Define Your KPI Driver Tree to Grow Your Business
To figure out how to grow your business even further, you have to know what drives growth for your specific niche. Every company is different and every company will have a different KPI Driver Tree.
What is a KPI Driver tree?
Key Performance Indicators are a measurable value that tells owners how well they’re managing their business. In our context, it’s what drives profit dollars.
A KPI Driver Tree is an abstraction that breaks down what levers affect profit. It’s extremely helpful as a brainstorming tool to define a strategy, find the non-obvious drivers of your business, and to find metrics to track to see why your business is veering off course.
Let’s first define the biggest mistake most professionals make when looking at KPI.
THE METRICS ARE NOT THE GOAL!
The metrics tell you how well you are performing your goal. There is a subtle difference in these two statements that I’ve seen screwed up by every person that deals with KPI. Nothing is perfect and just like anything else, metrics can be hacked.
People, whether they work in the business or own it, like reaching their goal. They will find the drivers of the metrics that don’t necessarily reflect the health of the business. Worse yet, they will sacrifice the long term health of the company to hit the short term KPI. (See every public company ever.)
For example, say you tell one of your employees that you want to see 100 more qualified leads per month. And suppose you track your leads through your website traffic. You’re expecting 100 qualified leads. If he can’t deliver on that KPI, he will drive unqualified leads to the website and rationalize to himself that they’re qualified.
The point here is to focus on the levers that drive the KPI instead of the KPI itself.
Building a KPI Driver Tree
Since business’ main goal is profit, “Profit” will be at the top of the tree. Profit is derived from two things. Revenue and expenses. Those will be the next two branches. From there, you find the drivers of each, then again, and again until you start coming up with ridiculous drivers. You should stop at that point.
Each box that you can objectively measure could be considered a KPI and the boxes that feed it are it’s drivers. Below is an incomplete and generic KPI Driver Tree. Steal from the below for starting your own.
As you can see, the above is very generic and not much help to any specific business. However, using this as a starting point will give you direction on how to find YOUR business’ drivers. What you will find, is there is a lot of crossover at the lowest levels.
How to execute on a KPI Driver Tree
This of course is the only part of the article that matters. Building this out and not executing on it is worthless and a waste of time.
The key is to find your largest drivers and improve them to improve your KPI. Look for drivers that cross multiple branches and drivers that seem to have the biggest impact on your business.
Pro tip: You should also have other people build them out for your business to examine holes in your thinking.