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Page 1: KPIs 101 - BrightGaugeinfo.brightgauge.com/.../Files/2015_Whitepaper_KPIs_101.pdf · KPIs 101: How To Improve your Business with KPIs 2014 brightgauge.com 4 W hile businesses and

[ F R E E W H I T E P A P E R ]

KPIs 101: How to Improve your Business

with KPIs

brightgauge.com

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About the Author

Eric Dosal has experience in just about every area of small business growth and development. A graduate of Babson College in Wellesley, Massachusetts, Eric immediately put his Finance and Investments Degree to work on Wall Street after graduation. In 2002, Eric returned to Miami and joined his family’s IT Services Business, Compuquip Technologies. Starting in sales, Eric worked his way up through the company, eventually becoming President and CEO. During his tenure, Eric and his brother created and developed the Managed Services Provider Division of the company, which they eventually sold to Konica Minolta. Now Co-Founder and CEO of BrightGauge, Eric enjoys talking with customers as part of his responsibility managing Global Sales and Marketing.

Eric DosalCo-Founder, CEOBrightGauge Software

Connect with me at:Twitter: @EricDosalCompany Blog: brightgauge.com/blogPersonal Blog: dosalbrothers.comLinkedIn: linkedin.com/in/ericdosal

brightgauge.com

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Table of Contents

Click Chapter Title to jump to that section.

What Gets Measured, Gets Managed ..............................................................3

Where to Start? Types of KPIs ..........................................................................4

Finance ..................................................................................................................5

Customers .............................................................................................................6

Sales .......................................................................................................................8

Marketing ............................................................................................................10

Operations .......................................................................................................... 12

Employees ........................................................................................................... 14

Numbers Don’t Lie ............................................................................................. 15

How BrightGauge Can Help ............................................................................ 15

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What Gets Measured, Gets Managed

Identifying, measuring, analyzing, and evaluating your programs, processes, and procedures, and then

implanting solutions is an important part of your growth and development. Understanding how to leverage appropriate metrics will go a long way toward making good business decisions. In business school, you learn that you can’t manage what you don’t measure, and identifying important metrics are the first step in your corporate benchmarking.

Key Performance Indicators (KPIs) are necessary and useful tools for businesses and organization that want to track and monitor their growth and progress or identify their weakness and opportunities for growth. A business that has a well- defined mission and vision, clearly defined goals, and strategies for improvement can use KPIs to evaluate and measure its progress. While every business has different priorities, the tools they use to measure their success and progress are often very similar. Generally, businesses are looking to evaluate their performance in the following areas:

n Financen Customersn Salesn Marketingn Operationsn Employees

In addition to reflecting your business priorities and goals, your KPIs must be quantifiable. Your data doesn’t mean anything if you can’t measure it, analyze it, and use the information to fine tune your strategies. Make sure your KPIs are clearly defined, transparent, measurable, and include a targeted goal for each indicator. n

brightgauge.com

“Focus on Awareness, the Results will Follow”

“What we Measure, we will Improve”

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While businesses and organizations tend to organize their Key Performance Indicators around similar themes, the

specifics of their data and metrics vary by industry and business. Common KPI models include:

n Quantitative Indicators, which are measured by a number.

n Qualitative Indicators, which cannot be measured by a number. These are sophisticated pieces of data, but can be very valuable if you need to get a handle on the “why” as opposed to the how of your questions.

n Leading Indicators can be used to predict the outcome of your process

n Lagging Indicators are used after the fact to reflect success or failure of your initiative.

n Input Indicators measure the resources used during the process, like staff time and cash.

n Process Indicators gauge the efficiency of the process, and are effective when measuring customer service initiatives, shipment strategies, and training.

n Output Indicators measure the success or failure of the process and are good KPIs for establishing marketing, sales, and human resources benchmarks.

n Practical Indicators work within existing company processes or infrastructure, and explore pieces of the corporate puzzle.

n Directional Indicators evaluate a company’s trend information; are they improving, declining, or maintaining. These benchmarks are often used to evaluate your company’s position in the industry and relative to your most director competitors.

n Actionable Indicators reflect a company’s commitment to change and course correction, and includes commitment to cultural change, environmental sustainability, or political action.

n Financial Indicators measure the economic stability, growth, and viability of the business, and are a good place to begin your KPI experiment.

