Are your KPIs driving net profit? 90% of the entrepreneurs we surveyed don’t

Are your KPIs driving net profit? 90% of the entrepreneurs we surveyed don’t

If you dig deep and try to understand the topic of KPI, a strange situation arises. An entrepreneur monitors dozens of indicators every day, employees translate a bunch of reports and Excel tables, and the profit does not increase.

We only “tax” ourselves with a lot of data, metrics, so as not to miss when something goes wrong. Or to see if our progress is on track. And we try to rely on numbers when making decisions. This is a good approach, there is no dispute. However, in the implementation of this approach, many people encounter errors. Thinking that it is enough to simply set targets, tie the motivation of each employee to them, and then the mechanism will generate profit. As a result, the resulting data can not only not help, but also harm the business.

In this way, KPIs are transformed from a good tool into another piece of bureaucracy something, which does not show the real contribution of the team to the financial result. And there are several reasons for this. buckle up we go on a tour to a company where KPI has been twisted so much that it is about to be abandoned.

What is the focus?

Any company starts with people. Therefore, to begin with, let’s go to the HR department and see how everything is arranged there.

We see a lot of interesting things. The table with the hiring funnel attracts the most attention. The fact that it exists is already a good signal. This means that the process of searching for and attracting candidates is digitized somehow. To be honest, you won’t find this in everyone, that’s why there are so many surprises.

But, of course, the KPIs of specialists are even more surprising. For example, such an indicator as “the number of conducted interviews per month.” Let’s think: how does it affect the motivation of employees, what actions does it encourage?

Of course, if the goal is to conduct many interviews, then HR will strive for this result. Instead of qualitative screening at the resume stage, they will invite more non-target people for interviews. Instead of deep onboarding talented newcomers, HR will spend time on online calls with people they might not have even invited. The mechanism works, people try to fulfill the goals by the number of interviews. And at this time, the company is losing money because they haven’t been able to find a manager for the burning project for 2 months. The burning project, by the way, became precisely because of the lack of the right person.

Have you noticed what the matter is? A set KPI drives activity for activity. Instead of focusing efforts on getting the result – selecting and introducing the right person, the focus is on actions that are only a fragment of creating a result for the company.

And what to do? Obviously, it’s worth checking how each KPI relates to company goals and revenue impact. If you are interested in more detailed considerations, write in the comments, we will analyze it.

The NPS trap

We go to the sales department and see another trap. We’re not talking about cheese and mice, of course. And about the one that many founders fall into, choosing the customer satisfaction index as a KPI for the sales department.

Let’s predict that the comments will be hot, because how can we make an attempt on the sacred NPS. But let’s think about how this indicator is related to the efforts of the sales growth manager? Are customers satisfied, so they will come back and buy again? Okay, so the goal is repeat sales. Then why not set the appropriate KPI?

We also hear that NPS supposedly encourages salespeople not to engage in aggressive sales and try to squeeze everything out of the client here and now. That is, it is a certain indicator that prevents sales from going wild. First of all, it is worth paying attention to the recruitment company if werewolves get into it. Secondly, won’t the repeat sales rate motivate the seller to build long-term relationships with the client?

Overall, our thesis is that NPS is not the best KPI for sales. It is practically not related to the financial indicators of the company – a satisfied customer will not necessarily buy more. In addition, this indicator does not motivate salespeople to repeat sales or increase the average check. But this is a suitable KPI for, for example, a product, because it will point to poor areas in the user experience.

Therefore, we recommend (but do not insist) more often ask yourself the question “Are the established KPIs accurately related to financial indicators?”. And choose those KPIs whose impact on profit is transparent and undeniable.

But there are creative professions…

OU yes. The effectiveness and efficiency of such employees is really difficult to measure. Designers, for example. Or developers. Although stop. Is it difficult or we just don’t understand how? Therefore, we set the number of lines of code as a KPI. And the copywriter – the number of characters. Here are the “quantitative” indicators.

Such an indicator of efficiency and effectiveness will say a lot about the graphomania of the developer and copywriter, but how does it reflect the impact of employees on the company’s income? Why this indicator exists at all, if it does not reflect what we need, is unclear.

In fact, the effectiveness of creative employees can and should be measured.

Here we will allow ourselves to interrupt the material so that you can offer your KPI options for professions such as developer and designer in the comments. And let’s discuss them together.

And next week in our Telegram channel, we will publish a white paper on how to set KPIs that affect profit, where it seems impossible.

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