Date: September 5, 2020
You’ve probably heard of KPIs and how they CAN help your business but maybe you’re like a lot of my clients and aren’t really quite sure which ones apply, how to know if you’re doing well or not, or how to set them up and monitor them.
KPI’s are Key Performance Indicators – a fancy term for metrics that are directly tied to your organization’s goals and mission. They are the measurements of how well your business is doing, how productive your employees are, how profitable your products and services are, and so much more.
While each industry has different measurements that are ‘key’ to the organization’s financial health, the KPI’s that are most important to any service organization are as follows:
- Labor to Revenue Ratio (how much of your revenue goes to paying your team)
- Gross Profit Margin Ratio (how much it takes to actually create/produce/deliver your goods and services)
- Net Margin Ratio (how much of your revenue you actually get to keep in the form of profits after the rent and all your other expenses are paid)
These KPI’s are crucial to the continued growth and success of your business. Any scaling company needs to be aware of how to measure these metrics, and know what to do when they are ‘out of line’. KPI’s are kind of like vital signs – if one of them is out of whack it’s usually because there is something wrong beneath the surface. If it goes on long enough without being addressed other problems will start to surface and your business will suffer.
If you’re not sure how to calculate these measurements, or what ‘good’ ratios are that you should be hitting each month, we’d be honored to help you dive into this crucial aspect of running your business.