Measuring performance is a vital part of monitoring the growth and progress of any
business. It entails measuring the actual performance of a business against intended goals. Regularly checking your business performance protects your business against any financial or organizational problems. How do you begin the journey of measuring your business’s performance?
1. Set Goals. What are you trying to achieve? Capturing a bigger market share? Increase profit margin? Etc.
2. Set Key performance indicators. This will vary between businesses, but it is important to choose KPIs that mean something to your business, that can be measured and provide outcomes to achieve your goals.
There are several functional areas of the business that can be measured, with each area monitored according to the function it is designed to carry out in supporting the overall goal of the organization; such metrics include sales metrics, marketing metrics, financial metrics, people metrics, etc. Once these KPI’s are set, the next thing to effectively develop are your measurement and tracking tools.
How are you going to ensure these metrics are effectively tracked and measured? A good example is Walmart. Walmart set a KPI called Seller performance standards, which consists of four metrics, each measuring a specific value based on a percentage of orders. The first was called cancellation rate; Walmart’s standard is <2% of cancelled orders in 14 days. The second was called on time delivery rate [OTD]. Walmart’s standard was >95% in a 14-day period. Orders must be delivered on or before the expected delivery date, which was determined by a few factors, order cut-off time, fulfilment lag time, and transit time. The third was refund rate.
Walmart’s standard is <6% in a 90-day period. It is a percentage of orders refunded for reasons the seller is responsible for, such as item damaged or incorrect item received. The fourth metric used was the valid tracking rate. Walmart’s standard was >99% in a 14-day period. This mainly involves providing a valid tracking number for each other. Developing your metrics to effectively measure your performance is crucial for the effective and consistent achievement of your goals.