circle
logomenu
circle

KPI Examples: How to Calculate Key Performance Indicators

Aleksandr Fedorenko
7 min read
03.09.2020

Any businessman understands that it is impossible to carry out all types of activities on his/her own at the next stage of business development. The best solution is to hire employees to share responsibilities with them. The task is simple and straightforward. But over time, many business owners begin to notice that the profit from the company's activities under seemingly equal conditions in one month is as planned, and in the other - the company works "at zero" profit or at a loss. To understand why this is happening, it is not necessary to hire a marketing consultant who understands the reasons for these “waves”. It is much more effective to introduce KPIs into the business. The KPI system allows you to track the activities of each employee by key indicators. How this happens in practice, you will learn from the article.

image
 

What are KPIs?

Key performance indicators (KPIs) are ratios that show how a particular employee or an entire department is moving towards achieving a goal during daily work. In fact, these are indicators. They allow you to track all business processes in terms of efficiency, productivity and a number of other indicators.

We figured out what KPI is. It is also clear that the closer the actual indicators are to the planned values, which, according to calculations, will help to achieve the goals, the better. It is undeniable that this directly depends on the correct management of personnel.

Important to know: Key performance indicators can be used not only in the field of trade with its clear interpretation of the main indicators - product, unit price, retail and wholesale value, and so on. The system will be no less useful in any area of ​​activity - from production and services to training and consulting. Thus, there is no reason to question "Where can the schemes be used?". The task is to properly configure a software solution that automatically calculates important coefficients for a specific client - a company, an entrepreneur, an individual.

Pros and Cons

It is crucial to understand the benefits of implementing a KPI for a business owner. It also does not hurt to know what the disadvantages are in using the system.

So, the use of a software solution opens up new opportunities for the manager. This is especially important when it is planned to expand the company: it is more difficult to track efficiency, manage processes and people in large-scale businesses. Among the preferences for using the tool, the following factors can be noted:

  • It becomes possible to determine the performance of an activity at any given time.
  • Based on the analysis of the current state of affairs, it is easier for a manager to build or adjust plans, form strategies and make forecasts.
  • Using KPIs helps to quickly detect problems and fix them in a timely manner.

So, KPI makes it possible to track and adjust the various processes on which the business is built. But there are some conventionally negative aspects of using KPIs. These include the following factors:

  • The need to identify important indicators - this will take time.
  • The costs of connecting a specialized software solution.
  • The need to train personnel to work with the system.
  • Possible negative attitude of staff towards new forms of management and control.

These are conditionally negative points. They can be equally positive for those looking for new approaches to work. After all, innovation always evokes conflicting emotions. And the only real "flaw" of the system is that it can assess only quantitative results. Key performance indicators are not able to assess the quality of work. This means that, in an effort to "meet" the required indicators, employees can sacrifice the proper level of service in favor of the amount of goods shipped, the number of processed applications or customers served. But we, by realizing this risk, are ready to take the risk. What data can be obtained using KPIs?

KPI Types

There is a great number of digital indicators that can be calculated using the system. Here are some KPI examples so that you understand its essence. Let's take a company that is engaged in retail sales of consumer goods over the Internet as a sample. There are several sellers in the online store. For such a company, the following types of KPIs can be calculated:

Quantitative coefficients:

  • Average amount of one transaction.
  • Call traffic.
  • The number of sales for the conditional period.
  • Conversion.

Monetary indicators:

  • Profit from transactions of a specific employee to total sales.
  • Margin profit.

Client coefficients:

  • Returning customers.
  • The presence of regular customers.
  • New unique customers.
  • Positive reviews.

Among the listed KPIs there are both individual and team coefficients. For example, the number of sales for a period - this ratio can be both personal and corporate. The cash flow from the work of a particular employee is a personal indicator.

There are also specific KPIs. The following coefficient can be presented as specific KPI examples:

  • Share of sales per employee.
  • The speed of processing a standard application from the moment of registration to the time the client receives the order.
  • Time of work on the order.

