What are KPIs
KPIs are Key Performance Indicators. There are different indicators. The key ones are those that affect profits. The indicator itself may change just a little bit, but the profit may be noticeable.
For example, a barbershop owner calculated that if he increased the barber’s average check by 100 rubles, annual revenue would increase by 300,000 rubles. If expenses remain at the same level, so will profits. The average barber check for a barbershop is a key indicator.
Why do we need KPIs
The goal of the KPI is to make life easier for the head of the enterprise, business owner and ordinary employees. I implemented the KPI system when our team grew from two people to 22. Too much time was spent on solving operational problems; he was not enough for direct director duties. Thanks to KPI, I delegated authority and responsibility to department heads and ordinary employees, but I still control everything.
When KPIs are not useful, the fact is that the company is not working with them correctly. This is exactly what happened to the co-owners of the cosmetology clinic. They worked with the sales funnel, collected metrics, but didn’t know what to do with them next. And when we figured out what indicators affect profits and who should be responsible for each one, in three months we made the business profitable from being unprofitable.
How to work with KPIs
We implement KPIs
The authors of management books portray the implementation of KPIs as a multi-stage procedure: describe the company’s organizational structure, financial structure, and business processes. With this approach, the process threatens to drag on for at least six months. Big businesses may be able to do this. Small businesses, on the other hand, can’t afford to sit still for so long.
But there is an easier and faster way. You will need to determine which indicators have the most significant impact on profits and who in the company influences these indicators. There is no universal set of indicators. They are different for every business. For online sales, the key indicators are cost per click and site conversion. For a call center, the duration of the operator’s calls.
We identified an indicator that affects profit, understood who it depends on, and appointed a responsible person.
We motivate staff
The next step is to create a staff motivation system. The popular option, when an employee’s bonus is tied to the overall performance of a company or division, works poorly. The employee is responsible for his own results. But how will it affect colleagues’ results? Therefore, you need to know what a particular subordinate influences and what is responsible for, and link everyone’s bonuses to their individual results.
It should be taken into account whether an employee directly or indirectly influences the financial result. Our team includes an editorial team that produces content for the site. Content works to increase demand, but indirectly. Editorial staff is a cost center. Therefore, there is no point in linking the editor-in-chief’s motivation to profits. But the sales department has a plan for the number of calls and the conversion of requests into sales. They have a direct impact on revenue.
A sign of a good KPI motivation system is when an employee sees in the middle of the month how much they have already earned and what needs to be done to get as much as they want.
We draw conclusions based on KPIs
Employees don’t always meet their targets. And not always through my own fault. When you see that something is going wrong, don’t rush to shoot the staff in the hallway. First, figure out what the reason is. If the employee is not to blame, then we need to help them and create conditions under which they will be able to achieve their targets.
If an employee does not fulfill the plan month after month and that’s the point, all that remains is to replace him with someone who will do it. Neither the charm nor the good attitude of the management can save you here. These factors are powerless against indicators.
We are auditing the KPI system
Implementing and adjusting a KPI system is not everything. It should be understood that the system you have implemented is more than once and for all. Something is constantly changing in business. Each change may require an adjustment of the KPI system. We must be ready for this.
When you need to adjust the KPI system, figure out which indicators are no longer relevant, which ones need to be replaced, and who should be responsible for the new indicators. It is easier to adjust the system than to create it from scratch.
The motivation system also needs to be adjusted. It is best to do this with the involvement of employees. Every employee has personal goals. And the motivation system works best when both you and the employee understand what they want and what they must do for the company to achieve their personal goals. If an employee wants to earn 150,000 a month, let his salary be 75, and the rest be bonuses. This way he will understand that he is worth 75,000, but he can earn 150 if he is a successful professional.
Remember
Understand what metrics influence profits and who in the company influences them.
Select key metrics that have the most impact on profits and assign those responsible for them. Set 2-3 clear KPIs for each department.
Motivate employees based on their key performance indicators.
Monitor whether employees are meeting their targets.
When the indicators are not achieved, figure out the reason. If an employee needs help, help. If it’s the case, replace it with another one.
Constantly review your KPI system and motivation. Make adjustments when you realize that the system needs them.
Source: https://lifehacker.ru/kpi/
For questions regarding ownership, please contact the author of the original text.