KPIs 101: How Much Can Your Business Improve?
Every quantifiable Key Performance Indicator that has ever been devised falls into the following categories:
Size - how big is the deal?
Count - how many deals are on the table?
Velocity - how fast does the deal take to work through?
Capacity - how many deals can we actually do?
Statistics - averages, conversion rates, ratios, standard deviations, skew, correlation etc. etc. etc.
Everything else is a Dimension...
Time, Geography, Products, Projects, Customers, Resources, Suppliers, Processes, Cost Centre, Account.
For example, some would call frequency a group of KPIs. However, frequency is really just a count across a time period.
...Or a Comparison.
Comparisons are when a KPI is compared across a dimension or multiple dimensions e.g. Sales $ by Sales Person by State.
The thing with KPIs, is that if you use them together, you can quickly work out how much your business can improve.
For example, if you have 10 people working for you, and each one works for you for 200 days a year, you effectively have a capacity of 2000 days each year.
If the average deal velocity is 5 days, you can only process 400 deals per year. If the average deal revenue (size) is $1,000, then the gross revenue you can earn in a year is $400,000. If you pay each one of your team $30,000, and have no other costs, then your profit will be $100,000 p.a.
The key to growing your business from here is to work out how to change these numbers.
For example, if you could reduce your deal processing time (i.e. increase your velocity) by 10%, then you could process an extra 44 jobs per year. If you could increase your deal size by 10%, then together with the increase in velocity, you could earn an extra $88,400 p.a. - all of which would go straight to the bottom line.
That represents an 88% increase in profit.
The beauty of the interplay between KPIs is that small changes in multiple KPIs can have a big impact on the net result.
In the following KPIs 101 series, we will look at how each KPI type impacts on the others in closer detail.
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