KPI MASTERCLASS – KPI Meaning, KPI Examples, KPI Dashboard, How to Implement and Manage KPI
In this KPI masterclass, I will answer all of your KPI questions. I give you the KPI Meaning in Business, and all the tools, KPI examples, and KPI dashboards you need to create the very best KPI for your business.
Putting the right KPI in your business combined with clear actions WILL increase profit (customers usually achieve 50-75%), reduce stress, reduce staff turnover, and take your business to the next level.
The point of KPI metrics in your business is not to measure but to understand, and ultimately take action to improve.
In this Masterclass I will show you:
- The KPI meaning in business – Key Performance Indicator
- How to measure KPI Metrics – different types of KPI metrics
- KPI Examples – using the power of Customer Value KPIs
- KPI Dashboard – the same one we use to increase profit by 50-75%
- How to implement KPI in your business
1. KPI Meaning in Business
Typically we think of KPI in a business sense but that is not the only place they are used. We use them in sports e.g. batting/bowling averages for example.
We even have KPI in our technology – battery performance, and energy consumption (cars/appliances) are all areas in our everyday life where we use KPI without even thinking about them.
There are also other “newer” versions of KPI – OKR, KRA, GMH.
- OKR: Objective and Key Results
- KRA: Key Result Areas
- GMH: Goals Methods Habits
- KPI: Key Performance Indicators
To be honest these are all trying to do the exact same thing – set a goal, measure outcomes, and drive action towards achieving the goal.
Which approach you use (KPI, OKR, KRA, GMH) is far less important than how you use it. I suggest to clients use whichever concept resonates well with you and your team but make sure you develop an actionable framework around it (clients use our Profit Growth Framework to do this).
As you will see later in this article developing a Goal or Objective and taking habit-forming actions are just as important with KPI as they are with OKR, KRA, and GMH.
KPI Meaning breakdown
KPI is short for “Key” “Performance” “Indicator”. Let’s break this down before we look at it in total.
K is for Key – in the case of KPI key means “of crucial importance”. These are only the things that are critical to success in your business. This is an extreme focus on a specific outcome! (This is the same Key for OKR, KRA)
P – is for Performance. The typical definition for performance is the execution of an action to accomplish something, to achieve the goal. (This is the same as Objectve for OKR, Result for KRA, Goal for GMH)
Whilst “Key” is designed to focus on a specific outcome, “Performance” is focused on the execution of the action to accomplish that outcome. This means a single KPI must be measuring both the execution and the outcome.
I is for Indicator. Think of an indicator as a gauge or meter. It gives you status but does not provide the full picture. E.g. think of your petrol/gas gauge in your car. You want to know how much gas you have, if you run out you won’t reach your destination. It indicates roughly how much gas you have in your car – it doesn’t tell you how much you need to reach your destination…
The Indicator will point to something, it doesn’t give an exact result and does not solve the issue. You must take ACTION – We’ll get to that later. (This is the same as Result for OKR and KRA, and similar to Habit for GMH)
Note: A few (4-6 only) very targeted KPI metrics in your business are far better than a scattergun approach trying to cover all scenarios.
I see some businesses that create a tremendous number of ”KPI” in the hope that the result will tell me exactly what’s wrong and give me a solution.
Sorry, that is not going to happen! Having more KPI will simply confuse the issues.
More KPI will not give you the solution it simply dilutes the “Key” in KPI making it confusing for staff to understand what is most important.
It is important to remember that the point of KPI metrics in your business is not to measure but to understand, and ultimately take action to improve.
2. How to Measure KPI Metrics
There are literally thousands of KPI out there but about 99% of them are not effective. Either because the people trying to impact the KPI doesn’t understand it or they simply don’t address the crucial aspects of the business.
Remember from our definition we want to measure both the execution and the outcome.
For example, a good way to look at performance is by using the formula output divided by input (p=o/i). Output is the outcome and input is the execution.
I see many businesses using sales $ as the KPI. But this only measures the outcome, not the execution.
Let’s consider this in this real KPI example to explain:
Bob and Joan are both salespeople at ABC company. Bob is old school, and although almost retired he has not let up at all. He achieves the highest amount of sales every month. He has a lot of connections within the industry and makes sales primarily through face-to-face meetings, coffees, lunches, and the like.
Joan is new age she loves digital, her sales are primarily through zoom meetings, phone calls, and online chat. She has a young family and works part-time.
Joan has good sales but not like Bob.
Last month Bob’s sales were $80,000, Joan’s were $60,000
If our KPI is Sales $ – Bob is the clear winner.
But let’s look deeper… Using the formula p=o (output)/i (input) where o = Sales $ and i = hours worked. This KPI Example is Sales $ per Hour Worked.
