Utilizing a specific set of metrics to measure success creates accountability and helps businesses monitor how well they are performing. Goals and objectives vary based on the industry, department, and size of the business. One tool that measures whether a company is meeting key objectives is a KPI dashboard. Businesses can pick their own KPIs and then track and manage their progress on a dashboard.
KPI dashboards not only measure performance, they generate insights that help streamline business processes, improve operational efficiency, and increase revenue. Here's an in depth look into KPI dashboards and why every industry can benefit from utilizing them.
Dashboards are interactive, user-friendly tools utilized to manage business data and extract relevant business insights that can help make better business decisions. Dashboards offer a comprehensive overview of an organization's internal departments' goals and projects in real-time.
Dashboards can be overarching or focus on narrower aspects of an organization. For example, a dashboard can show the annual company revenue or total sales by each franchise location. Or, it can be more personalized to show an individual employee's sales, completed tasks, or hours worked.
A KPI is a quantifiable measure that demonstrates how effectively a company is meeting business objectives. Businesses utilize KPIs within various departments (sales, finances, marketing, human resources, etc.) to track performance over a given time.
To develop a strategy to formulate KPIs, organizations should understand what their short term and long-term goals are and why. Smaller businesses will have different, lower standards for measuring KPIs than larger businesses because they don't have the same type of resources.
Though KPIs vary depending on the size and scope of the business, some are typically based on-
- Revenue Growth Rate
- Net profit
- Project Schedule Variance (projects completed on time)
- Churn Rate (how many people stop utilizing product/service)
- Average Revenue Per Customer
- Customer Lifetime Value (the total worth of a customer over the entire period of their relationship with the business)
- Accounts Receivable
- Sales by Region
- Expenses vs. Budget
Some of the top reasons that businesses utilize KPI dashboards include-
1. Increased Operational Efficiency
KPI dashboards can utilize both historical data and current real-time data. This gives decision-makers the ability to quickly view and compare the effects of any changes in business processes.
If there was a change in operational processes that had a negative outcome, the team can identify it and adjust strategies or revert to the original process. Monitoring changes in this manner allows decision-makers to reduce unnecessary actions and plan for the future.
For example, a sales team manager may tell his team to start calling prospects that are in an older demographic as an experiment to see if it leads to an increase in revenue. After 6 months, the manager looks at his KPI dashboard and realizes that only 2% of those prospects became paying customers. Because the conversion rate is so low, and it took valuable time and resources to contact those prospects, the manager knows it was a mistake. He then tells his team to stop contacting these prospects and revert to calling the original leads they were contacted before the experiment.
2. Increased Bottom Line
Dashboards can perform automated data cleansing, or detecting and correcting corrupt or inaccurate records from a data set. They can also take data from multiple sources and put them into one, readable format. Because of these capabilities, businesses can find answers to questions on the dashboard, create reports, and analyze data in unique ways that were not possible before. Organizations can discover new ways to take actions that directly affect the bottom line.
For illustration, a restaurant owner may utilize a KPI dashboard to track the profit margin for every menu item that sells over a 3-month span. He notices that the cinnamon pancakes sell more than any other menu item. The owner then decides to run a targeted advertising campaign to promote the pancakes, leading to an increase in sales.
3. Data-Driven Decision-Making
KPI dashboards' ability to cleanse data for inaccuracies and update data in real-time ensures that only the most relevant information is available to the user. Decisions can be based on hard evidence and statistics rather than gut instinct alone.
Dashboards also can utilize historical information to predict future trends, which helps make informed decisions pertaining to the company's future.
For example, the sales manager may notice that a team member has not made enough sales to meet his quota for the past 6 months. Given the historical data, the sales manager presumes that the employee will probably continue to not meet the quota for the next month. He is now armed with data that justifies giving the employee a warning or letting him go.
Different industries utilize different key performance metrics to track how well their business is performing. Some frequently utilized dashboards include-
1. Retail Dashboard
Retailer dashboards are specific to retail brick and mortar and online stores. They utilize different metrics to track employee behavior, improve operational efficiency, and increase their bottom line. Some typical metrics to measure performance are-
- Gross Margin This metric measures the profit return on the dollar amount invested in inventory. This helps analyze how the business is performing overall, financially.
- Sales Per Square Foot This metric tracks the average revenue per foot of sales space. This determines whether sales space is utilized efficiently, or whether a downsize may be necessary.
- Inventory Turnover -This metric refers to how much stock is sold during a defined time. This helps to determine whether inventory levels are too high or low.
- Average Purchase Value This metric determines the average dollar amount per transaction in a given period, which can help optimize sales and pricing strategies.
