Establishing the Key Performance Indicators in Your Business


A key performance indicator (KPI) is a measure designed to track critical success factors in a business. KPIs provide a statistical measure of how well an organisation is doing. To be effective, KPIs should be few in number and focus on vital areas in the business.

KPIs differ by industry, business and even departments within a business.

For example, a retail business may have as one of its KPIs the percentage of its income that comes from return customers, a school may focus on its KPIs on graduation rates of students, and a Customer Service Department may have as one of its KPIs the percentage of customer calls answered in the first minute.

Whichever KPIs are selected, they must reflect the business goals, they must be key to its success, and they must be quantifiable (measurable).

If a KPI is going to be of any value, there must be a way to accurately define and measure it. ‘Generate more repeat customers’ is useless as a KPI without some way to distinguish between new and repeat business. ‘Be the most popular company’ won’t work as a KPI without some accurate method of establishing the company’s popularity and comparing it to others.

You also need to set targets for each KPI. For example, a manufacturing company’s goal might be to reduce the cost of rework (fixing, repairing or even redoing an aspect of product) by 50%. After the KPI has been properly defined, and a way to accurately measure it has been set up, the KPI becomes a clear target that everyone’s attention is focused on.

Once you have your KPIs defined, ones that reflect your organisation’s goals, what do you do with them? You can issue KPIs as a performance management tool, but also as a carrot. Post the KPIs everywhere, in the lunch room, on the company’s intranet, even emailed to key team members. Visibility of performance helps to create accountability.

Show the target for each KPI and the progress towards that target. Some organisations even refer to the KPI summary or dashboard as the Company Scorecard.


Generic KPIs for SME business

The following is a checklist of generic KPIs that can apply to a wide range of businesses:

  • Average employee tenure
  • Training expenditure as % of revenue
  • Average employee turnover, 3 year rolling average
  • Average talent turnover, 3 year rolling average
  • Average absenteeism per employee, in days
  • Job satisfaction index, based on survey
  • % of employees who would recommend the company as an employer
  • Employee productivity
  • Workplace accidents as a % of total number of employees
  • Sales per fulltime equivalent employee
  • % of wages to sales

Customer service KPIs

  • Customer satisfaction index
  • % of revenue that comes from top 20% of customers
  • Average customer spend per transaction
  • Average customer spend per year
  • Customer transaction frequency
  • Average lifetime value of a customer
  • Customer contribution to gross profit
  • Complaint rate
  • Customer attrition rate

Sales and marketing KPIs

  • Average number of accounts per account manager
  • Cold calls converted to new customers
  • Customer door count
  • Number of transactions as % of door count
  • Conversion rate from prospects to sales

Product KPIs

  • Contribution to gross profit by individual product lines
  • Product obsolescence rate
  • Product exceeding ‘use by date’ ratio
  • Product return rate

Risk KPIs

  • Litigation threats to the company
  • Litigation claims on the company
  • Complaints from the Commerce Commission, local councils, other Government departments, or consumer watchdogs

Financial KPIs

  • Stock turn
  • Gross profit margin %
  • Expense analysis as % of sales
  • Net profit margin %
  • Price to earning ratio
  • Return on total asset value
  • Debt to equity ratio
  • Current assets ratio
  • Net transferable assets backing
  • Debtor days
  • Work in progress days
  • Creditor days