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By Gary Bordeaux
Special to the Financial Independence Hub
One of the defining characteristics that distinguishes successful companies from their less successful counterparts is the ability to learn from their mistakes. When developing the world’s first bagless vacuum cleaner, for example, James Dyson created 5,127 prototypes. Rather than giving up after each unsuccessful attempt, he analyzed the failed prototypes and used that information to develop a better product. By taking a similar approach and tracking key performance indicators (KPIs), you can identify problematic areas in your company and sow the seeds for long-term success.
What are KPIs?
A KPI is any measurable metric of a business’s success in its respective industry or field or work. They can be expressed as static figures, percentages, ratios or other values. A common KPI used by retail companies is sales. Expressed as a static figure, the number of sales a company generates in a defined period directly reflects its level of success. If a company experienced low sales in a period, it can change its operations to improve this KPI.
Another common KPI used in the retail industry is shrink rate. This metric reveals the percentage of a company’s products that are lost due to shoplifting, fraud, employee theft, damage and employee error. According to The Balance, the average shrink rate among retailers is 2 per cent, meaning roughly one out of every 50 products retail companies purchase cannot be sold.
Advanced KPIs
There are also more advanced KPIs that companies can track to measure their success. When selling products online, for instance, companies can track their shopping cart abandonment rate. Defined as the percentage of a website’s shoppers who add a product to their cart but do not complete their purchase, it helps e-commerce companies identify problems with their site.
According to a study conducted by Baymard Institute, the average shopping cart abandonment rate in the e-commerce industry is 69.23 per cent. E-commerce companies can lower this rate by connecting with shoppers who abandon their cart and encouraging them to return. Some of the most common reasons cited for abandoned shopping carts include high shipping costs, forced account registration and a long checkout process.
Why you should track KPIs
So, why should you spend your time and resources tracking KPIs? Perhaps the greatest benefit of tracking KPIs is the simple fact that it allows you to see what’s working and what’s not. If a product has low sales, perhaps you should remove it from your inventory and, instead, offer a different product.
Using KPIs, you can also measure your company’s progress towards a goal or objective. Maybe you want to achieve a 30 per cent customer retention rate for the year. By tracking your company’s customer retention rate on a monthly basis, you’ll see how close you are to achieving this goal.
Finally, KPIs can hold workers accountable for their actions. If a worker is underperforming, you can see view his or her performance in KPIs. On the other hand, if a worker is excelling, you can also see this by tracking KPIs.
How to track KPIs
There are many ways to track KPIs, the most basic of which is to write down these metrics on paper. Of course, this is time consuming and laborious, which is why it’s recommended that you use a metrics tracking solution instead. Business intelligence dashboards provide a simple and effective way to track KPIs. These dashboards offer a convenient interface in which you can add and track KPIs.
It’s important to note that KPIs only provide insight into your company’s operations. Therefore, they are only useful if you act on the information reflected in them. You can track all the right KPIs for your company’s industry, but it’s not going to yield increased sales or performance unless you act on them.
Gary Bordeaux is a real estate professional and company owner based in Portland, Maine. As a retired real estate agent, he spends his time and energy investing, and writing about what he has learned. His goal is to help entrepreneurs and small business owners achieve their full potential.