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A Scorecard for Success -- Key Performance Indicators
A Scorecard for Success -- Key Performance Indicators
A Scorecard for Success - Key Performance Indicators (KPI’s)
By Ken Goldman, CFO, Brand Launcher
The Simple Life
Baseball is a mathematician’s dream sport. Historically, a position player’s worth was measured primarily by their batting average (AVG), which generally ranged from .200 to .350. Other statistics like home runs (HR) and runs batted in (RBI) formed the core of a players worth. Life was simple.
Then along came the concept of SABERMETRICS. Bill James introduced a whole new world of measurements in "the search for objective knowledge about baseball." By understanding unconventional statistics, statistics that predicted scoring more runs than the competition, the financially strapped Oakland A’s was able to compete with New York Yankees and pay 65% less in players’ salaries – a savings of over $81 million.
Now baseball has a host of new metrics such as OBP – on base percentage and OPS – on base plus slugging. According to Mr. James this new set of metrics answers the basic question – Which player contributes the most to a team success?
A Better Life – Good KPI’s
Key Performance Indicators (KPIs) are to Business what Sabermetrics are to baseball. It’s about knowing what numbers are critical to predicting your success.
We live a world of Big Data – data sets that are too large and complex to understand through conventional analysis. And the digital universe grows roughly 50% per year. Our brains can only process a limited amount of data, so we have to be very careful with the KPIs we chose to monitor. Consider these three characteristics of good KPIs:
1. A limited set of numbers that can fit on one page
2. A focus on the strategic agenda of the organization
3. A mix of financial and non-financial information
Effective Strategies are about Growth
For many companies growth relates to increasing revenue. For others, growth can be something else. This is where the strategic plan comes into play.
One of our Brand Launcher clients was in a very competitive technology field that demanded continuous innovation with new product offerings. The KPI they needed to develop was a measurement of the pipeline of successful new products. The key number for them was 20% of revenue comes from products introduced during the previous 3 years. By monitoring product development KPIs, they made better decisions about the budget, priorities and capital expenditures.
History Can Not Be Changed But Activities Can
There are two basics types of KPIs one is based on historical facts that can’t be changed, the other based on activities that will lead to future revenue.
The standard methodology begins with forecasting. Managers document projected revenue by month, by territory, by sales rep, by product line, etc. Throughout the year, you compare actual to budget. These are important metrics. However, the numbers are all historical facts based on what has already happen (and, at this point, cannot be changed).
A progressive management team measures activity that will lead to future revenue. This could include:
- Number of website visitors
- Number of attendees to webinars
- Foot traffic into retail location
- Number of proposals sent out
- Number of visitors to a trade show booth
In this sample KPI worksheet from a Public Relations client, data regarding marketing activities is tracked on a monthly basis. There is a target number for each activity for easy comparison. Different individuals “own” the various KPIs. This adds a level of responsibility and accountability. The KPI report can be used in management meetings to facilitate discussions on movement toward these strategic goals.
Building the Sales Funnel
In addition to tracking the activities that generate sales leads, the team needs to analyze the quality of the leads – how many of these leads are actually qualified buyers? Lastly, tracking which of the qualified leads actually become customers, tells us about our teams ability to close sales. This is how the sales funnel gets built, by working up the funnel starting with the new customer base and go back to identify the source of the sales lead. The correct KPI will lead to better decisions on how to allocation limited marketing resources.
Over the course of a company’s history there comes a time when revenue is steady and the main issue becomes profitability. Additional profits come from increasing sales or reducing expenses.
A client who distributes cosmetics determined that they needed to focus on the operational side of their business. They had put so much energy into building revenue that mistakes were being made that had dramatic impact on their bottom line. A decision was made to identify and track mistakes being made in generating purchase orders, tracking customer service, monitoring inventory and lastly collection of past due accounts.
KPI’s Puts a Spot Light on Problems
When managers realized that specific activities in their department were being publicized amongst their peers, they felt pressure to improve. Over time, they were able to identify bottlenecks and the resources needed to improve.
KPI’s – A Scorecard for Success
The right KPIs answers the question, “How are we doing?” This facilitates effective decision making and minimizes the “surprises.”
It’s often very difficult for the management team to accurately identify the most important KPIs as they relate to the company’s overall strategy. That’s where outside expertise helps. Brand Launcher’s team of mentors is focused on helping clients decide what’s really important. What can you learn today that will help you out tomorrow? Give us a call to find out.
About Ken Goldman
Ken is the Chief Financial Officer for Brand Launcher. In his 30+ years in business, Ken’s career includes 20 years as a leader of Goldman Promotions, a national promotional products and the general manager of an energy consulting company. A veteran of strategic planning, Ken has a long history as a tireless worker and loves helping entrepreneurs manage and grow their businesses. Ken holds a BA in Mathematics from Southern Illinois University and an MS in Computer Science from Washington University.