When I founded Journyx in 1996, my understanding of the correct key performance indicators for running my business was fuzzy at best. In the early days, we worked fast and hard without having the right benchmarks in place to measure our progress. What we quickly found out, however, is that KPI’s are a vital part of measuring a business’s success in any given day, quarter or year. Mapping out these indicators may provide very specific, detail-focused goals and equally specific results or they may offer a broader view of the organization’s objectives. In either case, choosing the right KPI is vital to properly analyzing your business.
Let’s look at four key KPIs that every business should be looking at.
Few KPIs are so important as per-customer profitability. We learned quickly that not all customers are created equal, and too many companies make the bank-busting mistake of going for quantity rather than quality. By looking at your company’s customers however, you can see which customers are worth the time invested in them, which ones are your cheerleaders, and which ones are just along for the ride.
“Yet amid all these measures of customer success, some companies lose sight of the ultimate objective: to make a profit from selling products and services,” , a Baker Foundation Professor Emeritus at Harvard Business School. “In their zeal to delight customers, these companies actually lose money with them. They become customer-obsessed rather than customer-focused.”
For example, you may have a customer that is difficult to work with and they may tie up 30 percent of your employees’ time. If they comprise 70 or 80 percent of your company’s profits, however, that customer is generating a high profit margin.
Knowing your per-customer profitability can help you see exactly where you need to focus your efforts to maximize profits.
Per-Industry or Market Segment Profitability
One of the worst mistakes a company can make is becoming so diversified that they lose focus and fail to execute in any industry or market.
“Too many executives still believe that diversifying into unrelated industries reduces risks for investors or that diversified businesses can better allocate capital across businesses than the market does—without regard to the skills needed to achieve these goals,” . “The argument that diversification benefits shareholders by reducing volatility was never compelling.”
This is where a per-industry or per-market profitability KPI can be an effective data point in determining where your company’s resources are best spent. What markets are you turning a profit in? What markets are you losing money or market share? Knowing where you’re seeing a return on your investment will help you know where to invest more resources versus markets best left to your competitors.
Per-Phase of Project
Another important KPI relates to the phases of the projects your company works on. In theory, if your company routinely tackles similar projects, you should be able to use the phases of the projects to more accurately estimate the overall cost.
For example, an architectural firm managing 10 different projects should be able to use the data from those projects to spot trends. If the first two phases of the projects are totaling 30 percent of the overall cost, it gives a baseline to make an educated and relatively accurate estimate on the total cost.
Percentage of Work Spent on Projects
An often overlooked, but equally important, KPI is the percentage of work your employees engage in that is spent working on a project versus administrative tasks. Why is this so important?
If your company has 100 employees, having a baseline on the average amount of time the group spends on projects can be invaluable in identifying those employees who are high-performers. For example, if your employees are averaging 55 or 60 percent of their time on projects it helps you quantify how valuable an employee averaging 70 percent really is. Conversely, if an employee is only averaging 20 or 30 percent, having a baseline puts you in a better position to work with the individual to improve their performance. This KPI can also be a good way to identify workaholics in danger of burning out.
Per-customer profitability, per-industry profitability, per-phase of project and percentage of work spent on projects are four of the most important KPIs you should be tracking. Knowing how your business is doing in these key areas will go a long way toward streamlining your company and maximizing your profits.