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What is a KPI and why is it essential for your company?
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving its operational and strategic objectives. Organizations use KPIs at various levels to measure their success in achieving goals.
High-level KPIs can focus on overall company performance, while low-level KPIs can focus on processes across departments, such as sales, marketing, or operations.
What makes a KPI effective for your company?
A KPI is only valuable when it inspires practical action. Organizations often mistakenly adopt the most famous KPIs in the market and then wonder why the KPIs do not reflect their own business and fail to affect any positive change.
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Applying the KPI in the practice
In terms of developing a strategy for formulating KPIs, your team should start with the basics and understand what your organizational goals are, how you plan to achieve them, and who can act on that information.
This should be an iterative process involving feedback from analysts, department heads and managers. As this quest unfolds, you will gain a better understanding of which business processes need to be measured with KPIs and with whom this information should be shared.
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Examples of KPIs
Cost Per Unit
The price to produce, store, and sell one unit of a specific product, including fixed and variable production costs.
Formula: ([Variable cost] + [Fixed cost]) / (Number of units produced) = Cost per unit
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Operating Cash Flow
The amount of cash generated by the company’s core operations.
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Customer Lifetime Value
The net profit a business earns from a consumer over the entire length of the purchasing relationship. This can help determine the costs and benefits of acquisition efforts.
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Number of Customers per Employee
Indicates the workload per employee and the number of hours the company has available for each client.
Formula: (Number of customers) / (Number of employees serving these customers) = (Number of customers per employee)
So, what’s your opinion on KPIs? After following our explanations, was everything clearer? Tell us in the comments…
If you want to rely on experienced accounting advice, capable of providing the best strategies for your company to improve financial performance, get to know CLM Controller’s solutions now.
If you want to rely on experienced accounting advice, capable of providing the best strategies for your company to improve financial performance, get to know CLM Controller’s solutions now.
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