Bob worked 200 hours last month. Joan was part-time and worked 120 hours.
Bob’s sales $80,000 divided by 200 hours = $400 of Sales per Hour.
Joan’s sales $60,000 divided by 120 hours = $500 of Sales per hour.
Joan is actually 25% more efficient and effective than Bob.
If Bob could do $500 per hour he would make $100,000 of sales ($20,000 more) each month.
You can see from the graphs that when we use just sales Bob is the star, but when we use Sales per hour Joan is the star.
If I had a choice I would want to employ more Joans and ess Bobs in my business.
But even better what if Bob and Joan can learn from each other and perhaps we can increase the performance of both…
3. KPI Examples
There are so many KPI examples out there you can easily find thousands of examples. What I will share here are the key “Crucial” KPI Metrics that work extremely well in Service Industry businesses.
These KPI Metrics work extremely well with our Ultimate Customer Value KPI ™ model.
People don’t buy on price, they buy on value. Value is different for everyone but we still buy on value.
A tradesman is likely to expect higher levels of quality and reliability from his tools than your average DIY enthusiast because any job downtime costs money, time, and energy that would be better spent on the job.
When we meet Customer Value expectations we make sales, more sales means is usually good for business. Therefore it makes sense that our KPI Metrics would also track Customer Value.
The psychology of a purchase is made up of both emotional and analytical triggers.
In our KPI examples (this list is the exact KPI our clients use within our profit growth Framework), we focus on the analytical, non-emotional triggers because we can measure them.
There are 4 things humans weigh up with each purchase; Cost, Quality, Speed, Customer Service. We analyze these things incredibly quickly often without even realizing it.
It happens so fast and it is so ingrained in our subconscious that we automatically put certain brands into that category. There will be a brand that you associate with as the lowest-cost provider, another the highest quality, another the best service etc.
You will likely assume that position for everything they sell (despite it not always being true)
Bringing in KPI metrics to measure this subconscious customer buying pattern is incredibly powerful! It will change your business!
By measuring these 4 KPI metrics not only can we hold ourselves accountable to the customer value we provide but we can also use these as a tool when we make changes to our business.
e.g. Cleaning business invests in a new super-fast floor scrubber to speed up jobs and provide a better quality finish. You can see the results quickly in your KPI dashboard. Perhaps initially speed goes down – you can investigate what is going wrong.
- Maybe there is a problem with training, or
- Perhaps the new machine is heavy and awkward and takes more time to get to client sites, or
- What if this machine uses more detergent and staff run out because they forgot to bring extra.
Using these KPI metrics will quickly highlight where things are not meeting the Customer
Value expectations you have set for your business. You can quickly take corrective action.
Note these KPI Examples work extremely well for most Service Businesses, however, KPI should be tailored to your business. Please do not blindly follow these examples and expect the best result.
4. KPI Dashboard – the same one we use to increase profit by 50-75%
The point of KPI metrics in your business is not to measure but to understand, and ultimately take action to improve.
You can choose the best KPI metrics in the universe but they won’t make a shred of difference if nobody sees them and/or takes action on them.
KPI dashboards are a great visual tool to help everyone in your business see exactly where things are at. You can see the progression over time and a good dashboard will clearly show the target you are trying to achieve.
The key to an effective KPI dashboard is simplicity and understanding. It should be:
- Easy to read
- Clear in its message – performance and target
- Designed to be understood in 3 seconds
- Easy to update and manage
- Scientific – i.e. based on real, accurate data
How often you calculate and review your scorecard will have a direct impact on how well you achieve your goals.
Your dashboard should help drive decisions. By reviewing the dashboard you and your team can identify anomalies and opportunities and take ACTION to improve.
Decisions happen every day.
If you have a monthly scorecard you have given yourself 1 chance in a month to take action. That means you have potentially missed the other 30 days of opportunity.
Unfortunately, human memory is not very accurate. Can you remember everything you did last weekend? I can’t.
The less time has passed the better chance you have to get an accurate view of what happened, therefore you’ll have better decision making.
In most cases, we recommend daily “stand up” sessions for 10-15 min to review the scorecard and come up with actions. This gives you a great result!
Visual Cues Enhance Problem-solving Outcomes
Many businesses simply use reports but the problem is that they are not quick and easy to understand – whilst they may be a good tool for the management team, they are a terrible tool for managing the team.
Humans are incredibly visual beings. The human brain can process images up to 60,000 times faster than words. Pictures are not only more effortless to recognize and process than words, but also easier to recall.
(See how difficult it is to read the report compared to the KPI dashboard.)