With an understanding of what types of measurements are available, and a clear plan for implementing an evaluation tool, you can fine tune your KPIs to measure specific areas of your business. Key Performance Indicators and metrics are not one size fits all, so you’ll need to adjust and fine tune your metrics to get the results you need and accurately reflect your business priorities.

Let’s take a look at some of the most common metrics used to establish KPI’s. When opting for metrics, choose KPIs reflective of your business model, and be sure to grab some from different areas of operations. You can’t measure in a vacuum, so choosing one metric from each category gives you a fuller, more complete picture. n

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Where to Start? Types of KPIs

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$ FINANCE

Your financial data points are arguably your most important metric and easiest to measure. Customers, investors,

financiers, potential customers and your management team will use this information to assess your stability, viability, and growth potential. Your financial KPIs easily quantify your current financial health and can forecast any long and short term trends. By comparing your financial KPIs with others in your industry, you can benchmark your progress and identify areas for growth and improvement. When you benchmark your company against yourself, you can start collecting trend data and begin to forecast growth periods, slow periods, and overall performance. Depending on your priorities, there are a number of KPIs from which you can choose.

n Current ratio of debt to assets: This KPI measures your ability to pay off any debt of a set period of time, balancing your assets against your outstanding liabilities. While it is not uncommon for businesses, especially start -ups or those experiencing a period of growth to operate in the red for periods of time, getting a handle of your debt to asset ratio will allow you to make more informed decisions about where and when you spend your capital.

n Revenue Over Equity (ROE) or Revenue Over Investment (ROI) both measure your ability to secure revenue per project, shareholder, or customer. ROE and ROI gives you insight into how much you are spending per customer or project, taking both hard and soft costs into consideration, as related to how much you’re earning per project of customer. By measuring your ROI and ROE, you can identify if your spending aligns with your business’s growth and cultural priorities. Some businesses use a variation of ROI, opting to measure the Overhead Rate of each project. This KPI takes all non-project or customer related costs into consideration and compares it to all project or customer related expenses. The lower the Overhead Rate, the higher the profit margin.

n Gross Profit Margin measures revenue per client or project before expenses, while Net Profit Margin benchmarks your revenue after expenses.

n Cash Flow is the most basic of all financial KPIs, and simply measures your firm’s liquidity. How much cash do you have on hand to pay basic expenses, like, salaries and benefits, rent, accounts payable, and reimbursable expenses. Understanding your cash flow also identifies where you spending your financial resources.

Managing and analyzing your financial KPI’s gives you a chance to monitor how your business is growing. By understanding where your money is coming from, and where it’s going, you can make better decisions about allocating resources and pursuing new opportunities. This is a great metric for short term budgeting and long term strategic and financial planning. n

“Managing and analyzing your financial KPI’s gives you a chance to monitor how your business is growing”

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CUSTOMERS

Unless your data and metrics tell you otherwise. Customer service is a difficult metric to measure. It takes both hard

benefits, like wait times, and soft benefits, like “customer satisfaction” into consideration. It does however, provide you with a valuable and important diagnostic tool- about your clients’ level of satisfaction and your team’s efficiency in handling issues and problems. KPIs related to your customers help determine their satisfaction levels, measure their value to your business, identify the costs of retaining versus recruiting customers, and what drives customer turnover.

n Net Promoter Score: Determining your Net Promoter Score (NPS) is a useful metric if you feel that you need more information regarding customer satisfaction. The NPS measures the number of customers who would recommend your business or service against the number of customers who would not recommend your business or service. The higher your net promoter score, the more loyal your customers may be. This is a great KPI because it speaks to both the physical, tangible experience your customer has, and the more emotional, level of satisfaction.

n Number of New Tickets: Measuring the number of new service tickets is a basic metric for benchmarking performance, especially if you are in a service delivery based industry. You can track the number of new service requests or tickets daily, monthly, and quarterly. This KPI provides you with both a quick update of daily growth and progress, and long term trend data. You can “deep dive” into this metric as well, by exploring any outliers and anomalies in your data, looking at staff workload and resources, and overall customer communications.

