Hello beautiful business people!
Today I’ll show you how to spot problems before they happen:
- The better way to track KPIs
Let’s do it!
Financial statements show a company's past. But how do you predict the future?
You need a Key Performance Indicator system for your company.
KPIs aren’t a new idea. Lots of people do them. But they often end up super complicated. So here’s my simple, effective method.
I’ll illustrate with my company Near, which helps companies hire nearshore employees in LatAm.
Here’s a screenshot of their KPIs (actual #'s removed!).
In a straightforward spreadsheet, you can see the future of the business.
Identify the fundamentals
Every business is a machine that exists to fulfill certain functions. At the highest level, Near does the following three things:
1) Market
2) Sell
3) Fulfill
So, we make each of these functions a category in our spreadsheet.
Identify core numbers
Figure out which numbers will give you a good picture of the health of each function.
Your goal is 15-20 numbers max. More than that, and you’re getting too complicated.
Each number is owned by a single teammate, who is responsible for updating the KPI sheet on a weekly basis. That’s their initials on the left.
Choosing the right numbers to track is what makes KPIs useful as predictors of your business. You want to track leading indicators (not lagging ones) and follow them through.
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Using Near’s example, they track new contracts signed.
But that’s actually a lagging indicator of how many sales calls they have.
This is a lagging indicator of how many sales calls they book.
You could keep going to emails sent or leads identified if it makes sense for your business. The important thing is that they’re activity-based numbers — stuff you control.
Tracking the early steps of your main functions has two benefits:
- You get an early warning system. If Near sees a drop in sales calls booked, they’ve got three weeks’ warning that new contracts will take a hit. Speed is everything.
- You learn to predict better. Knowing how many booked calls turn into actual calls, and how many actual calls turn into contracts lets you figure out the formulas you can use to predict future business.
Here are Near’s KPIs for Sales:
Once we’ve found the right numbers for each of your business’s core functions, there’s one more to add:
Business health / financials.
Because none it matters if we run out of money.
These are the business health numbers we landed on for Near.
Step 3: Track the KPIs regularly
We keep it simple with a shared Google Sheet.
Most of the numbers get updated every week. (Again: speed is everything.)
Then at a weekly L10 meeting, leadership reviews the numbers, identifies any trouble brewing, and decides what to do about it.
Sales funnel drying up?
Marketing not getting us quality leads?
Close rate going down?
Tracking smart KPIs weekly lets you see problems BEFORE your bank account suffers.
Instead of seeing sales go down in Q4, you see a hiccup in sales calls in Q1 — early enough to do something about it.
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I love this system because it's simple and cheap. No fancy software packages to buy (or break).
Just a simple spreadsheet built into the rhythm of the business.
Perfect for SMBs.
You avoid surprises and make more money.
What do you think?
Michael
