IDEA: What are your most important KPIs (key performance indicators) for your business? Track them daily and see improvement.

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There are lots of KPIs (key performance indicators) and they are all not relevant to all businesses. The importance of this list is to choose those relevant to your business and get the information published for management every day.  The first thing that will tell you that you have problems in your firm is the delay you run into.  When you are told it is not available, not prepared, lost, reportedly not accurate, you have uncovered some problems.  Some of your employees working without strong supervision will tell you they don’t have time to calculate everything that was sold or write down which sales orders shipped and which did not.  Just the problems you experience gathering the required daily data will tell you which organizational problems you need to fix quickly (training, new supervision, new employees, etc.).

If you are not watching these indicators about your company’s performance every day, you will increase your bottom line just by starting this process.  When managers are provoked each day by bad data or poor performance, they are much more likley to react which is healthy for your firm. You want these managers to react when they see problems arise.  Their necessary reaction will help your company so do not allow these important reports to be ignored or skipped. Ask for them every day.

Key Performance Indicators (KPIs) to select from and track for your company:

  • Backlog:   What is the sales value of your customer order backlog today?  (total sales orders received from customers that have not been assembled and shipped as completed product sales)
  • Late shipments:  What are the oldest jobs not yet shipped? Who is the customer?  Why are orders late? Who has already spoken to the customer to notify them of the late shipments?
  • Net sales day and MTD:   What was the value of shipments netted against any credit memos (net sales) out the door yesterday and MTD?  Why is it behind monthly forecast given by sales personnel?
  • Active customers/concentration:   How many active customers do we have now (cash and credit)?   Who is the largest? Who is the smallest? Is it concentrated or spread out?
  • New customers:   How many new customers have issued purchase orders to your today and MTD?
  • Late quotes to customers:    How many RFQs (requests for quotes) are received as of today, not answered and still outstanding to the customer?  How many are past the due date that we promised to respond?  Who called those customers and told them the status of their RFQs inhouse?
  • Missed opportunities:    Did anyone tell a customer “no” yesterday and why? (Reasons:   We are out of stock, we do not sell that product, we do not have that color or quantity, we do not ship to that area.  Gather all of the reasons to evaluate market opportunities currently being missed or training that needs to be done with your misinformed sales personnel).
  • Billings:    How many and what is the dollar value of all the invoices that have not been sent to customers as of today?  All unbilled invoices should be under a day old. Are there any more than one day waiting to be billed and if so, why are they delayed?  Who are the individuals (inhouse personnel, freight companies, internet portals down for maintenance) responsible for holding up the invoicing to the customer?
  • Accounts receivable:  What are the past-due amounts and specific customers (per their payment terms; some may be Net 30, some may be Net 45).
  • Sales returns:   How many sales dollars were returned yesterday?  What was the dollar amount and the reason for the return or product rejection?
  • Payroll overtime:   When sales are down and the plant is not busy, ask for a list of everyone who was paid overtime every day and the reason why. (Not at the end of the week when it is too late to correct.)  This question is not as important when your business is booked, production is busy and must meet various customer shipment deadlines.
  • Inventory value:   What is the value of the company’s total inventory (all locations, raw materials, work-in-process and finished goods)? Is it rising when sales are declining? or dropping as well.
  • Inventory obsolete/overstock:   Define the age that your company inventory becomes less valuable or obsolete and cannot be sold so that stock can be sold at a much lower price or if necessary, scrapped. How much is the value on the books for that aged and overstock inventory as of today?
  • Open purchase orders:  What is the value of everything the Purchasing department has ordered that has not arrived (open purchase orders)?  Is that dollar value justified when sales dropping or is it too low and needs to be corrected given the sales orders seen and projected to be on the rise?
  • Sales calls /visits /inquiries:   How many sales calls were made (in person), cold calls on the telephone, calls to random inquiries from mailers, handouts at trade shows or business cards swapped? There should be a number accumulated every day.  Sales personnel should be speaking with customers and potential customers every day.  If they are tied up with clerical work, reassign those duties and get them in front of customers since sales calls generate sales.
  • How many customers were talked to yesterday?  MTD?     If no one knows this, you need to talk to your sales manager since he should be monitoring all of the sales calls because his reps should be talking to him and reporting their discussions.  Your sales manager should help to decide where your sales personnel are going to call on potential customers.  This should be determined by your marketing group who is publishing a list of good customer candidates from various industry and private sources.

Please note that this list does not include commonly used financial ratios that are normally calculated at the end of a month, quarter or year for primarily finished financial statements.

Commonly used financial ratios (calculated at the end of a financial period) include:

  1. Quick ratio, (cash + AR/Total cur liab)
  2. Current ratio, (Total cur assets/Total cur liab)
  3. Current liabilities to net worth, (Total cur liab/ net worth)
  4. Current liabilities to inventory, (Total inventory / net worth)
  5. Total liabilities to net worth, (Total liabilities / net worth)
  6. Fixed assets to net worth, (Total fixed assets / net worth)
  7. Inventory turnover, (Sales / inventory)
  8. Assets to sales, (Total assets / sales)
  9. Sales to net working capital, (Sales / net working capital)
  10. Accounts payable to sales, (Accounts payable / sales)
  11. Return on sales, (Net profit after taxes / sales)
  12. Return on assets, (Net profit after taxes / total assets)
  13. Return on net worth, (Net profit after taxes / net worth)
  14. AR collection period ((Accounts receivable/sales) X 365 days))

 

 

 

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