Financial KPIs & Success Criteria: What You Should Measure and Why
More than just keeping score, it’s the secret sauce to financial wellness
Measure once, cut twice. We all know that old . . . wait for it, saw. Failing to measure - and accurately, could lead to disappointing outcomes. At the heart of this expression, is the importance of planning, prep and precision. You can apply these same principles to your financial data. In this article, we’ll explore the use of KPIs and Success Criteria in small businesses and how this intelligence can help business owners achieve success.
If these numbers could talk - What is my financial data trying to say?
Have you ever wondered what all those numbers you’re collecting about your income and expenses are telling you? Those digits are the indicators of your financial health, revealing success or warning lights. It’s not easy to know what to measure, but trust us - what you measure really matters when it comes to financial wellness - and life in general. But beyond income and expenses, how do you know what you should be measuring?
We’re pretty sure everyone could use some guidance on how to identify and define which data will be the most helpful to you – and how it can enable you to be more strategic about your business. Let’s review some essential practices that can be incorporated into your business management efforts.
As a measure of fact
“If you can’t measure it, you can’t manage it”. Fact check: Often misattributed to Peter Drucker, the provenance of the statement is *still* up for debate, as is the theory which is equally challenged. Why? Pragmatically speaking, not everything that matters can be measured; and not everything that can be measured, matters (V.F. Ridgway). Geek out here on this.
What we can agree on however, is that the right measurement can help lead to goal achievement and peace of mind. Measuring things yields the data required to make sure you can accomplish what you set out to do. And when we feel accomplished - we feel good! Let’s kick into KPIs and other tools to help you gain clarity into your financial picture.
Quantify this: KPIs and Success Criteria
Key Performance Indicators (KPIs) and Success Criteria are two tools for performance management and are utilized by small businesses to measure progress and to assure goal attainment. In plainspeak:
A KPI is a specific, quantifiable measure of performance over time for a specific objective.
Success Criteria are the standards that a business can use to determine whether they have achieved their goals.
Your KPIs identify what is important; by setting and tracking them, you can define what's most important to you - and ensure you stay on track.
Why we love KPIs
Understanding what needs to be measured allows you to take meaningful steps towards building a successful business - and an optimally-lived life. Here are two key benefits of implementing KPIs for your finances.
KPIs can you help you:
Identify the goals you're working towards in your business.
Gain insights into how well you're progressing towards your goals - or if you're underperforming.
How do I develop a KPI?
KPIs can vary depending on your business. You may already have some experience creating these for a workplace evaluation. A good KPI has the following attributes:
Unique - Your KPIs should be relevant to *your* business and financial situation.
Quantifiable - KPI format should be clearly defined to ensure you know if you have achieved them.
Examples: Revenue growth, customer referral rate, customer satisfaction score, etc.
and Success Criteria . . .
Characteristics: Standards (or levels) that determine successful attainment of an objective, goal, target, etc. over time/budget.
Success Criteria: Business growth, entrepreneurial goals, consumers, entrepreneur satisfaction, etc.
Example: Increase customer reviews by 25%. We’ll track our progress via monthly reporting to see if we’re on target. 25% is an achievable goal as evidenced by the 18% increase of reviews last year. We will be measuring this against previous years’ performance (YoY).
Getting started: What steps should I take?
For this part, you’ll want to get introspective. Take your time. This is important, because you want to ensure you are measuring the right things. Just because you’re measuring something doesn’t mean it will ‘automagically’ happen. There’s also an element of accountability. That is, who, or whom will be accountable for the success or failure of the business? So that’s why this discovery phase is important. Here are some guidelines - get out a notebook or spreadsheet for this one. It’s cathartic and provides a reframe on what you thought you knew about your business.
EFC Pro Tip: While doing your retrospective, develop a draft report in a ‘story’ form. Using a narrative will help you validate KPIs - or spot what’s missing. Dream big!
Step 1: Reflect on the current year
What went well?
What are you enjoying?
What didn’t go well?
What are you tolerating?
Tip: Do this for your business, life, health, travel- it’s ALL on the table!
Step 2: Look ahead to the coming year
What are all the ideas we have?
What idea excites us the most?
What problems from the current year need solving or fixing?
Note: This too, covers home improvements, travel plans, fitness goals, business launches, etc.
Step 3: Map it out on your calendar
Using your own version of a calendar and different color markers (or colored fonts), begin by blocking off time for upcoming activities.
What activities are priorities? Family time, travel, days off, etc- mark those off first.
Step 4: Identify key measures of success
Marketing (how you talk to future clients)
Sales (conversions)
Clients (customer service)
Retention (client loyalty, long-term clients)
Internal (revenues, etc)
Determine which to measure and create a Tracking tool
Step 5: Draft your KPIs, quantifying wherever possible.
Examples
Gross revenues
Profits
Sales cycle length
# of new clients
# of prospects
Conversion %
# of new enrollees in a group program/course
# of FB lives done
# of podcast downloads or episodes recorded
Social media followers or group size
Youtube subscribers
Newsletter mailing list size
# of reviews on google, facebook, yelp, etc
Track how many reviews you're asking for
Personal/quality time
# of books read
Professional development
Again, KPIs are important to business and personal financial management for several reasons:
1. Measuring Progress: KPIs help businesses and individuals measure progress towards their goals. By tracking specific metrics, you can determine whether you are on track to achieve your objectives or whether you need to adjust your strategies.
2. Identifying Areas for Improvement: KPIs can help businesses and individuals identify areas where they need to improve. By tracking metrics such as sales, revenue, and expenses, you can identify areas in the business that need more attention or that are doing well – so continue doing what you are doing.
Frequency or Cadence of Data Tracking
Schedule time after the end of every month to review your financial reports including your KPIs. Be sure you keep your Success Criteria Tracking Tool up to date and analyze the information to determine if you need to make any short term course corrections in your business.
Measurement and metrics alone won’t guarantee your business’ success, the other important success factor is you! Aside from the obvious, your superpower is your good judgment. These are the lifeskills you’ve honed over time. Make no mistake, KPIs and metrics are an essential part of your organizational life. Use these to your advantage - whether it's your business or personal life. If anyone has a good KPI for raising cats, dogs or kids - or a unique KPI we’ve not heard of - EFC wants to hear it!
Unless you’re a data or stats nerd, this can feel pretty hard. But as Mark Twain said, “The secret of getting ahead is getting started.” Now is the time to prioritize your business’ financial life. Congrats, you’ve just taken the first step by reading this! So let’s take the next meaningful steps forward.
Click and Call: Schedule a free 20-minute Clarity Call on my calendar today to discuss how we can harness our financial expertise with your wisdom to grow your business and wealth!