting daily reports on materials and labor used in each phase of the project, you can see productivity and spot problems and forecast the rest of the project in any given area. You can then take action if your crew is falling short of budget and take corrective action before the project gets out of hand and goes over budget. I'd recommend reviewing on a weekly basis. See our previous article on Project Labor Cost Management.
Marketing KPI: On the marketing side of your business, how much does it cost to acquire a customer for your business? The Customer Acquisition Cost measures your Return on Investment (ROI) on money spent to acquire new customers. Measure this either weekly or monthly depending on how often and how much you spend in this category.
Existing Customer KPI: Likewise, the Customer Retention Cost measures the cost of retaining those customers. For both the Marketing and Existing Customer KPI, measure not only the hard costs that are directly associated with the marketing method but soft costs as well. This includes all costs associated by any employees or subcontractor time. Follow the same reporting period based on the Marketing KPI guidelines.
What is your market share within the geographic area that you serve and what percentage would you like to have? How much would you have to spend in order to achieve that percentage? These are all good questions to have answers to when you take a look at both your competitors’ and your own operations. This is a metric that most likely should be measured on a quarterly basis although it can be measured monthly if you are aggressively and actively gaining market share.
Where should I start? After determining which KPI's you want to begin tracking, you'll need to assign stakeholders who will be responsible for providing, compiling and reporting the data. While there are plenty of KPI dashboard software available on the market, you can start by collecting the KPI data into an Excel spreadsheet.
Whether you use software or spreadsheets, thoughtful planning and discussion with your management team will require time as the layout of the process evolves. Patience should be exercised during this time, as it can be a disruptive process to go through. It may take a few weeks or a month (or more) to complete the design and testing of what metrics are being measured. After this time period however, your organization should have a better understanding of what to track, and will most likely find ways to improve upon the process.
So, if you're struggling to "get to the next level" or still trying to overcome recurring issues within your organization, establishing a KPI reporting system can be a great tool in helping to diagnose and cure what ails your organization. Utilizing them can help you achieve the desired outcomes that you are seeking.
If you need help with establishing KPI's in your organization or any other issues or goals you're trying to achieve, contact us for a free consultation.
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