How to work with KPIs correctly

What is KPI

KPIs are Key Performance Indicators. Indicators are different. The key ones are those that affect the bottom line. The indicator itself may change quite a bit, but the profit is noticeable.

For example, the owner of a barbershop calculated that if he increases the average barber's bill by 100 rubles, the annual revenue will grow by 300 thousand rubles. If costs remain the same, profits will rise. The average barber bill for a barbershop is a key indicator.

Why are KPIs needed

The task of KPI is to make life easier for the head of the enterprise, the owner of the business and ordinary employees. I introduced the KPI system when our team grew from two people to 22. Too much time began to be spent on solving operational tasks, it was not enough for direct directorial duties. Thanks to KPIs, I delegated authority and responsibility to the level of heads of departments and ordinary employees, but I still control everything.

When KPIs are not useful, the point is that the company is not working with them correctly. This is exactly how it was with the co-owners of the cosmetology clinic. They worked with a sales funnel, collected indicators, but did not know what to do with them next. And when we figured out what indicators affect profit and who should be responsible for each, in three months they made the business profitable from a loss-making one.

How to work with KPIs

Implementing KPIs

The authors of books on management portray the implementation of KPIs as a multi-stage procedure: describe the organizational structure of the company, financial structure, and business processes. With this approach, the process threatens to drag on for at least six months. Big business can do it. But a small business cannot afford to mark for so long.

But there is an easier and faster way. You will need to determine which metrics have the greatest impact on profits and who in the company influences those metrics. There is no universal set of indicators. They are individual for each business. For online sales, the key indicators are cost per click and site conversion. For a call center, the duration of the agent's calls.

We identified the indicator that affects the 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 result of a company or department, works poorly. The employee is responsible for his own result. But how will it affect the results of colleagues? Therefore, you need to know what a particular subordinate affects and what is responsible for, and tie the bonuses of each to his individual result.

It is necessary to take into account whether the employee directly or indirectly affects the financial result. Our team includes an editorial staff that produces content for the site. Content works to increase demand, but indirectly. The editorial office is the cost center. Therefore, it makes no sense to tie the motivation of the editor-in-chief to profit. But the sales department has a plan for the number of calls and the conversion of requests to sales. They directly affect revenue.

A sign of a good KPI motivation system is when an employee sees in the middle of the month how much he has already earned and what needs to be done to get as much as he wants.

Drawing conclusions based on KPIs

Employees don't always meet targets. And not always through their own fault. When you see that something is going wrong, do not rush to shoot the personnel in the corridor. First, figure out what is the reason. If the employee is not guilty, then you need to help him and create conditions under which he can achieve the target indicators.

If the employee does not fulfill the plan from month to month and it is in him that is the point, all that remains is to replace him with those who will cope. Neither the charm nor the good attitude of the management will save here. These factors are powerless against indicators.

We carry out an audit of the KPI system

Implementing and adjusting the KPI system is not all. You have to understand: the system that you have implemented is not once and for all. In business, something is constantly changing. With each change, the KPI system may need to be adjusted. You have to 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 tweak the system than to create it from scratch.

The motivation system also needs to be adjusted. This is best done with the involvement of employees. Each employee has personal goals. And best of all, the motivation system works when both you and the employee understand what he wants and what he must do for the company in order to realize his personal goals. If an employee wants to earn 150 thousand a month, let his salary be 75, and the rest - bonuses. So he will understand that it is worth 75 thousand, but can earn 150 if he is a successful professional.

Remember

Understand which metrics affect profits and who in the company influences them.
Select the key metrics that have the greatest impact on bottom line and assign responsibility for them. Set 2-3 clear KPIs for each department.
Motivate employees for their key metrics.
Keep track of whether employees are meeting targets.
When the indicators are not achieved, figure out what is the reason. If an employee needs help, help. If this is the case, replace it with another.
Constantly review the KPI and motivation system. Make adjustments when you realize the system needs them.