All these are examples of KPI for an online store. It is important to note that there are no universal indicators. Even in “neighboring” online stores they can be different, depending on which coefficients the manager considers important, affecting the business. Each manager initially sets up an automatic scoring system taking into account those specific indicators that, in his opinion, affect the success of achieving the goals of the company.

How is the calculation done?

You can calculate KPIs:

  • separately for each indicator;
  • overall coefficient of the project;
  • for each employee;
  • for the department.

The KPI of a department or a branch is the sum of the KPI values ​​of all employees who work in a department, divided by the number of employees. When the coefficient is received, its relation to the planned indicator is calculated. The manager sees how effectively the entire department has worked. This is the theory. We are ready to show with an example how the KPI is calculated. As an example, consider the KPI for a manager working in a cellular shop. His/her task is to advise clients, sell goods and additional services, and provide high-quality service that encourages customers to return for a new purchase.

KPI: Case Studies

During the reporting period

Planned

Actual

KPI values

Sales volume

1 500

1 740

116%

The sum of additional services sold

100

93

93%

The number of finished transactions

100

85

85%

The number of additional services sold

10

9

90%

Sales conversion

60

63

105%

General KPI

   

97,8%

The “Actual” column indicates the real indicators achieved by the manager for the selected period. Personal KPI values ​​for different indicators are calculated as the proportion of planned indicators to the actual data, multiplied by 100%. The overall digital performance indicator of efficiency can be calculated by summing the KPIs for all selected indicators and dividing the resulting value by the number of indicators. The example shows how simple and clear everything is. The manager can assess where the employee has "underworked" this month, what areas are difficult for him/her. After analyzing the data, the manager can send a promising employee for training or offer him/her another job related to other tasks.

How to implement the KPI system?

It has already been said that the implementation of a KPI software solution in a particular enterprise can have certain difficulties. If the manager decides to take such a step, then he/she must understand that different aspects will be tied to the system. Based on the selected indicators the requirements for the work of employees are built, plans for sales and financial activities are formed.

Also, the introduction of KPIs requires the development of a motivation system for personnel. Otherwise, the data produced by the software solution will not be taken seriously by employees. Sabotage of innovations may occur. But if they see that the innovation works, a system of material incentives is built based on the data obtained, then the KPI coefficients will become a working tool for them.

In large enterprises with several divisions or departments it is important to conduct a training for the managers. They need to understand that performance monitoring will be done in a new way. Short-term training will help line managers to restructure processes affecting management and control in a timely manner. Accordingly, the overall efficiency of the company will increase.

Therefore, the introduction of KPI technology in a particular business should be carried out sequentially. We suggest that you study the tested step-by-step scheme. According to this algorithm, key performance indicators have already been implemented at some enterprises - our partners.

Definition of key indicators

It is better to highlight important indicators together with the managers and a financier, who, at their own level, clearly understand which indicators affect the business as a whole. Quite often such coefficients are:

  • Cash flow from sales.
  • The number of goods and services sold.
  • Cash flow from the implementation of additional services.
  • The number of additional services sold.
  • The number of calls, requests, consultations.
  • Sales conversion.
  • Call conversion.
  • The number of new clients.
  • Average check size.

Don't make the list of indicators too long. If the system is overloaded with coefficients, it will “blur” the overall perception of information by top management. It is better to tune your software solution only for metrics that really matter to you. Moreover, if over time those KPI metrics are not enough for a full analysis, it will be possible to add a few more indicators.

Matrix Formation

When the manager has decided on the performance indicators, you can proceed to calculating the indicators of the success of the staff. In simple words, you need to define planning coefficients that will be a guideline for employees. Targets are calculated based on the strategic goals of the company. As a rule, there are monthly, quarterly, semi-annual and annual norms.

Important: Targets must be realistic and achievable. If the "norm" goes beyond reasonable values, employees will ignore them, realizing that they will not be able to achieve the goal anyway. This approach becomes demotivating for the staff. It can cause irreparable damage to business development.

