What are the right key performance indicators (KPIs)?

Short Answer:

They should be the equivalent of what we call a Moneyball stat (see the movie or read the book) – directly correlated to the outcomes you’re seeking to achieve.

Longer Answer:

Firms end up measuring too many things and the wrong things. If you’ve seen the movie Moneyball, you know Billy Beane used data analytics to show that most of what baseball was measuring to decide who to recruit and what to pay proved not to correlate with winning games and championships. What he uncovered was a key performance indicator that was predictive called on base percentage (OBS). Its now a metric displayed when any batter comes to the plate. What are the equivalent Moneyball stats in your business. Start with the outcomes you want to achieve, like revenue and profit, and then see what KPIs strongly correlate to those outcomes.

Given inflation, which is expected to stay relatively high through 2030, one KPI we’re having all firms focus on is total gross margin dollars divided by total loaded compensation. And not just compensation below the gross margin line but total compensation plus bonuses and benefits of all team members. This gives you a measure of how productive you are with every dollar in compensation you’re paying. This is why your pricing and compensation strategies are so critical.

Read Scaling Up Compensation by Verne Harnish and Sebastian Ross; and Beating Inflation by pricing guru Hermann Simon.