Follow our guidelines on what key performance indicators and metrics to use if you want to measure how effectively your team deals with daily tasks. Design a set of KPIs that will encourage them to deliver more results.
KPIs are more often associated with software startups or big corporations where entire departments of analysts work hard on interpreting data every day. But in fact, this practice fits well many business types, especially those that deal with providing repair, maintenance, cleaning, or other services. With a reasonable KPI system in place, you’ll increase the productivity of your team, provide better customer service, and reach your company goals. Read further to learn how to design and introduce such a system and what pitfalls to avoid.
More Than Buzzwords: Why KPIs Are Important
KPIs in performance management are key indicators for evaluating the effectiveness of employees and departments. In service companies, these could be the number of completed work orders, the average sale, the duration of calls, or the total amount of sales. All you need to do is to create a list of metrics, set tasks and deadlines for your workers, and finally, evaluate the results. You’ll get a clear picture of who has been productive at work, and who hasn’t so much.
It is important to keep in mind that the KPIs should be always linked to your business goals. For example, if you want to improve service, you need to measure the customer satisfaction KPI like net promoter and customer effort scores. To increase profits, you'll have to work on the turnover and the number of sales. To speed up work order processing, time standards for different stages of workflows will help.
There are many types of key performance indicators you can come up with. They will depend on your specialization, team size, and internal processes.
Here are some performance metrics examples for service businesses:
- Shopkeepers: receiving and putaway productivity, receiving cycle time, rate of return, receiving accuracy
- Shop assistants: average customer spending, cross-selling rate, the share of sales of high-margin goods and additional services
- Mechanics: the number of completed work orders, the percentage of overdue orders, the average repair time
- Receptionists: speed of work order processing, knowledge of service standards (you can give a test, the results of which will affect the bonus), pre-sales of accessories, handling complaints
- Department manager: daily meetings, work schedule control, creating individual growth plans for employees, monthly reports, collecting and analyzing feedback, etc.
The objectives you set for your employees should be clear, consistent, measurable, and achievable. For example, to sell 100 cell phone cases by the end of the month, repair 30 garments, increase the average feedback score to 4.5, complete 90% of work orders on time, or pass the product knowledge test with at least 85 points. Then you need to set the amount of bonus, inform the employees, and check their accomplishments at the end of the month. If you did everything right, after implementing KPIs you will be able to:
- understand your team’s current level of performance
- evaluate the progress of individual tasks
- delegate responsibilities
- see how each indicator affects profits
- identify underperforming employees
- create a fair and transparent compensation system
- see growth points of your business
As you can see, you shouldn’t underestimate the KPI importance. Continue reading to find out what steps you should take to make it work at its best for your company.
Step-by-Step Guide on Starting Managing Performance of Employees With KPIs
You can either design a set of metrics by yourself or involve external consultants. In the first case, follow these steps:
Set Business Objectives
They should be clearly worded and specific enough so you’ll instantly understand when they are achieved. Write down your main objectives and hierarchically organize them. Then divide your list into short- and long-term ones so that you don't waste time and energy on low-priority tasks.
Define Measurable KPIs
When building out your KPIs, think about the activities that affect your goals and which employees are responsible for those areas of work. For example, to increase the revenue you need to increase the average customer spending by 20%, and your salespeople can help with this. So, you need to link each goal with employees' KPIs (see examples for different roles in the previous block).
Decide on Rewards
Next, consider what variable part you are willing to pay your employees and how each indicator will affect it. For example, if you run a tailor shop, the quantity and quality of repaired garments are the most important KPIs. This means that 70% of the bonus tailors can be charged for meeting the volume plan and 30% for not exceeding the acceptable defect rate.
Set Wage Calculation Rules
The amount of the bonus should depend on results that help to reach the objective. If they are small, the employee will receive only a part of the bonus. You may create a scale of correlation between the incentive and the percentage of KPI fulfillment.
Deliver a Clear Message To Employees
Present the new incentive program to your team. Clearly communicate to each employee what your expectations and the company’s goals are and, of course, how the new system will enable them to increase their paycheck.
Monitor the Progress With KPI Measurement Tools
Track how well your team is coping with the set KPIs in your employee performance management software which allows you to generate a report on each worker. In Orderry, for example, you can see the number of sales, as well as completed and overdue work orders by different employees for the period. In addition, you can choose from 8 payroll scenarios to automate the calculation of wages.
Screenshot of Payroll settings in Orderry
Evaluate KPI Results
It may happen that some employees won't reach the set objectives. Try to find out what the reason might be: unrealistic targets, unforeseen events (e.g. sick leaves), etc. Or vice versa, the numbers were too easy to reach and everyone is now supposed to get a big raise...
Fine-Tune Your System of Key Performance Measures
When analyzing the KPI data, the most important thing is to look for business-relevant insights that can help you make better decisions. If you can’t find any, set new KPIs.
And don’t forget to regularly update and challenge your KPIs according to new business goals.
Top 7 Mistakes Service Companies Make When Setting Team KPIs
After the implementation of KPIs, employees sometimes quit or start to perform worse. To prevent this situation in your company, avoid the following mistakes:
1. Unrealistic Goals
Try to objectively assess the skill level as well as the physical and mental capabilities of your employees to set reasonable challenges.
2. New KPI Approach Results in Less Take-Home Pay
Your employees should be able to earn more with a new motivation system. Otherwise, why try at all?
3. Double Standards in Team Productivity Metrics
If you decide to implement KPIs, then do it for all employees and departments.
4. Performance Indicators That Your Employees Cannot Influence
Do not evaluate your employees according to indicators that do not depend on them.
5. No Transparency in Calculating KPIs
Make the calculation of bonuses as transparent as possible — everyone should know how KPIs are computing for their roles and understand what paycheck they will get at the end of the month so that it is not a surprise every time.
6. Excessive Metrics
Don't set too many indicators. When there are more than seven, it becomes difficult to control the achievement of goals.
7. No Time to Adjust to Changes
Let your employees know in advance that you are going to manage their performance in another way and what the reasons are for this decision. Make your company ready for coming changes as well: enroll employees in additional training, replace equipment (if there are issues with it), develop new scripts for conversations or sales techniques.
KPIs are an excellent practice to bring your company closer to achieving business goals. By implementing this approach in performance management, you’ll be able to assess your team’s productivity and find new ways of challenging and encouraging them. If you follow the best practices listed above as well as avoid common mistakes, your KPI program will become your favorite decision-making tool.