Key performance indicators

Copyright ©Nick Bettes Consulting
Key Performance Ratios
For SMEs

Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Objectives
•At the end of this seminar you will
–Know how to identify the key performance ratios (KPRs) for your business
–Know how to use KPRs to focusthe day-to- day activities of your staff and managers on achieving your business strategy

Agenda
•What are KPRs?
•Why businesses need KPRs
•Financial, leading and lagging KPRs
•Generating KPRs
•Choosing KPRs
•Implementing KPRs

My Background

The Engine of Growth

Whatare KPRs?
•Also called Key Performance Indicators (KPIs)
•They are the small number of measurements that tell you how a business is performing
•They are the dials on your business dashboard
•They look backwards (traditionally) and forwards
•They translate strategy into action and align the efforts of your staff with your strategy

Example KPIs
•An airline
•A supermarket
•A railway
•An hotel
•A solicitor
•A golf club
•Portsmouth FC
•Load factor
•Income/square foot
•On-time arrivals
•Occupation rate
•Billable hours ratio
•Average round time
•Wages/receipts

Why Do Businesses Need KPIs?
Is this how you think about your business?
Or this…?

Why Do Businesses Need KPIs?
•Your business is a system for making money
•This system has inputs and outputs, velocities and volumes, leaks and breakdowns
•This system is being perpetually revised and adjusted to achieve different outcomes in changing circumstances
•Some parts of it work better than others
•Well-run, scalable businesses are better tuned, more easily monitored and more quickly changed
•They achieve this by being able to measure and adjust system performance –using KPIs

Your Strategy NeedsKPIs
•Strategy is the alignment of your organisational outcomes with your customers’ outcomes
•Strategy defines how you are going to achieve this - what you will excel at, things you will change
•KPIs set targets and measure progress towards these outcomes
•KPIs without a strategy are like a speedometer without a map
•Strategy without KPIs is like a map without a compass
•Defining KPIs is about defining strategy

Your People Need KPIs
•Most people will excel if they have
–Purpose
–Mastery
–Autonomy
•Agreeing clear targets
–Relates their efforts to the Purpose of the organisation
–Defines success and the route towards this
–Allows you to delegate and let them get on with it

Financial, Leading and Lagging KPIs
•Most of us will have some financial measurements
–Turnover, gross profit, cash flow….
•Two reasons why they are not usually enough on their own
–They are outcome measures
•They cannot be changed directly, only by changing something lower down
–They are lagging indicators (they look backwards)

Problems With Lagging KPIs
•They tell you something is wrong when it is too late to do something about it
•They don’t provide any information about the future and how to prepare for it
•All performance indicators are of course lagging
–It’s the way that you interpret them that turns some of them into leading indicators

Potential Leading KPIs
•Customer satisfaction
•Employee satisfaction
•Invoice queries
•Returns
•Sales leadtime
•Sales activity
•Complaints
•Near misses
•Defects
•Absence
•Sales pipeline
•Website traffic

Generating KPIs
Driver
Driver
Etc
Start with your strategic goal
Think of all the factors that contribute to the goal (drivers)
Select the most relevant
Decide how you measure it
Driver
Measurement
Measurement
Goal
Measurement
Decide how you measure them
Driver
Measurement
Driver
Measurement
Repeat until you run out of drivers
Driver/Goal

An Example Goal Hierarchy
Net Profit
£
Gross Profit
£
Overheads
£
Turnover
£
Direct Costs
£
Sales
#
Unit Price
£
Leads
#
Conversion
Rate
%
Marketing
Spend
£
Marketing
Productivity
#/£
Sales Skills
?
Lead Quality
?
Employee
Engagement
%
HR Initiatives
Training or recruitment
Niche or product focus

Overlapping Hierarchies
Net Profit
£
Gross Profit
£
Overheads
£
Marketing
Spend
£
Employee
Engagement
%
Employee
Attrition
%
Recruitment
Cost
£

Alternative Hierarchies
Net Profit
£
Gross Profit
£
Overheads
£
Turnover
£
Direct Costs
£
Sales
#
Unit Price
£
Leads
#
Conversion
Rate
%
Marketing
Spend
£
Marketing
Productivity
#/£
Sales Skills
?
Lead Quality
?
Employee
Engagement
%
HR Initiatives
Training or recruitment
Niche or product focus

