Setting KPIs for Employees (Step-by-Step Guide)

Want to get better results from your team? Start with smarter KPIs. In this video, Steve shows you how to set key performance indicators that actually drive results—not just fill a dashboard.

You’ll learn how to create clear, effective goals that align with your strategy, keep your team focused, and improve accountability. From setting SMART KPIs to tracking progress and making adjustments, this is your go-to guide for unlocking performance and fueling business growth.

If you’re ready to lead with clarity and level up your team, this is where it starts.

TRANSCRIPT:

If you're a business leader, I'm going to share with you an approach that I take in business that has generated millions of dollars. It starts with setting KPIs. Now, we're going to be talking about KPIs on an individual basis, okay, instead of company-wide.

But the same thing could be applied to an overall business. But I'm going to show you how you can take these KPIs and cascade them down to the employee level, which is super critical as a business leader. Now, KPIs, that stands for key performance indicators.

It does not stand for keep people intimidated, but sometimes leaders will take the approach of using KPIs incorrectly. In other words, they want to instill accountability in their firm, but they believe that they do this through a command and control type structure. And that is completely wrong.

Don't go down that approach because if you do, people are going to use KPIs and they're going to bastardize them. In other words, they're going to use them and they're going to sandbag and they're going to do a bunch of weird antics in order to manipulate KPIs and to look better than they actually are performing. And just a bunch of games are played if you use KPIs incorrectly.

So instead of using them as a control mechanism, I like to use them as an empowering mechanism where you can create a culture of accountability to inspire people instead of just motivating them. Now there's a big difference between inspiration and motivation, and it's this. We inspire people because we truly love them or we care about them and we want them to excel and to do better.

On the other hand, we motivate people because we want something done for ourselves. So as a leader, if you can use inspiration more than motivation, you're going to be way more successful. So let's talk about KPIs.

This is one thing you could do right now in your business today. So first step is ask people in your company, you know, if people report up to you or just, you know, you have a division or department that you're running, ask them to send you an email or send out a survey and say, what are three things you can do in order to drive value in the business, in the role? Three things you can do. That's the key.

You, you're asking them that they can do not what the business can do or what it should do, but ask them what they can do in their specific role. All right, they're going to come back and they're going to provide you with three different answers. So I just did this with the company not too long ago.

I do this all the time, but let me just provide you a real example of how this may look. All right. So let's say a president comes back to you and they say, look, I thought about your question and there's three things that I believe we could do.

Number one, I think I can spend more time with existing customers. Okay. That's number one.

I'm abbreviating here. Number two, they can invest more time with employees building the culture. All right.

Number three, let's say they're like, okay, I'm going to spend more time reducing our material costs because material costs are high. They believe that there's a lot of waste and scrap happening with that. So those are the three things that they listed out.

Now, if we evaluated each of these in more detail, I would say this, when it comes to value, there are three ways to create value. Number one is through growth. Number two is through price premiums.

I'm abbreviating here. And number three is through cost and capital efficiencies. Excuse my handwriting.

I know I'm abbreviating here. I'm kind of writing fast, but these are the three ways to drive value. So grow the top line, do activities or invest in activities that are going to allow you to charge more, right.

While also delivering increased value to your customers, capturing these price premiums and then cost and capital efficiencies, lowering your cost or using your capital more efficiently. All right. So you ask this person, three things that they could do.

And they say, spend more time with existing customers, invest in employees in the culture and spend more time reducing material costs. So then you can evaluate these three with these three value drivers in mind. So let's look at the first one, spend more time with existing customers.

And you can say, okay, well, what's that going to do? Grow the business, allow you to capture price premiums or to reduce your cost. And the answer would be growth. And it's not always just one for one.

Sometimes there's two things it could do, but for this example, we'll keep it simple. So let's just say we choose growth right here. Spending more time with existing customers is going to allow them to grow their customer base through referrals, through cross-selling, through upselling, et cetera.

