KPIs are a collection of quantifiable measurements used to evaluate or compare performance. These can be used to monitor results and to help achieve short- and long-term goals.
Before considering what KPIs you should set, it’s important that you establish what you want to achieve. Perhaps the first KPI that most people would consider is sales. Maybe you want to increase turnover i.e. sales/income by, say, 10% per annum over the next 5 years:
| Last 12 months | £50,000 |
| Year 1 | £55,000 |
| Year 2 | £60,500 |
| Year 3 | £66,550 |
| Year 4 | £73,205 |
| Year 5 | £80,525 |
On the face of it, that would seem to be a reasonably good result, but you must also consider other related KPIs. You need to consider the related costs in generating that income and the resulting gross profit (GP).
So, for example, if the GP percentage is 50%, and the last 12 months’ profit is £25,000, then year 5 would be £40,262.
However, if additional costs required in generating extra income resulted in a lower GP percentage of 40%, then year 5 would be £32,210; or 30% – £24,157.
You can see, therefore, that merely generating more income may not necessarily result in more profit.
When tracking income and gross profit it’s also important that you monitor expenses, as these can have a significant impact on your net profit, i.e. your actual income.
In the recent lockdown, one of my clients made significant savings in two areas of their business. They used to have face-to-face meetings, involving lots of travel and subsistence; in lockdown, these meetings moved to Zoom (other online providers are available!), saving the business approximately £4,000.
They have agreed to continue this format and so that will be an ongoing saving. They were also producing hard copy documents, again with significant cost. They ascertained that most people are happy to receive these as electronic versions, hence another ongoing saving.
Perhaps the other key financial indicator to monitor is cashflow. It’s vital to keep your bookkeeping up to date, at the very least monthly. There are some great cloud-based systems on the market nowadays, which will help you tremendously in monitoring your KPIs. Whilst I might be doing myself out of a job, you don’t have to be an accountant to make good use of them. After all, even if you monitor your income growth closely, you do need to get paid in a timely manner.
There are, of course, other non-financial KPIs that might be important to your business.
How do you generate your income leads? It’s worth monitoring this so that you can concentrate on what works best for you. If most of your income is generated by your website, that’s what you need to concentrate on. If you do a lot of networking, but get very little new work, stay at home!
Time is a finite resource and many of my clients often say that there are not enough hours in the day! Well, this could be one of your KPIs. You might want a better work-life balance, more holidays, more time with the family or to play golf. Set your hours accordingly and work out how you can get the same income but with less time input. It’s often said that 20% of your customers take up 80% of your time, so concentrate of the other 80% that only take 20% of your time.
These are just a few ideas to hopefully inspire you. How about producing a report for yourself each month? In any event, make sure you set down your KPIs, monitor them and work at them to achieve your goals.
If you have any queries, you can contact me on 01473 833411 or [email protected]
Peter is the Guild’s accountant.This article is designed for the information of readers. Whilst every effort is made to ensure accuracy, information contained in this article may not be comprehensive and recipients should not act upon it without seeking professional advice. “Larking Gowen” is the trading name of Larking Gowen LLP, which is a limited liability partnership registered in England and Wales (LLP number OC419486). Where we use the word partner it refers to a member of Larking Gowen LLP. © Larking Gowen.
