How To Find The Real Financial KPI

It seems that more and more businessmen are engrossed into developing KPI or key performance indicators. But most, unfortunately, fail to acknowledge or determine the right ones. Often times, executives perceive KPI as the factors for success. But be reminded that indicators are just merely that – indicators and not factors. Moreover, KPI should be non-financially oriented. But what about those execs who are looking for money-based indicators, does financial KPI really exist?The appropriate question perhaps is that “does this type of KPI always have something to do with money?” See, KPI is a tool. Think of it as a measuring stick. For analogical purposes, let us say the goal of a company is to fill an empty bathroom tub with water within three hours using a pail. By this time, the KPI does not yet exist. In order to determine the practicality of the goal, the company must be able to know how much water is to be filled into the tub. Given that the tub is equal to 20 pails of water and that there is only one pail to use, the KPI can now be drawn. So which is the KPI?The KPI is the number of pails of water the person can pour into the tub. If, for instance, he can pour 8 pails of water per hour then he can definitely achieve his goal of filling the tub within three hours. If the number of pails is lesser, for example three, then he might consider revamping plans and increase productivity. As you may notice, the KPI here is not the success factor but the success yardstick. It tells you how far or near you are to achieving success.The problem again comes when executives fail to see the real KPI.  Most of the time, they look at the graphs of daily sales, monthly sales and quarterly sales as the key performance indicator. Remember, that these numbers are the results of the company’s activities – marketing, sales, product launch, advertising and etc. If the company goal is to reach this huge amount of money by end of year, then targeting 6 figures on the daily sales report is purely unhelpful.Here is one way of figuring out the real financial performance indicator. Again, if the company’s aim is to increase sales within a given period, managers then should look into the activities that affect sales and not the actual sales figures. In the aspect of marketing for example, create a subordinate goal that reinforces the primary goal which is to increase sales. The marketing officers may intensify their activities, increase advertisement spending or formulate promotional activities that can help increase positive bottom lines.The KPI in this case may be the number of turnovers or conversion of potential clients into customers or perhaps the number of returning customers who were enticed in joining a raffle promo.Remember, then, that KPI is a metric tool not a factor. Financial KPI, therefore, is not all about having attractive bottom lines everyday. When it turns out like that, you are merely making a financial report, not indicators.