Business Scaling

To Scale Your Company Successfully, You Have To Master The Art Of Creating KPIs

Rem Oculee is the founder and CEO of 9Q Ventures and Confidence Wealth Management. He also wrote the best-selling book, The Exit Mindset.

You’ve probably heard about the importance of using key performance indicators (or “KPIs”) in your business. But how often do you really think about them? Are they woven into the fabric of your company? If not, they should be because they are crucial.

How crucial are they? Let me put it this way: You cannot scale without KPIs. In fact, if you don’t make them an integral, day-to-day part of your organization, you might as well stop wasting your time trying to run your company, let alone trying to grow it. That’s how crucial they are.

Used correctly, KPIs allow you to drive your company’s growth in a meaningful way. That’s because they eliminate ambiguity and confusion. You no longer have to second-guess whether you’re achieving an outcome that will drive growth.

With the right KPIs, you always know where you stand. If you are achieving your goals, you can confidently stay the course. If you aren’t, you can quickly pivot and fix the problems that are hindering your growth.

All that being said, though, I want to make one thing very clear: There’s an art to creating KPIs that will help you scale. And if you want to harness their power, you need to master this art.

Create a master KPI.

When you’re thinking about KPIs, the first rule to live by is that you should create one, not dozens or hundreds.

If that brought you up short, I understand. So many entrepreneurs and business leaders think they have to track every single thing. However, that’s inefficient, unrealistic and unwieldy. Instead, focus on creating and measuring one master KPI—whatever the thing is that you must get right if you want to grow and scale.

Perhaps you know that increasing your sales will make the biggest impact on your growth. In that case, look at your sales revenue or the number of units sold. However, don’t initially try to measure how many units each individual customer purchased and your customers’ demographics; there is a time for this later in the process.

Remember, we are talking about key performance indicators here. Yes, all the performance indicators are important, but if you try to focus on hundreds of pieces of data, you’ll quickly get overwhelmed. You won’t be able to use that much information in any meaningful way.

Look for the biggest impact.

When it comes to determining your master KPI, ask yourself how much difference tracking this one thing will make. At the same time, consider how long it will take to see the effects of measuring this particular indicator.

Often, as you ask yourself these questions, you will find that you have a big objective, but achieving that objective will take time. As you’re working toward your goal, remember that you have to make sure the company remains sustainable. Determining your master KPI, then, requires you to balance achieving your long-term objectives with keeping your company healthy in the shorter term.

To strike this balance, you might need to create short-term initiatives. You can parse out your initiatives into a five-year plan, three-year plan, one-year plan, quarterly plans and so on, right down to a weekly plan.

However, as you do, don’t lose sight of your master KPI. If you aren’t getting the results you want, ask yourself why. Is your execution flawed? Or are you measuring the wrong thing? Take some time to objectively investigate the source of the problem. Once you think you’ve identified the problem, take steps to fix it so you can keep moving forward.

Use sub-KPIs.

Once you’ve defined your master KPI, if necessary, you can drill down into what I call “sub-KPIs.” These are indicators that fall under the master performance indicator; you can use them to identify problems that are interfering with your master KPI.

For example, perhaps you’re having trouble with your sales. Rather than changing your master KPI, you can create sub-KPIs to figure out where the problem lies. Perhaps you do this and realize that though you are selling to a large customer base, you lack customer retention.

Now that you’ve identified which sub-KPI you’re having trouble with, you can come up with a solution for it. After you implement the solution, you can continue to track the sub-KPI to make sure it fixed the problem. At the same time, of course, you should continue to monitor your master KPI to make sure everything else is running smoothly.

If it is, great. If it isn’t, you might need to drill down to a different sub-KPI to figure out what the problem is, then solve it. Eventually, it just becomes a matter of repeating this process: Track the master KPI; determine if there’s a problem; if so, create a sub-KPI; come up with a solution for the sub-KPI; track to ensure your solution is fixed; go back to monitoring the master KPI.

More isn’t necessarily better.

Most entrepreneurs I talk to have far too many KPIs. They have the best of intentions, but they quickly get bogged down in the details. That’s why it’s far more practical to abandon the idea of trying to measure dozens (if not hundreds) of KPIs in favor of focusing on one.

Remember, you can always create sub-KPIs or come up with short-term initiatives. Both of these things will help you keep your business moving forward in a healthy, sustainable way.

The bottom line is that nobody has the time or energy to come up with and measure huge numbers of KPIs. Honing in on just one, though? Anyone can do that. Best of all, working off one single master KPI will help you keep your company moving forward and scaling, regardless of what industry you’re in.


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https://www.forbes.com/sites/forbesbusinesscouncil/2022/07/28/to-scale-your-company-successfully-you-have-to-master-the-art-of-creating-kpis/

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