Alternative Hierarchies
Net Profit
£
Gross Profit
£
Overheads
£
Turnover
£
Direct Costs
£
Sales
productivity
£/#
Salespeople
#
Orders/head
#
Average
order value
£
Sales
Appointments
#
Conversion
Rate
%
Product price
£
Products per
order
#
Pricing model
Sales management system

Your Turn
NetProfit
£
Recurring
Gross Profit
£
Recurring
Revenue
£
Project
Pullthrough
%
Contract
Attrition
%
Customer
Satisfaction
%
Response
Time
#
Availability
%
Product price
£
Staff
Attitude
?
Revenue
Resilience
?
Engineer
Utilisation
%
Engineer
Productivity
£/#
Recurring
Costs
£
SparesCost
£/#
First Time
Fix
%
Average Fix
Time
#

Choosing KPIs
•Must be an outcome (egnumber of leads) not just a driver (egmarketing spend)
•Must be close to, affected by, and measure the effectiveness of, a strategic intervention
•Must be easy to measure
•Must send a clear message about what is important
•Should avoid encouraging obvious unwanted behaviour
•Must cover all your strategic goals
•In totality, must define the basis on which you compete –your strategic advantage
•Max 6-8 KPIs for the business
•Should aim for a mix of leading and lagging

Choosing KPIs
NetProfit
£
Recurring
Gross Profit
£
Recurring
Revenue
£
Project
Pullthrough
%
Contract
Attrition
%
Customer
Satisfaction
%
Response
Time
#
Availability
%
Product price
£
Staff
Attitude
?
Revenue
Resilience
?
Engineer
Utilisation
%
Engineer
Productivity
£/#
Recurring
Costs
£
SparesCost
£/#
First Time
Fix
%
Average Fix
Time
#

Choosing KPIs
Rev Res
Rec Rev
Pro Pul
Con Att
CusSat
Avail
StaAtt
Price
Res Tim
Net Pro
Rec GP
Rec Cos
EngUti
Spa Cos
FTF
AFT
Outcome?
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Close to & measure action?
Y
Y
Y
Y
Y
Easy to measure?
Y
Y
Y
?
?
?
Y
Y
Y
Y
Y
Y
Y
Y
Y
Clear message?
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Unwanted behaviour?
Y
Y
Y
Y

Choosing KPIs
Net Profit
£
Gross Profit
£
Overheads
£
Turnover
£
Direct Costs
£
Sales
productivity
£/#
Salespeople
#
Orders/head
#
Average
order value
£
Sales
Appointments
#
Conversion
Rate
%
Product price
£
Products per
order
#

Choosing KPIs
Net Profit
£
Gross Profit
£
Overheads
£
Turnover
£
Direct Costs
£
Sales
#
Unit Price
£
Leads
#
Conversion
Rate
%
Marketing
Spend
£
Marketing
Productivity
#/£
Sales Skills
?
Lead Quality
?
Employee
Engagement
%

Implementing KPIs
•Incorporate them in your business plan
–Set KPI targets
–Plan strategic initiatives
•Performance is delivered by people
–Internal communication
•Start early
•Two way
•Never stop
–Job descriptions –accountabilities that match KPIs
–Individual and team objectives that match KPI targets

Implementing KPIs
•People operate systems
–Change and document the processes that will deliver your KPI targets
•Monitor progress
–Incorporate KPI performance in your monthly management review
–Incorporate objectives in your appraisals and performance reviews

KPIs in Practice –M&E Contractor
Increase turnover
Implement account management
Improve service quality
Differentiate service
Demonstrate service value
Increase account penetration
Improve sales productivity
Implement CRM system
Average build project order value
Project/maintenance pullthrough
Sales/head
Volume under maintenance/TV
Availability
Average fix time/priority
Increase professional services income
Win larger projects
Increase build income
Increase maintenance income
Increase overseas income
Differentiate as quality/specialist
Differentiate UK sector propositions
Acquire international sales capability
Develop tax and logistics capability
Develop in-country channel partners
Downstream of M&E consultancy
Commoditisation,
M&E entrants
Company size limits project size
Prof services/ project pullthrough
Recurring gross profit/overheads
Income/unit
Attrition

KPIs in Practice –Website Agency
Profitable growth
Order book £
Marketing plan & budget
Get certified
Enquiries #
Project profitability %
NPT %
Income/hour £
Bugs #
Structure & JDs
Planning & PM system
Communication
Recruitment

Implementing KPIs

Implementing KPIs
Desired state and timescale
Projects,
stages,
reviews
Current state

Key Performance Ratios
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