You can calculate the real plan by analyzing the data for the past period and, for example, the data of competitors. Seasonality, specificity of the region, and market activity must be taken into account.

You can develop a plan for each employee, taking into account his/her responsibilities (sales manager, consultant, warehouse worker), as well as for the whole branch. When the planned indicators are written, it's time to build a KPI matrix.

Using a special form, which our employee will provide upon request, you can enter indicators and targets.

Development of an Employee Motivation Program

In order for employees to start working more actively, they need to be offered some kind of reward for achieving standards. These are not necessarily material resources, although, as practice shows, those are the most desirable and effective reward types. The motivation system can also be built on non-material principles. For example, a salesperson who performs the best in a reporting period may be awarded a transitional distinction. Motivation tools are additional days off, the possibility of free training, career growth.

Advanced companies keep employees interested in the new control system by introducing game points. All employees have an online application installed on their mobile phones, which displays personal achievements in real time. This approach ensures a competitive mood and the interest of each employee in improving personal results.

The following motivational tools are popular in Western companies:

  • Additional insurance services.
  • Payment for housing or parking.
  • Discounts on a company's services or products it sells.
  • The best workers’ participation in managerial meetings.
  • Possibility of additional paid weekends.
  • Free travel packages.
  • Free training, business trips abroad.

Listing popular methods of staff incentives will help you choose those motivations that will be effective for a particular enterprise. All of them increase the interest of employees in achieving high results, form a clear understanding of the distribution of "preferences" within the team, and contribute to a positive perception of the system of key performance indicators.

Staff Briefing

Good communication with the employees is essential for the implementation of the new performance appraisal system to go smoothly. It is important to gather employees and calmly, clearly inform them about the new control system, how the KPI is calculated. Don't focus on control. Explain to staff that the new metrics are performance measures that will benefit those workers who work hard and are doing a great job. Explain in detail the new motivators.

Show the innovations on the screen for clarity. The plan-fact-KPI chart on the whiteboard will help employees to understand the new tools better. You can create a general chat with the manager in a popular application. There the employees will be able to ask their questions and get answers to them from the "first person". From the first week of using the KPI, publish reports that show metrics for each member of the team. This will help you avoid misunderstandings, miscommunication and, as a result, sabotage.

System Implementation

We can congratulate you! You have passed all the main stages of preparation and you can proceed directly to setting up the control system. New rules must be definitely documented for managers. They should clearly spell out a plan for employees, the terms of remuneration for its implementation, "punishment" for systematic failure to comply with standards.

Form a "control" group of 3-4 employees, where you can test the new tool. This will help to identify the problems of the KPI technology starting from the first day and instantly rebuild the coefficients, plans. Such a working tool will allow you to avoid difficulties in further work.

Control

It is important not to just write down the indicators and calculate the plan. It is equally important to control the values. Create a timesheet that will include factual data for each employee or department (depending on the goals). The software solution we offer allows you to carry out calculations using formulas easily and quickly. You need to enter the selected indicators in the columns, which will allow you to determine the effectiveness of employees, as well as planned data. Next, formulas are added to get the coefficient. In real time, the software will give the actual KPI values ​​for each employee.

Important: After launching a KPI system, it is important to monitor its performance. Review the actual data once a week, compare it with the planned indicators. This will help to adjust the work of an employee or department when the first "problems" are identified, to revise plans and development strategy as a whole.

You have received an effective tool for monitoring the activities of both individual employees and entire departments. It is important to use it correctly. Interpret the information received correctly. If the actual and planned indicators are radically different, it is necessary to gather TOP management, which will help to understand the reason for such differences. Depending on the findings, the plan is adjusted or penalties are applied to employees.

Important: If the planned KPIs are not achieved by a large number of employees, the reason may be hidden in overestimated rates or in insufficient staff diligence. Revealing this fact will help to quickly take measures to improve the efficiency of their activities.

Tools That Improve the Usability of The KPI System

Modern electronic technologies provide various tools that will help to introduce a control system in an enterprise easily for department heads, ordinary employees, accounting, which calculates wages. Numerous electronic formats make it possible to integrate KPI without any stress for the team.

