So, the question we’re asked all the time is, ‘why are KPIs so important?’ and the answer is strangely very simple.
A key performance indicator or KPI is a quantifiable metric that’s used to track an organisation’s progress towards the achievement of a strategic objective. KPIs measure performance as it relates to organisational objectives, rather than the specific goals of individuals or departments.
Here at Oriri, we maintain that KPIs are essential for successful strategic planning, as it’s the only real way of measuring progress against strategic goals. In fact, we go one further and recommend SMART KPIs, which are Specific, Measurable, Achievable, Realistic and Time-bound.
Besides the power to indicate whether a business strategy is working, KPIs can also act as vehicles to communicate the progress to stakeholders and to incentive employees.
We always recommend the following seven key criteria:
Net Profit Margin
Net profit is the total revenue of an organisation, minus all expenses. The net profit margin is a percentage value calculated from the ratio of an organisation’s net profit to its total revenue. This is a vital KPI and creates a perfect year on year comparison.
Gross Profit Margin
Gross profit is defined as total revenue minus the cost of production without overheads. The gross profit margin is taken as the percentage of gross profit to total revenue. From our experience, a high gross profit margin indicates that an organisation is likely to make a profit, provided its costs are controlled.
Monthly Recurring Revenue
While retail businesses track sales as a leading indicator of financial success, we’ve observed that organisations which sell services on a subscription basis benefit more from a different KPI metric, specifically, Monthly Recurring Revenue. In practice, many of our clients calculate this KPI over a rolling six-month period, which provides a valuable average figure to compare.
Customer Acquisition Cost
As its name suggests, customer acquisition cost is the financial burden that an organisation must bear in order to attract, nurture, and acquire new customers. At Oriri, we’ve observed that determining the true cost of this can be complex, especially if you’re marketing a diverse portfolio. The cost of acquiring new customers is often used as part of the budget setting process for marketing and sales and is one of those costs that must be controlled.
Customer Satisfaction
The cost of acquiring new customers is typically five times greater than retaining existing ones, which makes customer satisfaction a vital KPI to track. This will tell you how happy your customers are with your offer. Using surveys, reviews, ratings, and social media commentary, we’ve found that satisfaction data enables organisations to identify areas of improvement as well as new potential sectors to move in to.
People Performance
The performance of your people in any organisation is always key to track. Making sure your team is both motivated and incentivised to perform in the best possible way, is vital to delivering the service that your customers demand. This isn’t just about paying your staff the right money, it’s about creating an environment where they want to work, they want to perform well and they want to deliver for the business.
Net Promoter Score
Originating from the retail sector, the Net Promoter Score or NPS is now a key KPIs with wider businesses. It measures how likely consumers are to recommend an organisation to their family or friends. Taken in conjunction with other benchmarks such as social media engagement, the NPS can give organisations valuable clues as to how their offer is perceived and how it can improve.
Final Thoughts
At Oriri, we provide expertise on people, their operations and the environments that surround them. Our experienced team can help guide you through to exactly where you want to be, whether that’s better revenue, increased profitability, or overall commercial improvement. Better business performance and efficiency will always follow good, strategic planning and the measurement of key performance indicators in line with your strategic goals.
If you feel that your organisation could benefit from professional guidance on which KPIs to monitor, and how best to measure them, get in touch with us.