n Number of Resolved Tickets/Time to Resolve Tickets: For many businesses, time is money, so the number of resolved tickets and the time it takes for a satisfactory resolution often impacts the bottom line. Measuring the number of resolved tickets helps you manage any backlog and identify if your staffing is being allocated appropriately. Tracking response time also helps you set and manage performance goals across your team.

n Tickets via Medium: Your customers may reach out to you and your service team via a number of mediums, calls, emails, live chat, even Twitter. The way they communicate their issues has tremendous impact on how you manage your response and your overall response time. Encouraging customers to start the process electronically, via email or the website, often decreases response time and increases the satisfaction rate, simply by increasing the amount of information the customer provides on the onset. By tracking how your customers contact you, you can then determine if this is the most efficient way to communicate and adjust accordingly.

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n Number of Touch Points: Managing your client or customer’s expectation is key to a high satisfaction rating, and there’s both a science and an art to balancing your communications. Measuring how many “touches” it takes to resolve an issue gives you important insight into the efficiency of your operations. It also helps to identify any “high touch clients”, those customers who need a little extra hand holding.

n Top Performers: Once you have set some standards for your customer service team, you can measure and benchmark their individual performance. In addition to recognizing your top talent, so can see where and who needs additional training.

n Customer Satisfaction: Sometimes gauging your customers’ satisfaction is as easy as asking a simple question. “ How Satisfied Were You With This Experience” and asking your customer to rate their experience on a numerical scale give you a qualitative measure of the satisfaction. Coupling that with a little room for them to provide feedback will provide you with some more in depth information. You can analyze your feedback and then implement any changes you may need to increase satisfaction levels.

For service providers, customer satisfaction is a priority. Using KPIs to measure your customer service operations identifies your team’s strengths and weaknesses, provides an opportunity to evaluate your processes and delivery systems, and implement sustainable- and profitable- change. n

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“For service providers,

customer satisfaction is

a priority.”

brightgauge.com

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“Managing and measuring the value of your sales opportunities ensures that you are spending your resources on high value prospects.”

SALES

Your sales metrics is directly related to your company’s growth and earning potential. At first

glance, your Sales KPIs can appear to be very simple and straightforward, but with the right evaluation and analysis tools, these metrics can paint a sophisticated picture of industry trends, lead generation, and overall effectiveness of your sales team. From lost opportunities to cost per prospect, there’s a KPI to help you get a better picture of your sales force.

n Sales Growth: This simple but powerful metric measures the pace at which your business is growing. You can measure it weekly, monthly, quarterly and annually. Tracking this KPI helps you stay on top of industry trends, account for any recent revenue spikes or dips, and identify top performers. This is a “big picture” metric that can help frame any discussion of other sales and revenue related metrics.

n Sales Opportunities: They say a salesman is only as good as his last closed deal, and managing and measuring the value of your sales opportunities ensures that you are spending your resources on high value prospects. By understanding the potential revenue of a prospect and evaluating it against probability that you will close it, you’ll get a better picture of the relationship.

n Quote to Close: How many of your quotes and /or proposals are converted into actual sales? Whether you are measuring this weekly, monthly, or quarterly, knowing how many

of your prospects become customers helps you manage your revenue streams. It also helps you identify the length of time it takes to close a sale, another important KPI.

n Age of Opportunity: Conventional business logic says that the longer a prospect sits in your sales pipeline, the less likely it is to close. Analyzing the length of time it takes your sales team to close gives you a better timetable for the sales process- you’ll know when a prospect needs an extra nudge, or when you can let the process play itself out. You can dig deep into this metric as well- analyzing how long the prospect sat at each stage of the process.

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For example, if a prospect is stuck in the pipeline, it may be indicative single incident or issue particular to this prospect. Alternatively, you may find one of your sales reps is having trouble “closing the deal”, so you could allocate some resources for additional training or coaching. Finally, if prospects seem to get hung up in the same point of the process, you may have a systemic or process issue that needs to be resolved company wide. Analyze, evaluate, and then implement a change.

n Response Time: Anecdotally and from your own experience, you know that prospects respond to a personal follow up. Tracking how and when your sales team follows up with a lead can help you frame your conversion successes and failures and decide if you need to offer more staff training or retool your sales process a little.

