You hear it all the time in the business world: “We need to focus on our KPIs!” But what exactly are these three little letters, why do they matter, and when do they become essential for your business plan?
What exactly is a KPI?
Think of it like the dashboard in your car. When you’re driving, you don’t look at every little thing. You focus on the indicators that tell you if you’re going to reach your destination safely and efficiently: speed, fuel level and engine temperature.
A great KPI does the same thing for your business: it’s a focused metric that tells you if you’re on the right track toward your goals. KPIs aren’t just for big corporations. They are vital for small businesses, individual teams, and even personal projects.
Your KPIs could include a number of things, including, measuring customer service and response time, marketing initiatives (like visits to your website, conversion or cost per clicks), sales and gross revenue.
Without KPIs, you’re just busy—not necessarily productive. KPIs define exactly what success looks like for a specific goal. If your goal is to improve customer service, a KPI might be “Reduce average call wait time by 30 seconds.” Now, your team knows exactly what to work on.
Instead of relying on gut feelings, you can use your KPIs to see what’s working and what isn’t. And, when you set KPIs, you can benchmark your performance. You can look back at the last quarter and see tangible progress (or lack of it), allowing for continuous improvement.
Just starting out?
As a small business owner, here’s a question I pondered recently. “Are KPIs less important when you’re just starting out?”
The short answer is: No, but they become much simpler.
When you’re launching a business, your primary goal is usually summed up as: “Earn more than you spend.” I can attest to that!
In this early stage, you don’t need a complex dashboard with 15 different metrics. In fact, tracking too many KPIs can lead to analysis paralysis and distract you from the main mission.
Your first KPIs are incredibly fundamental. They are the metrics that prove you have something people want and that you can stay alive. Your key indicators become:
- Cash flow: How much cash is in the bank and how long until you run out?
- Customer acquisition: How many people are buying/signing up?
- Gross profit margin: Are you selling your product/service for more than it costs to deliver it?
These are still, by definition, key performance indicators, but they are focused entirely on viability and product-market fit, not optimization. Once you’ve proven you can consistently earn more than you spend (the basic survival test), then you can start expanding your KPIs to focus on growth metrics.
The lesson here is to use the right KPIs for the right stage. Don’t measure what’s easy; measure what matters most right now.
KPIs should be integrated into your business plan from the very beginning, especially within the “Execution” or “Operational” sections.
How to write an effective KPI
A great KPI follows the S.M.A.R.T. framework to ensure it’s actionable:
Specific: Is it clear what you are measuring? (e.g., New customers, not just customers)
Measurable: Can you quantify it? (e.g., 20% increase)
Achievable: Is it realistic? (e.g., Don’t aim for a 1000% jump overnight)
Relevant: Does it actually align with your business objective? (e.g., For a profitability goal, revenue is more relevant than social media likes.)
Time-bound: Does it have a deadline? (e.g., By the end of Q3)
So, the next time you draft a business plan or set a team objective, remember to step back and ask: “How will we actually know if we’ve won?” Your answer should be a clear, S.M.A.R.T. KPI—no matter if you’re a scrappy startup or a Fortune 500 company.
Writing for you. 