If you are serious about investing your efforts into activities that deliver tremendous value to your company, you need to learn about KPIs.  

One of the challenges with KPIs is there are multiple meanings for this one acronym.  KPI is an acronym for both Key Performance Indicators and Key Predictive Indicators. As someone who works as an advisor for business owners, my clients are concerned primarily with the future of their company. As such, for this post, we are using KPIs to discuss non-financial Key Predictive Indicators.

A key predictive indicator is a financial or non-financial data point which serves to correctly identify what the future holds.  

Business owners and their bankers are concerned with the future of their companies for many great reasons.  They have families to support, house payments to make and their business usually represents their greatest source of wealth.  

Accountants, on the other hand, generally concern themselves with taxes and financial statements.  The challenge with financial reports and taxes is the information is stale. By the time you hand over your tax return to your banker the information is at least four months out of date and sometimes a year.  The information your bank is using to make financing decisions should be made on current information.  

Many business owners don’t care about financial reports because the information doesn’t mean anything to them.

What if there were a way to use past information to know what the future holds? Wouldn’t that information be tremendously more impactful and meaningful than just financial statement ratios?  

Unlike palm reading or psychics this form of knowing the future is dependent on the information we can track now.  If you know what to track, you can lead your company and guide the future direction. 

The information you can know now is exponentially greater than ever before in history.

The global consulting firm McKinsey coined the phrase, “What you can measure you can manage.”  This idea led to an explosion of data tracking.  

That doesn’t mean all information is meaningful.  

Most of the information has no impact on your business.  You really don’t need to manage every bit of information being generated by your business.  There are only a few bits of information that really make a difference.

Your job is to find the few that matter.

A prerequisite for a solid KPI is to choose something you can control.  

Most of the information we digest is beyond our circle of control.  Most news media is designed to elicit an emotional reaction. Unfortunately, 99.9% is outside our control and doesn’t impact our daily lives (at least not positively). 

While this seems elementary, many people concern themselves with data points that are results.  Web site hits. Sales. Web form submissions. The problem with these is they reflect what other people are doing.  

You need to focus on what you can control.  

Those website hits, inbound phone calls, and web submissions were a result of something that happened in your business.  Sometimes this was money spent on advertising- shiny new webpage or a great product launch.

The more granular you can track your activities, the better you can understand your business.  

The best way to do this is to backtest your theories.  Have you purchased a product and the salesperson asked you how you heard about their business?  They are tracking the effectiveness of their sales channel. They are tracking what works to know if it is worth their time and money for the future.

The 80/20 principle is certainly at work here. The majority of your results are impacted by only some of your activities.  Go back to your most recent win. How did that happen?  

Write down the steps your customer traveled to arrive at your doorstep.

Now, what exactly did you do?

Was it a video you recorded, blog you wrote, Facebook live event you hosted, workshop you presented, phone call you made or something else?  This is fertile ground to search for the most impactful indicators. These are what are driving your business.  

Find a method to track your indicators

You’re not surprised an accountant is telling you to track something, are you?  As a professional tracker, I sleuth down information for clients and use it to make sense of their businesses.  

You can track this in any format possible.  Use your customer relationship management (CRM) software and track touchpoints with your clients.  You can use a spreadsheet and record it monthly. 

Then you need to study it.

Economists and statisticians have fun with this one.  They establish dependent and independent variables and chart the data to understand the information.  

You don’t need to use fancy software or establish the correlation coefficient to sales.  However, in some way you need to know the few activities leading to big results. Like small hinges that swing big doors, these are your most impactful activities.  

Then, do it again.

Effective management is iterative.  It repeats the same thing over and over.  And over and over.  

Constantly identifying new ways you are reaching your customers and new processes or channels impacting your business.  This is one of the highest uses of your time as a business owner. The more effectively you can identify these “small hinges” and use them, the more your business will prosper.  

Make a list of major wins in your business over the past year.  Write down all the actions that happened which led to that win. Trace each action back to a step made by someone at your company.  Organize your list by the most frequent answer. Your most impactful indicators will start to rise to the top. Make these actions part of your monthly rhythms.