A strong set of sales metrics often translates into a solid foundation for growth and expansion and offers investors, financiers, and customers a picture of stability. Understanding why and how your sales team is- or isn’t working- is an important part of creating and sustaining a growing business model. n

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MARKETING

Today, marketing is often a department unto itself, and therefore deserves its’ own set of metrics.

Whether you allocated resources for traditional marketing like print, trade shows, or broadcast, or utilize the power of social media, understanding how, when, and where, your customers and potential customers are consuming your message allows you to more effectively allocate resources. Some important marketing KPI’s to measure include:

n Market Growth Rate, which measures the rate and extent of your industry’s growth potential. Market Growth Rate works hand in hand with Market Share, an indication of your company’s piece of the industry pie. Use this metric to figure out where you stand in your industry. Are you a leader, a follower or just lagging behind?

n Brand Equity is a measure of your business’s name recognition, simply how often and easily potential customers recognize your name.

n Cost Per Lead: You know it makes better business sense to retain loyal customers than it does to replace them with new ones. The Cost Per Lead measures exactly how much it costs- in both dollars and resources, to recruit a lead and close the deal. Understanding this metric will help you allocate your sales and marketing resources to leverage the highest return on your investment.

n When it comes to your website and online presence, you want to look at your Conversion Rate, which can measure anything from trial memberships, to content consumption, and purchases. You may also want to consider your “Share of Surf” which measures your organizations place in online searches. Digging into this metric a little deeper, you can analyze organic vs. inorganic searches, and keyword and search engine optimization effectiveness.

n Understanding your site’s Bounce Rate, which measures the number of viewers who find your homepage, but fail to navigate to other pages, can help develop more engaging and relevant content. Page Views tell you what pages people are reading and visiting, giving insight into what customers and prospects are looking for. Relevant content is king, and you can position yourself as an industry leader with engaging, helpful, and thought provoking content.

“Are you a leader, a

follower or just lagging

behind?”

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n Social media presence has become an important part of your overall marketing strategy. Measuring and analyzing your reach through Facebook, Twitter, and Instagram, helps you create content that engages your audience. Some important social media KPI’s include:

u Audience Growth Rate, which measures the number of people you are reaching, over time. A next generation metric, Audience Growth rate looks at new followers, fans, friends, and retweets, re-grams, and people are talking about numbers. This KPI helps you map your social media momentum and get an understanding about what works.

u Average Engagement Rate ensures that you are speaking to the right people, and that they are listening. The average engagement rate provides insight into how your social media outputs, Facebook posts, Tweets, etc., are resonating with your established based. Rather than measuring your message among a new audience, you get a glimpse of how your message is working with customers and prospects you already know.

u While the Acquisition Rate for social media is lower than from SEO and organic searches, the percentage of return visitors illustrates your social media outreach’s value and can be target both new and returning visitors.

u Potential Reach and Influence are “buzzworthy” metrics, but distilling your social media presence into one simple number doesn’t always allow you to leverage the information to make meaningful decisions. Your marketing team will tout this in sales presentations, and while important for customer relations, it’s not as data driven as some other metrics.

Understanding your marketing metrics allows you to see who, how, and where, you communications are reaching, and gives you the opportunity to fine tune your communications appropriately. Exploring these KPIs allows you leverage the messages and communications in the most efficient and effective way possible. n

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OPERATIONS

Of all your measurable metrics, your Operational Key Performance Indicators have the most far reaching

implications. Effectively measuring your operational performance has implications for every areas of your business. Good operational KPIs are linked to strategic goals, daily processes, and corporate culture. They are both internally focused and customer driven, and measured frequently. Your operational KPI’s provide you keep a finger on the daily pulse of your business, and establish a baseline for long term trends. When choosing operational KPI’s, be wary of choosing too many. You don’t want to be overwhelmed with too much data. Choose metrics that are strategic, relatable, controllable, and measurable. Some important operations metrics to consider include:

n Effective Hourly Rate, looks at the amount you billed or invoiced a customer, divided by the hours worked to bring the project or ticket to a satisfactory conclusion. In order to correctly measure your effective hourly rate, you need to include a price for all aspects for the project, from sales calls to satisfaction surveys, the cost of each stage of the project should be considered. This KPI illuminates the actual cost of doing business, per customer, project, or ticket.

