How to use key predictive indicators in your business

How to use key predictive indicators in your business

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Written by Alan Davidson

Alan Davidson is a Chartered Accountant, director and founder of Pentins Business Advisers, entrepreneur and author of the Amazon best-seller “Achieve Your Business Vision”. With over 25 years of helping businesses succeed, Alan knows how to build a business with real value, while avoiding costly mistakes.

As a business owner, this is probably what you want: a stable stream of satisfied customers, who return to your business and keep buying your services or products. They leave positive reviews, and tell their friends about their positive experience with you. You have a steady growth of income, and have the luxury of attracting new sales regularly with little effort.

Unfortunately, this doesn’t just happen automatically. In fact, many if not most businesses will at some point struggle with getting enough sales.

This is where KPIs can be incredibly powerful. Measuring the right KPIs can help you predict your finances in the next week, month and year.

Measuring KPIs will also allow you to identify which areas of your business you should focus on improving.

The best KPIs to use in your business are indicators that can help you predict future results. These Key Predictive Indicators should reflect what’s important to your customers, and what influences them to buy.

What are key predictive indicators?

Key predictive indicators are measurable and quantifiable data that can be used to indicate your future business results. We use them to predict what will happen next, allowing you to plan an appropriate action to achieve your desired results.

Take this example:

Imagine your goal is to increase your business profit this year. To achieve this, you have decided to increase your sales. You inform your staff that they have to increase their sales, and give them sales training. You motivate them to push upsells, and you might even set individual sales targets for them to reach. Every day you review your sales numbers, and cross your fingers hoping that there is a positive trend. With this method you may or may not succeed, but it will be stressful regardless.

Using KPIs, you can instead identify which numbers affect your sales numbers. This could be customer satisfaction, or how quickly and correctly you deliver your service. Working on these numbers, by gradually increasing the speed of service, or making sure that every customer exits your business with a smile on their face, will increase their chances of returning to your business or recommending you to others. This can help you predict an increase in future sales.

These happy customers will not only return next week; they will keep coming and keep recommending your services, continuously growing your sales. KPI improvement is a long term solution that can help you control the future of your business.

Exactly which KPIs you want to measure will be individual to your business. The main point is to identify the numbers that affect your business the most at a basic level. By improving these, you can predict a positive trend long term.

Key predictive indicators vs Key performance indicators

Key performance indicators are data that measures your businesses past performance. Where key performance indicators are more focused on the past, key predictive indicators are made to predict the future. Certain measures, like customer satisfaction rates, can be both a key performance and key predictive indicator.

How to choose the right KPIs for your business

Discovering the KPIs that are important to your business requires a deep understanding of how and why your business works. You need to know why your customers decide to buy from you, what they think of your business and what they are unhappy about.

Usually, business owners tend to guess the answers to the above items. And unfortunately, their instincts can turn out to be wrong. This is why we always recommend to do some research.

Consider a remotely located business. The business owner might think that their location is their main challenge – customers are simply not willing to drive all the way out to their premises. After surveying local potential customers, it turns out that they were simply unaware of the business’ existence. The issue was not their location – it was their marketing! A problem that could easily be fixed by taking specific measures to improve the awareness in their local community. Marketing related KPIs could be useful for this business.

A restaurant had noticed a decrease in foot traffic, and their sales were on the decline despite high sales in previous years. Despite their marketing efforts, they were unable to fill the restaurant even on the busiest evenings. They suspected that their prices might be too high, and were considering a price cut across their menu. After conducting a survey, it turned out that customers had no problem with the prices, however a large percentage expressed a dissatisfaction with the quality of service. This restaurant greatly benefited from using customer satisfaction and reputation as their KPIs.

KPIs role in a business plan

Identifying your main KPIs should always be one of the first steps towards writing a business plan, and is a crucial part of setting your business goals. To start identifying the main KPIs you should measure, take the achieve test.

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