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KPIs. What are Key Performance Indicators, and how do you Leverage them?

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KPIs, or Key Performance Indicators

During a recent webinar hosted by FP Transitions, several attendees had questions about KPIs. Marcus Hagood Director of  Equity Management Solutions®at FP Transitions, and Mike McKennon, EMS™ Consultant at FPT, had previously hosted a webinar on KPIs, and many of those key points are featured in the following post.

Knowing the KPIs

The industry is flush with discussions of KPIs. Surely, you’ve heard the term before, or perhaps seen these indexes described as performance metrics, key variables or key success indicators. At FP Transitions, we use the term Key Performance Indicator; but ultimately, the data these terms convey is the same. KPIs are a unit of measurement leveraged to help you determine where your business is at, where you want to go, and will ultimately provide you with a road map of how you should proceed on your journey.

Let’s start with the definition. A Key Performance Indicator is “a quantifiable measurable used to evaluate the success of an organization… in meeting objectives for performance.” In practice, the number of indicators you might want to evaluate is truly limitless.

Utilizing the KPIs

How successful is your business? This can be a difficult question to answer, and even more so, to answer truthfully. And it does take a measure of self-reflection. Where is your business strong? Where do you have opportunities for improvement? Utilization of KPIs will tell you the honest answers to what can be complex questions. In a proper implementation of KPIs, the process also establishes a baseline of your business activities, providing an opening for a true benchmarking opportunity.

Eventually what emerges is a schematic of success, a quality of data. You will be able to see exactly where your business is, and all of the achievement you have created. Additionally, your areas for growth will be painfully obvious. Once you have the established data set, you can use these indicators to help you achieve specific targets or objectives. But the real power of KPIs is unleashed when you leverage that data set and benchmark it against other competitors in your peer group. As an example, at FP Transitions, we can provide our clients with KPIs from over 5,000 peer businesses, which is a number unmatched in our industry. And through analysis of where you benchmark on these unique data sets, you are able to focus on the things that matter.

Deployment of KPIs helps you identify your personal strengths and opportunities for your business. They also allow you to leverage the comparative understanding of your position, relative to peers and other industry competitors. This relative knowledge, and the direction it provides, is what allows you to leverage KPIs to become best in your peer group.

How Do I Build off of my KPIs?

Through the study of your KPIs, you will optimize your business practices while simultaneously advancing your business value. The very first step is to establish where you are, right now. And as we discussed, it needs to be an honest evaluation of your current business standing. Unearth the skeletons. Don’t fear the negative.

While it is self-congratulatory to analyze the areas where your business is strong, the real opportunity to grow your business lies in the spaces where you aren’t. Prepare yourself to identify and address those areas where your business is falling behind. Mike McKennon, EMS™ Consultant advises his clients, “If you really want to identify the areas where your business can grow, the best news I can give you is a bunch of bad news!”

Deciding What to Measure

Usually, it is not just that one KPI that tells the story. Often it is a complex interaction of multiple KPIs. But again, having data of similar financial planning businesses’ KPIs is an invaluable step in this process. Is it your intention to build long term, sustainable growth? How do your KPIs stack up against your peer group, as well as those businesses twice your size, a cluster we at FP Transitions refer to as your Target Group? In order to answer these questions, you first must have the data to benchmark and evaluate your business.

Be intentional. Once you know where you are to start, you can formulate a plan for how you will improve it. Where you want to go? Do you want to sell your business in 24 months? What is it you need to work on, and how much do you need to improve? If you are at the top of your class, do you even need to improve? Leverage the insights that having Benchmarking KPIs provides.

Be purposeful with the data as you develop your plan. If you know you need to boost your revenue, how do you do that? Do you increase your fees? Raise client minimums? Decide, and then track those data points. Give that data a full, quantitative analysis on an annual basis to make sure that you are actually making progress, and make any adjustments to your plan if they are needed.

The image below lists a common set of KPIs, but as you will notice, these indicators are listed by the scale of the business, and they are quite different. 

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Looking at the different scales of financial advising entities, it’s obvious that there would be disparate KPIs based on the functions and client bases of these organizations. A small proprietor with an AUM of 50M would need to monitor different variables and indicators than an enterprise with an AUM of 500M. But according to EMS™s Mike McKennon, there are some common exponents that all businesses in our field can leverage.

“The three biggest drivers of the value of your practice are revenue, so the more revenue you have, the more your practice may be worth. The type of revenue is a factor as well; and the third is growth rates. Those are the three biggest indicators, and I would say those are true, across the size of your practice, your firm, your enterprise. Everybody, regardless of their size should be striving for those things.” FPT’s EquityBuilder™ Benchmark Report helps clients track over 50 different key metrics. (ones on the slide represent a sample that have frequent application.)

The KPIs that Mike listed are indicators that every business could utilize, but they are far from the only. This is why it is important to have professional counsel to interpret what KPIs are best for any specific firm and how the combination of KPIs can really tell you a more complete story. The value in the KPIs themselves, in a vacuum, is quite limited.  A major EMS™ Professional membership value add is in the consulting on what KPIs should be looked at and how they should be interpreted.  It is about helping advisors become better business owners by leveraging the correct KPIs based on what they want to do with their business. This is where the value of EMS™ Professional is – Benchmarks with Consulting. In order to achieve your goals, you really need a more complex matrix of KPIs, and the detailed analysis and peer benchmarking that will help you achieve real success. Reach out to us at FP Transitions, and we can help you begin to plot your road map.

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