Creating KPIs Is Usually Complicated, but It Doesn't Need to Be. Here's How

Strategy is hard, but not as hard as execution. KPIs solve this problem, but you need to get them right.

Growing and scaling a business requires a solid strategy and disciplined execution. As a business growth coach who's worked with dozens of high-growth companies, my job is to help leadership teams solve these challenges. Getting both of these right is key to helping a company reach the next level.

While strategy is hard, with a good process and a smart team that knows their core customer and the competitive landscape, it's generally not that hard to find a differentiated position that can help drive sales and profits. Most markets have white space that can be found and leveraged to create a niche.

Execution, however, is harder. Most teams get overwhelmed with day-to-day operations and putting out fires. They struggle to implement strategic moves and fail to improve processes to support growth and expansion. While strategy takes a lot of hard thinking, execution takes a lot of elbow grease.

One key tool I use to help teams execute is key performance indicators (KPIs). These are specific metrics that help us measure and manage key business processes. While it's easy to come up with lots of KPIs, it's hard to select the right ones that will really drive performance and growth.

The key here is to think of your business as a series of systems that work together to produce critical outputs. These include work products, loyal customers, intellectual property/assets, reputation, and, of course, cash. By thinking in systems, you can begin to identify what needs to be measured and managed for effective scaling.

Here are the key steps that I use to help teams identify the areas of the business that need KPIs, implement them, and use them to scale the business.

1. Identify your core processes

Every business is a series of systems and subsystems. Marketing, sales, delivery, customer services, etc., all have core steps and activities that feed into each other. Map these out and identify how they interconnect to create value for your customers and put cash in the bank.

2. Map the main steps

For each core process, map the core activities and how they work together. For marketing, this might be targeting prospects, developing offers, creating content, delivering content, capturing interest, qualifying leads, and handing off to sales. Each activity should have an input and output and some measure of success.

3. Brainstorm input, performance, and output metrics

For each core process, brainstorm three types of metrics. Input metrics are the activities that feed the process, such as cold calling for a sales team. Performance metrics show how the internal parts of a system are working, such as parts inventory for an assembly process. Output metrics measure outputs, such as quality for a manufacturing system.

4. Select two or three KPIs for each

Choose two or three of each metric type for each core business process. These will become your complete KPI framework for the business. While they might adjust and change as your business shifts and grows, they should remain reasonably stable over time.

5. Measure and baseline

Before you can start improving, you need to measure and stabilize each one. You can't improve a system that's not defined and stable. Take the time to standardize the steps and measure performance over a set period of time.

6. Establish growth and improvement targets

Given your strategy and future vision, set your key targets for outputs and then work backward. If you're producing 230 widgets a day currently and you need to be at 1,000 widgets a day in two years, figure out what other metrics need to change. While you might just need to include input metrics, you can also look at process metrics. Doubling your conversation rates on sales meetings will have the same effect as having twice as many meetings.

7. Set review rhythms

Set a clear schedule for reviewing and revising your metrics. As the business strategy evolves, the outputs, customers, and competitive landscape will change, and this will change your systems. Successful companies use this process to drive process improvement and innovation.

Understanding your business as a system gives you the perspective and tools you need to plan your growth. Getting the right KPIs in place will help you manage and accelerate your growth. Getting these right can make the process easier and faster. Getting them wrong can lead you down rabbit holes and frustrate the process.