Guide

Measure performance and set targets

Deciding which key performance indicators to measure

To measure your business performance successfully, you should identify and focus on the right areas of your business. These vary from sector to sector and business to business.

You can identify the specific areas in your business by looking at your key drivers of success. These may be, for example, profitable customers, high volume of sales or productivity efficiencies.

Assess your core business activities

A good starting point for reviewing your business performance is to evaluate what you actually do. Look at:

  • your core business activities
  • the products that you make or services that you provide

Think about what makes them successful, how you could improve them and if you could launch new or complementary products or services.

For example, consider:

  • How effectively are you matching your goods and services to your customers' needs? The key is to understand your customers' needs.
  • Which of your products and services are successful? Are some not performing as planned? Do any of your products generate a high percentage of sales and high profit margins? Use this information to make product improvements or discontinue low performing products or services if you can.
  • What's causes the problems for your business? Review areas such as pricing, marketing, sales and after-sales service, design, packaging and systems. Look for 'quick wins' initially, and consider in more detail areas that require comprehensive improvements.
  • Do you need more regular financial management reviews? Are you managing your direct costs, overheads and assets? Are there different ways of doing things or new materials you could use that would lower your costs? Consider ways in which you can negotiate the right deal with suppliers.

Once you identify your challenging or most profitable areas, you will have to find the correct measurements to assess them.

Finding your specific performance measures

To find the right measures for your key performance indicators (KPIs), focus on the areas and elements of your business performance that make you successful or profitable.

For example, a manufacturer that produces and sells low-cost goods in high volumes might measure the production line speed. Another manufacturer that produces smaller quantities but uses high-cost components might focus on reducing production line errors instead. A service provider may consider customer service a priority and develop measures around that specific area.

There are many ways of setting measures for your business. You might consider measuring:

  • the proportion of sales from returning customers
  • the number of customer complaints received
  • the number of returned items
  • the time it takes to fulfil an order
  • the percentage of incoming calls answered within 30 seconds

None of these is necessarily better than the other. The challenge is to find which specific measure - or measures - will enable you to improve your business.

Some businesses also use colour-coded systems of measurement, such as traffic lights - red signifying a problem, green that all is fine - as alternative approaches.

See how to use KPIs to assess business performance.

Using standardised measures

Standardised performance measures exist that almost any business can use. Examples include balanced scorecards and industry dashboards. See quality management standards.