By creating a simple and clear visual depiction of the results people can focus all of their time and energy on understanding the issues and coming up with innovative solutions – rather than using that brainpower to focus on understanding the word and numbers on the report.
Once you have the KPI dashboards in place and your teams are reviewing it regularly, investigating issues, and taking action, you can start to routinely increase targets when you are consistently achieving them.
When done right the staff love increasing targets! We have a whole process around team problem-solving and innovation – we call it Active Management™ (this will be covered in another masterclass).
5. 6 Tips – How to implement KPI in your business
Remember the point of KPI metrics in your business is not to measure but to understand, and ultimately take action to improve.
It’s not about the KPI score it’s about the discussion and resolution it’s about moving the KPI in the direction that you want the business to go in.
Just like there are thousands of KPI it is likely there are also thousands of ways to implement them in your business.
These tips and this approach are my way of implementing with my clients. I don’t know if it’s “the best way”, it’s the way I know, and it works really well, and really fast.
#1 Keep it simple
I see some businesses that create a tremendous number of ”KPI” in the hope that the result will tell me exactly what’s wrong and give me a solution. It won’t. Just stick to the 4 Ultimate Customer KPI we showed you here – no more, no less.
#2 involve your people
These KPI metrics are from your staff to achieve, get them involved from the beginning, the more they are involved the better they w understand them and more they will feel responsible for achieving them.
There have been a ton of studies into happiness within the workplace and one of the key things is that employees want to know their work is valued and are even happier when they’re rewarded for achieving highly valued work.
Involving your staff will strengthen their sense of purpose and happiness in your business.
#3 Set realistic targets
I like to use the best repeatable score that was achieved as a starting point. Look at historical data if you achieved something more than once why not again?
Don’t be greedy! It’s better to overachieve on a goal staff believe in (then increase it) rather than set a goal staff does not believe they can achieve. This will lead to low morale and poor results.
#4 Expect change
Don’t expect to get it right 1st time. It’s ok to change KPI metrics if they are not working. Remember this is about managing behaviors to achieve a target. If it’s not working revisit it with the team.
#5 Take action
All the KPI metrics in the world will not help you if you don’t take action to make improvements in your business.
Set up a clear action log. Ask staff for ideas (2 heads are better than 1). But remember YOU make the final decision on which ideas you will run with and the order of priority.
Every action must have 1 owner and a due date. It should be followed up on regularly.
Don’t be tempted to take ownership of all actions yourself, start to allocate to staff members, this is the start of you being able to step away from the daily activities as your staff takes more ownership.
Spread the love assess how well each person manages their task. Set clear expectations, follow up, and support, but do not take over!
#6 Align to your strategy
This is super important! Once you set the KPI dashboard in action, in my experience results shift very quickly – within hours and days not weeks.
If your KPI is not aligned with your strategy your business can shift very quickly in the wrong direction. If people are achieving the KPI targets but are not aligned with your strategy things can go wrong very very fast and be very hard to pull back.
If you want some help to ensure your KPI is aligned with your strategy book a quick call with me.
Want some Help?
Book your free 15 Min clarity call. We’ll see if we’re a good fit to help you. If not we will try to recommend someone who can.
Other topics you may be interested in:
- How to develop your successful Business Strategy
- How to choose a Business Advisory Service
- Business Advisor in Sydney
- The efficiency of Business! How Business Performance Management uncovers massive opportunities in your business
About the Author:
Hi I’m Brad Horan, I’M THE BUSINESS PROFIT GROWTH EXPERT.
I’m not your typical Accountant. I’m creative, I’ve more than 10 friends, and people (sometimes) laugh at my jokes.
Over the last 2 decades, I earned a reputation for solving complex business problems by applying both analytics and creativity to identify simple, successful solutions.
I’ve always been focused on helping businesses succeed but about 13 years ago something remarkable happened…
Before this remarkable event, I helped businesses around the globe and got great results, but something was missing…
I was working on a solution to free up branch staff time, improve purchasing power and productivity. We set the solution in motion but it just wasn’t working.
I was lost. Why wasn’t it working? Was it the culture, was it language issues?
No, it wasn’t any of that…
Then I remembered a discussion I’d just had with a friend about how local manufacturers use data to drive decisions. I called him and we put our heads together.
Ahh huh, we needed different data to help people make the right decisions, and we needed a framework to manage the decision-making process.
It hit me this is the “missing link”!
So simple! I can’t believe I’d overlooked this.
We knew we were onto something and we started working together consulting to major businesses across the world with phenomenal success…
Today I use the framework to help business owners like you get more profit, more time, and more flexibility from your business.
If you want to learn about how the framework might help you and your business Book an appointment.
We’ll see if we’re a good fit to help you. If not we will try to recommend someone who can.