n Measuring the effectiveness of your Service Level Agreement (SLA) gives you insight into how efficiently and effectively you deliver the product of service. Sometimes used as an umbrella term, your SLA can be broken down into a few key points:

u Time to First Response: How long does it take your service desk to “pick up” a ticket. Customers like to know that they concerns have been identified and that a solution is in the works.

u Time to Resolution sets your corporate standards for resolving an issue. Be sure to take into account any outliers, including the need for customers to provide additional response and any system wide issues, like upgrades.

u Requests Resolved Without The Service Desk: Do you encourage customers to submit their tickets online? Is the first line of defense direction to a FAQ or Do It Yourself Page? Tracking the number of service tickets avoided by comprehensive instructions or content is helpful for your communications, customer service, and tech support teams.

“When choosing operational KPI’s, be wary of choosing too many.”

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n Depending on your business model, metrics like Business Process Productivity Increase, Cycle Time Reduction, Unit Cost, and Increased Revenue can help you measure and evaluate any changes that you have made after the an initial evaluation. You need to have established a workable baseline foundation before you start implementing these metrics and KPI’s, however.

Measuring Operational Efficiency gives you insight into how your business is running. Understanding what this looks like daily, weekly, monthly, quarterly, and annually helps you develop and implement long term growth strategies. When managing your operational KPI’s remember to “Keep It Simple”, and opt for useable, quantifiable data over a massive data dump. n

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EMPLOYEES

There are KPI’s designed to help measure and evaluate employee performance as well. While

peer- to peer evaluation tools and 360 degree feedback can help your monitor individual performance, utilizing metrics for employee evaluations give you a bigger picture, providing trend data for your entire staff.

n Revenue Per Employee measures the financial contribution of each employee, regardless of job responsibility. While this number can give you an aggregate score of profit, you can also break it down by department or team. Obviously, you expect a higher return rate from your sales team than you do from your accounting department. If you want to measure intangible employee contributions, consider looking at “profit per employee”, which factors in other contributions, like relationships, reputation, training, and knowledge creation. You can quantify these qualities by looking at institutional knowledge, brand awareness, patents, networks, and customer base- anything that enhances your corporate culture.

n Employee Churn Rate compares your employee turnover with others in your industry. This gives you an idea of where your financial compensation might stack up against your competition, and help you understand if compensation plays a role in your retention or attrition of key staff. Employee Tenure is a KPI that examines the length of time your employees stay.

n Employee Satisfaction and Engagement Level measures how invested and satisfied your staff is in the company and their jobs. You can look at this business wide and then break the data down into departments, team, and even length of service.

n Does your business place an emphasis on training? Measuring the amount of time between training and when you start to see a return on your investment can let you know if you’re adequately and appropriately spending resources on training your staff. Do you need more cross training, more specialized workshops?

Employee satisfaction and engagement is an important piece of your corporate culture and has an enormous impact on every aspect of your business. From customer satisfaction to increased productivity, your employees are the key to meeting and exceeding all your goals. n

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NUMBERS DON’T LIE

While you can’t manage what you don’t measure, it’s important that you’re measuring the right functions, and analyzing the best data. By identifying Key Performance Indicators

(KPIs) that align with your corporate culture and values, reflect your long terms strategies and growth initiatives, and speak to your organizational priorities, you’ll be collecting data that will lead to better, more inclusive decisions. Choose a few metrics from each area of your business, and focus on that data.

Once you have analyzed the data, you need to evaluate your results. Explore what’s working and what needs improvement, and then work with your team to implement improvement strategies. You KPIs and metrics should be reflective of your corporate priorities, so focus on the areas that are most important to you and your bottom line, and potential growth.

Evaluate. Analyze. Implement. These are the three pieces to your successful metrics puzzle. And don’t forget...

“What we Measure, we will Improve”

How BrightGauge Can Help

BrightGauge Software is the only cloud based business intelligence (BI) platform simplifying data visualization and data analysis for the IT Service Provider (ITSPs) and Managed Service

Provider (MSPs) industry. Founded in 2010 by two industry veterans, BrightGauge enables its global user base to create customizable “TV ready” dashboards and automated reports tailored to their business. With its intuitive and powerful data discovery features connected to custom datasources, BrightGauge makes the science of custom data visualization easy for the everyday business user.

To learn more please visit www.brightgauge.com and join the conversation @BrightGauge.