In a recent webinar, Aspire Software Founder Kevin Kehoe addressed how great of an impact KPIs can have on a business. Not only do KPIs make sure your teams are on the right track, but they can also enable informed decision-making that can help your business grow. But first, it’s important to note that not all KPIs are alike. In fact, there are ‘big’ KPIs and ‘little’ KPIs.
What’s the Difference?
During the webinar, Kevin discussed how big and little KPIs differ using a map to illustrate the concept. In comparison, big KPIs are like a map that shows the whole picture, or direction, you need to drive to reach your destination; little KPIs, on the other hand, dig into the details, so instead of simply being told drive west, you are given specifics about which roads to take and when to make your turns.
“If you miss one of your turns, you’re going to end up in an entirely wrong place,” Kevin explained.
In other words, the big map is strategic, meant to give you a good idea of where you’re heading, while the little map is tactical, providing the details you need to reach your destination.
The same concept applies when looking at your KPIs. These metrics provide a broad understanding of how your business is performing and whether you’re heading in the right direction. However, if you want to make changes to improve your overall performance, you’ll need to dig into the details—or your little KPIs—to know which turns to take.
Any plan should start with a base line. Ask yourself, "Where am I today and what do I need to do strategically and tactically to achieve goals such as driving net profit?” Once this is established and you have the details of your business laid out, understanding how to utilize your data to develop a plan for future growth becomes much easier.
Rolling Budget (Big) KPIs
Let’s consider a landscaping business with a diversified business mix consisting of maintenance, construction, enhancements, irrigation, and arbor—each of which sees a different return on investment for labor, overhead, and equipment.
While understanding ROI is certainly helpful, this calculation alone does not provide a complete foundation for building a solid plan for the future. When looking at each area of your business, you must also consider that different services typically provide different leverage rates.
For example, in the business described above, maintenance requires $1 in labor for every $2 earned while construction only requires $1 in labor for every $4 earned; yet maintenance was more profitable than construction. This may occur because maintenance has less overhead and fewer equipment costs; regardless, the key takeaway from this example is you need to understand both the leverage rate and your net profit for each service before making decisions.
By identifying services with a better leverage rate and higher net profit, you can determine areas where you should focus on driving growth to ultimately increase your overall net profit. These are typically the areas where your business excels and thus hold the most potential for growth, but expanding these may require change, such as hiring additional employees, to meet the growth and support revising your service mix.
Once finalized, you can use this plan as a forecast for your upcoming months, quarters, and possibly even years. By continuing to utilize it as a roadmap for the future, you can ensure your company stays on the path to success.
Operational (Little) KPIs
From the rolling budget, a plan for revenue and sales starts to develop, although at a much more granular level than the rolling budget.
When you identify a service that you’d like grow because both its leverage rate and net profit are good, you’ll need to adjust your sales projections to accommodate.
Additionally, when reviewing how each service is impacting your net profit, you can assess whether there are services that need improvement. If you’re losing money or not netting enough profit, then it may be time to raise your prices or eliminate costs.
You must, however, continue monitoring your progress throughout the year. You need to stay aware of what was already sold and produced, what’s in the queue for production, and what is currently in your pipeline to determine if you will reach your goals.
In close relationship to revenue and sales is production. Production is, in essence, earned money. Knowing what work is complete and what’s in the queue as well as the pipeline is as important to production as it is to sales.
At the end of the month, you planned to have a set amount of work accomplished. Did you achieve the goal? If not, something will need to change so you can meet the goal in the future—or it’s time to restructure the plan.
Service, on the other hand, is more qualitative than quantitative —but equally as important. You want to ensure that internally the quality of work measure up to your expectations and externally the work meets your client’s expectations. Using tools like site audit in Aspire business management software or a similar method to assess each job provides you and your team with insight into your performance. You may discover that your clients aren’t pleased, or your teams are spending too much time per project.
Staying on Target
Where the rolling budget provides the roadmap for sales and production, service KPIs offer clarity into how sales and production are performing. Depending on where you’re seeing progress, you may need to lead and manage your team differently.
At the end of the day, KPIs are only beneficial if you use them. Always keep your eyes on your KPIs to reach your goals!
If you’d like to view the recording of the webinar, “How to Use KPIs to Increase Net Profits,” click here.