- Total Sales Count This metric refers to the total number of transactions within a store at a given period. This can help align employee scheduling and improve marketing and customer service efforts.
- Return Rate This metric measures how many products are returned within a given period. This can help owners know which products are deficient or unpopular, improving customer service, and decreasing wasted resources.
- Profit Margin This metric allows retailers to know how much money is made after deducting the cost of goods sold. This helps to know when to adjust operational costs and the prices of items.
HR departments utilize dashboards within many different industries to keep on top of staffing needs, reduce absenteeism, and increase employee productivity. Some of the important KPIs include-
- Absence Rate The number of absent days divided by the number of available workdays in a month. Managers can utilize this to confront an employee about excessive absences. It can also demonstrate which times of the year correlate to more absences, like flu season.
- Total HR Costs This metric tracks how much money is spent on hiring/maintaining/training employees during a given time. Adjustments can be made If the cost is over budget.
- The Number of Hires This metric tracks how many employees were hired within a given period. This helps HR determine how many training materials to prepare and how hiring costs are allocated.
- Cost Per Hire HR can utilize this metric to see how much money is spent on new hires. They can then look at the retention rate KPI to see if they are spending too much money hiring employees that end up leaving.
- Retention Rate This metric shows how many long-term employees there are. This number can be utilized in accordance with Cost Per Hire as described above.
Some KPIs frequently utilized on financial dashboards include-
- Profit & Loss The gross profit and gross profit margin are combined to create profit and loss, which shows how much money is left after tallying up the price of goods. This demonstrates how viable the business is in present time and moving forward.
- Opex to Sales Ratio This metric measures how much it costs to run the business versus how much is brought in from sales. This tells how much needs to be spent to close a deal. A low Opex to Sales ratio infers that the organization is more streamlined and efficient.
- Debt to Equity Ratio This metric is utilized to gauge the lost value of potential earnings. It can help measure the ways growth is funded and how efficiently shareholder's equity is utilized.
- Accounts Receivable Turnover This metric conveys how many times outstanding debts are collected in a specific accounting period. This demonstrates how effectively a company is extending credit and collecting payment from clients.
- Relative Income Per Customer Type Most frequently utilized in retail banking, this identifies which types of customers bring in the most money to organizations. This information can be utilized to market towards that specific demographic.
Sales leaders within every industry need to track the status of leads and look for revenue opportunities. Some of the most frequently utilized KPIs on sales dashboards include-
- Sales by Region This metric demonstrates the total amount of sales per region, which helps individual locations visualize how they compare with other locations.
- Top Performing This metric shows the employees who are making the most sales. This helps the sales manager see how team members are performing and challenge others to exceed goals.
- Cumulative Sales This metric is the total number of sales within a given period, typically measured by year. Managers can utilize this information to see whether the sales team is performing as well as the previous years and encourage a higher level of productivity.
- Commission Payable This metric refers to the total amount of commissions paid out within a given period. Commission payable metrics help managers track individual team members' performance.
- Lead to Sale Conversion Rate This metric tracks how effective the sales team is at converting a lead into a paying customer. This informs managers of how their team is performing and establish which marketing and sales tactics are most successful.
1. Plan & Strategize
Strategizing to build a dashboard can be overwhelming, especially if an organization has several different departments, office locations, or franchises. To avoid feeling overwhelmed, start small.
Consider which team members, locations, and departments will need the dashboard and why. Segment dashboard users into different categories (i.e. sales department, marketing department, etc.).
Then, determine what their overall objectives are and what will help them perform their jobs most effectively.
2. Define Data Types
Consider the different data sources that will connect to the dashboard. Examples include Customer Relationship Management systems, which are systems that track and manage customer behavior/purchases. Others include social media insights, financial files, and spreadsheets. Ask the following questions-
- Are the sources reliable?
- Are they all necessary?
- Can they be easily integrated with the dashboard?
3. Consider How Tech-Savvy the End User is
Dashboards should be user-friendly and intuitive so a wide variety of employees with different technical capabilities can utilize them.
Users should be able to easily navigate the dashboard and filter through data to find the specific information needed. Make sure to give visualizations intuitive titles so the metric is aligned with a specific business goal.
4. Retrospective & Real-Time Data
Ideally, dashboards should utilize historical and real-time data so the company has a complete picture of financial or sales data and forecasts of future events.
For historical periods, consider how far back the data should run to provide helpful insight into what is happening in real-time. For present data, make sure any outliers are highlighted on the dashboard so users know that data/circumstance is out of the norm.