KPIs should track the progress of a business towards a specific goal. Different types of businesses will want to measure different KPIs. Even businesses in the same industry may want to track different KPIs depending on where they are in the life cycle of their business, and what is important at that particular point.
It is essential to develop KPIs covering the whole of the business, reflecting where you are allocating the majority of your resources at any given point in time. This month we will take a look at some KPIs that may be useful in a service industry.
Normally in a service industry the largest resource will be labour. Therefore it makes sense that the majority of KPIs should provide insight into how well that labour resource is being utilised. Some good examples of this are:
Staff Utilisation – the average percentage of a working week that is spent on income earning activities (chargeable time).
Gross profit margin – the gross profit per client and/or per person
Work in progress – the amount of chargeable time per employee that has not been invoiced to a client at any given point in time. This can be expressed in hours, days or weeks.
Debtor days – measures how many days of sales are tied up in unpaid invoices to clients.
Recurring revenue – measures the proportion of revenue that is ongoing rather than one-off revenue.
Client retention rates – measures the percentage of clients that are retained at the expiration of a contract.
All of these are quantitative indicators which measure the quantity of something rather than its quality. It is also important to measure qualitative indicators, which will give insight into why something is happening. An example of a qualitative KPI would be customer satisfaction ratings.
It is important to resist the temptation to measure and report on a KPI just because it can be measured. It can cost a business lots of time and resources reporting on something just because it can be measured. It is essential to identify those KPIs that are meaningful for the success of a business, or a particular department or product within that business.
What it means for the business
Well designed KPIs can summarise complex activities into one meaningful figure. They can focus the time and effort of employees onto what is important, and they can provide a guide against which performance can be assessed. This will help your business to focus on what really matters.
If you think that it could be time for your business to take the next step and develop an easily understandable dashboard to monitor performance Artemis Clarke can help.
Employing the appropriate senior finance resource, either on a full time or part time basis, can help identify what really matters to your business, and ensure that this is appropriately measured and monitored.
Artemis Clarke helps rapidly-expanding businesses find finance professionals that have the experience to support them. Not just to help them survive, but to help them thrive – and reach the potential they’re aiming for.
Speak to us about how the right financial help could make a difference to your business. Call 0117 244 1891 today.
