KEY PERFORMANCE INDICATORS (KPIs) are metrics that help businesses track their progress towards achieving specific goals and guiding their decisions going forward. They provide a straightforward, numerical snapshot of different aspects of a business, such as revenue, margin, and productivity, and are essential for any business in a dynamic, competitive market such as the famously mercurial environment in which cannabis companies operate.
In my previous life as a consultant and turnaround executive, I found that many companies make bad decisions because they rely on anecdotal evidence instead of factual data. KPIs are the foundation of a data-driven approach to managing a company, which eliminates the bias inherent in anecdotes and “gut feel.”
KPIs provide the insight necessary to identify key “levers of performance” that can be managed to drive profitability. I often think of KPIs as the “magic” behind the “MIDAS” Touch, as outlined below.
Measure progress towards goals. KPIs measure progress toward specific business objectives over time. Without a baseline measured on a consistent basis over time, it’s impossible to know if you are making progress. KPIs provide the information needed to allow businesses to adjust their strategies and tactics to reach their targets.
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Identify strengths and weaknesses. KPIs provide valuable insights into a business’s strengths and weaknesses. Cannabis dispensaries can apply several retail industry KPIs such as: Inventory turnover to see how quickly they are selling their merchandise; Gross Margin Return on Labor (GMROL) to understand their labor utilization and efficiency, and more. With this knowledge, they can adjust their inventory and staffing strategies accordingly. While there is always room for improvement in any company, understanding strengths and weaknesses requires comparison to broader industry standards for context.
Deploy resources to maximize impact. Better insights support better-informed decisions that ultimately benefit the bottom line. KPIs provide the information necessary to make those decisions. Every business must allocate scarce resources in accordance with their impact on performance. KPIs provide the information necessary to measure and rank impacts and purposely focus those resources on the “levers” that have the greatest impact.
Accountability and transparency. We’ve all heard that “numbers don’t lie.” KPIs promote accountability and transparency within an organization. When everyone in the organization is aware of the company’s goals and the KPIs used to track progress, it becomes easier to provide guidance, set priorities and hold people accountable for their performance. This helps build trust between employees and management and promotes a culture of openness.
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Synthesize insights to drive continuous improvement. KPIs often lead to insights that would otherwise be impossible to observe. With an established baseline of KPIs, the correlation and causation of various business activities on the bottom line can be more easily identified, tested and implemented. Changes made to improve a particular KPI often lead to unforeseen changes in another KPI. Over time, smart managers can find the right balance to maximize performance and profitability through continuous improvement.
The ultimate incarnation of KPIs is often described as the “dashboard”—a single place to visualize all KPIs in real time. This provides an executive the full situational awareness to make informed decisions and drive the highest possible performance. The introduction of AI will increasingly improve KPI value, as computers can crunch big data more readily than humans and perform intensive analysis to provide insights and suggestions that would otherwise require a tremendous amount of time to complete.
