Lead Targeting with KPI Norms

Key performance indicators come in two types:

1. Dollar values, expressed as minimum revenue or maximum cost objectives

2. Ratios, expressed as percentages

Some KPI classifications are standard across all industries. They are part of a manager's position title. Other KPIs are industry-specific.

KPIs for Profit Center Managers

Position title predicts the key indicators for all profit center managers' performances. They are evaluated by financial and working capital indicators of line-of-business performance such as:

• Total revenues, which are total receipts from sales

• Total operating income, which is gross profits minus total operating expenses

• Total operating expenses, which are costs of sales plus G&A plus R&D

• Cost of goods sold, which is sales compensation plus sales support and sales training

• Inventory turnover, which is the ratio of annual net sales compared to end-of-year inventory

• Accounts receivable turnover, which is the ratio of annual net sales compared to average receivables outstanding

Profit center managers are also evaluated by how well they handle key indicators of their operating performance:

• Gross profit, which is total revenues minus cost of goods sold

• Net profit, which is after-tax net income minus net sales

• Productivity, which is sales revenue minus cost of labor

• Selling efficiency, which is expressed in several ratios that compare sales revenues against selling expense, finished goods inventory, order backlog, same-day order fulfillment, and accounts receivable

If your customers manage a soft drink bottler, any significant deviations between the key indicators of their performance and your norms for them can become a proposable lead:

• How much of their capacity are they utilizing?

• How many cases per employee are they shipping?

• How much of their run time is interrupted by downtime?

• How much gross margin are they earning per case?

• How much of their sales revenue is held up in accounts receivable?

• How much of their customer base are they satisfying?

KPIs for Cost Center Managers

Cost center managers have function-specific KPIs:

• If they manage R&D, they are evaluated—among other indicators—by a ratio comparing the number of products developed to the number of products commercialized.

• If they manage manufacturing, they are evaluated by a ratio comparing the number of hours downtime to the number of hours uptime.

• If they manage inventory, they are evaluated by a ratio comparing the number of orders shipped the same day to the number of orders received.

Once you know what your customer managers are held to perform, you can propose to help them by targeting any indications that their actual performance lags your norm for their performance in categories like these:

Lead Targeting from Key Financial Performance Indicators. A customer's current financial performance can indicate opportunities for three kinds of profit improvement projects:

1. Total Revenue Raisers. You can propose to raise total revenues by speeding up time to market, increasing the turnover rate of the new product development cycle, improving forecasts or reducing inventory, adding distribution, or accelerating the billing and collection cycle.

2. Total Operating Income Raisers. You can propose to raise total operating income by increasing sales or decreasing operating expenses for cost of sales, G&A, and R&D.

3. Cost of Goods Sold Reducers. You can propose to reduce cost of goods sold by improving sales force productivity, reducing the sales cycle, adding distribution, opening up new sources of demand, or re-engineering sales strategy.

Lead Targeting from Key Operating Performance Indicators. A customer's current operating performance can indicate opportunities for four kinds of profit improvement projects:

1. Gross Profit Raisers. You can propose to raise gross profit by increasing sales volume and expanding market share, speeding up the sales cycle, adding distribution, increasing the turnover rate of the new product development cycle, or reducing manufacturing costs.

2. Net Profit Raisers. You can propose to raise net profit by increasing margins or reducing the cost of sales.

3. Productivity Raisers. You can propose to raise productivity by reducing labor content, increasing automation, or improving workforce training.

4. Selling Efficiency Raisers. You can propose to raise selling efficiency by reducing cost of sales, finished goods inventory or order backlog, or by increasing same-day order fulfillment and accounts receivable collections.

Lead Targeting from Key Working Capital Performance Indicators. A customer's current working capital performance can indicate opportunities for two kinds of profit improvement projects:

1. Inventory Turnover Raisers. You can propose to raise inventory turnover by reducing inventory or helping to turn it faster.

2. Accounts Receivable Turnover Raisers. You can propose to raise accounts receivable turnover by helping to collect receivables faster.