Key Performance Indicators (KPIs) can make a huge difference in your business. Simply put, KPIs use data to track a key aspect of your organization’s performance. With precise growth objectives and accurate data, a dashboard of KPIs can paint a clear picture of what’s happening in your company and suggests new directions for growth and/or improvement.
Think of a doctor checking the electronic medical record next to a hospital patient’s bed to see at a glance whether they’re getting better or worse. Is the patient progressing as expected? Or is it time for a medication change or another procedure? If you can see and measure a problem, you can act on it, identifying and solving any performance issues.
To understand the power of KPIs, I want to tell you about Savannah, an up-and-coming entrepreneur who wanted to invest in a digital marketing campaign for her e-commerce handbag business… but didn’t have the cash. Or so she thought.
Savannah came to us about three years into her business’ growth because she needed to clean up her QuickBooks file and wanted the insights of a CFO, but hadn’t reached the point where she could hire one full-time. After getting her back on track with the bookkeeping, one of the first things I did was set up a KPI for inventory turnover. The numbers told me that turnover was slow. We then looked at an aging report of her company’s inventory and her problem became glaringly obvious: Savannah had a lot of old inventory that hadn’t moved for months and even years!
Everyone who has ever had an inventory-based business has fallen madly and deeply in love with their inventory. Like a stamp collector loves stamps. Like a cat lady loves cats. To Savannah, her inventory was a thing of beauty, eternally valuable, and precious as gold.
But I had no affection for her old inventory. To me, the inventory just tied up assets that when freed, offered the perfect solution to Savannah’s need. I told her she could afford the ad strategy if she did one simple thing: sell off enough old inventory to get the cash she needed.
But Savannah was in love. Her inventory was too beautiful to sell at a loss. It would be like selling the Mona Lisa at a garage sale. Blinded by her attachment, she couldn’t accept that her handbags didn’t appreciate in value like fine art.
As the classic Neil Sedaka song goes, “breakin’ up is hard to do,” and Savannah couldn’t accept that it was time to let go of that inventory. So I used the inventory turnover KPI to show her how turnover was slowing down over time, costing her money and growth opportunities. When she saw the situation mapped out in numbers and charts, she could see, as clearly as a doctor checking the patient’s records, that there was no way to avoid an amputation. So she called an “undertaker” (the retailer’s nickname for a liquidator) who gave her the cash to start her ad campaigns in exchange for a chunk of old inventory.
Those ads were a big success, driving sales and expanding her market reach… but that’s a story for another day.
No matter what your business, there are many KPIs you can use. You may be familiar with some of the most popular indicators, like Gross Margin, Net Profit Margin, and EBITDA, but there are dozens of KPIs that can help you grow your company. This Shoplify article lists 67 KPIs just for eCommerce businesses!
If you want to set up KPIs, we recommend starting with this article from SimpleKPI where they break down the process into 5 steps. In summary:
If that sounds like a lot to take on, we can help. Our team loves KPIs and our name is a tribute to the invaluable dashboards that contain these important indicators. So if you’re looking to drive growth by the numbers, give us a call and we’ll figure out which KPIs can help you diagnose the issues that are slowing you down and costing you money!
Carol Soman CPA
CHIEF EXECUTIVE OFFICER