We have collected examples of common elements. For our partners who choose our software solution, a detailed consultation is provided on each auxiliary tool during the KPI system setting. Their variety allows us to dwell on several convenient forms. Each of those forms greatly simplifies the participation of the director, who reconfigures the control system at the enterprise entrusted to him.

  • Motivational screen. It can be made in the form of a slate board or a sheet of large format paper fixed on a special stand. A table is drawn on the screen where the main indicators are entered for each employee, whose performance is assessed according to the new system. Even if all employees have access to a software solution where indicators are displayed, such a motivational screen installed in a common hall will fuel the spirit of competition. Visualization will provide incentives for staff to achieve high work results.
  • Trello board. This visual form is a board where the achievements of employees are displayed in the form of icons or cards. Icons can be in the form of objects - flowers, stars, triangles. Such a tool allows all employees of the department to see what work and tasks were completed by each member of the team during the reporting period. A similar format is used in children's groups, where there is a competition between "units", "teams". This tool works very well, as it helps to calculate the contribution of each employee to the common cause.
  • Directly automated software solution available in electronic form helps to calculate KPIs of employees in real time. The interaction between the staff, the executive and the manager is carried out through the service, which is entered through a browser. It is enough to have an Internet connection to get a visual representation of the results of each employee or an entire department.

Common Mistakes When Implementing KPIs

Many companies that decide to introduce a KPI system in a company abandon it after some time. They find it inconvenient, biased, ineffective. This is a delusion caused by mistakes that were made when integrating the instrument into the life of the team. An illiterate approach to calculating or interpreting key performance indicators causes significant disagreement, so it can lead to a decrease in performance and even dismissal of employees, both due to biased reduced wages, in their opinion, and due to perceived psychological pressure.

To prevent this from happening to you, let's dwell on the most common mistakes that managers often make when implementing this tool.

What Shouldn't Be Done?

  1. Don't cut the wages of your employees. The salary must be preserved. But the premium fund may be revised. The KPI system is aimed not at "fines", but at the motivation of personnel. Each employee should understand that with a certain diligence he/she can earn more than in the previous month. This is the essence of the new approach to management.
  2. Do not overstate the targets trying to "pull up" employees. If the coefficients that appeared in the "plan" column are deliberately overestimated, not a single employee will even try to achieve them, realizing that he/she will fail. Because of such practice, the current performance indicators may deteriorate. Objectively assess the capabilities of your people in order to build goals that they can actually achieve.
  3. You cannot use "random" KPIs. There are a lot of examples of efficiency calculation systems on the Internet. You must understand that they are "strangers". For the tool to work effectively, you need to create your own metric with those indicators that are of interest to you. The introduction of “not your own” system will only complicate the control process.
  4. You cannot trust the calculation of planned coefficients and the subsequent control over the results of KPIs to an unskilled employee. If the calculations are carried out by an untrained employee, the data can be significantly distorted. This, again, will cause significant damage to corporate mood in the team. It is better to involve analysts in the work. Our managers will tell you what to look for.
  5. Do not implement complex forms of calculation. Incomprehensible formulas will confuse the process. And then the risk of mistakes is high, which can lead to conflict in the team.

A Few Words as a Summary

KPI is the manager's effective assistant, proven by many years of practice. But it is important to remember that the implementation of the system in a particular enterprise is a complex multistage process. It will require financial, time and labor resources. But if the project is successfully implemented, the technology will increase managerial efficiency and become a lever for business development. Use Waytobi to integrate your KPIs without any unpleasant surprises.

Back to all articles
Like the article? Spread the world

More readings
What is KPI Software

What is KPI Software

Aleksandr Fedorenko

June 14, 2020

8 KPIs you will need when running a construction

8 KPIs you will need when running a construction

Aleksandr Fedorenko

Sept 10, 2020

What is Tracking of KPI

What is Tracking of KPI

Aleksandr Fedorenko

June 16, 2020