Okay. Investing in the employee culture, what that's going to do is let's say that's going to allow the company to grow because if they invest in the culture, then employees are going to be more engaged, which allows them to grow the business and take on more work and so on and so forth. And then spending more time reducing material costs that is going to result in cost cuts.

I'll just put a C. All right. So these are the three activities that they defined. Now, the next step is after you ask them the three things that they could do is you have to identify the upside to each.

In other words, what's the size of the prize? So we're just going to use some rough numbers here, right? But this is how you could do it in your business. Spend more time with existing customers. Let's say the business does $2 million a year.

And this person says, okay, if I spend time with more customers, I think we can increase sales by 10% through upselling, cross-selling and through referrals. Okay, great. $2 million, 10% of that equals 200 K in potential upside with revenue, right? With revenue, not profit, just revenue.

What about investing in employees? We say, okay, well, if we invest in our employees and we strengthen our culture, then we do this really well. You know, maybe our employees are going to be out there. They're going to, you know, grow the business.

They're going to, you know, reduce costs. And you know, this one may be a little bit harder to quantify. That's why I like to use this example, but if you can quantify it, that's great.

Let's just say, you know, we quantified it and we figured out that it's going to be a hundred thousand in upside because they're going to go out there. They're going to grow the company and do other things, introduce new products, invest in innovation, so on and so forth, because they invest in their employees and they're getting more out of their employees. And then number three, let's say they're going to spend more time reducing material costs.

And let's say the company spends $800,000 a year on material costs. And they think that there is about 5% waste as it relates to material costs. Well, 5% of 800,000 is 40 K. All right.

So these are the three things that they identified. And I'm not saying these decisions are binary. In other words, I'm not saying, okay, you could only do one and you're not going to work on any of them.

You're just going to focus on one. Instead, I'm saying, if you were to define a KPI for this individual and you want to focus their attention, let's look where the upside is the greatest. Now you can't just look at the dollar amount and say, okay, I'm just going to go for the highest one.

Instead, you have two more questions to ask. Number one, what's the probability of achievement? So how likely is it that you will achieve each of these outcomes? That's number one. And number two, you're going to ask yourself, okay, what is the ease of completing each of these? Or in other words, how hard is it going to be to accomplish any one of these three? Because maybe this 200 K looks really attractive, but the probability of achievement is super low because you have the capabilities or the systems or the people to implement it.

Or maybe, uh, it's just going to be really hard to do. All right. So therefore this may not be attractive, but if you look at these three things that this employee identified and you run it through this framework, this approach, you may find out that this is really hard to do.

The probability of achievement is like 50%, which is a hundred K. And then on top of that, you know, there's other things that like, you're going to have to change this, change that. So therefore maybe this one isn't even an attractive approach to do. I'm not saying spending more time with customers is a bad idea.

I'm just using this as a crude example here, but you may find out that the best thing to do is to invest in the culture and to employees, because this is a high probability of achievement. Whereas trying to reduce waste and get it down below 5%, maybe the industry average is 7% and you're actually doing pretty well, but you're always sitting here complaining about how much waste and scrap there is, but really that's not the problem. So you eliminate this.

You say, okay, where am I going to focus my attention? It's going to be right here, investing in the employee culture. And then beyond that, I'm going to spend more time with existing customers. So when it comes back to identifying KPIs, then what you would do from here is say, okay, here are your KPIs.

These are the things with the greatest upside, create KPIs to measure these two things. But organizations, oftentimes they'll go to their employees and they'll say, look, what are you working on? Give me a list of all your projects or all your tasks. And sure that could be good for visibility purposes, but those projects and those tasks change from day to day, week to week.

It's not super helpful. Instead, spending time with your employees to walk them through this process of identifying what things they can focus on and where the biggest upside is and getting their eyes focused on the size of the prize, right? Because I just did this with another company and the president listed out a variety of things. And one of them had a $3,000 upside at the end of the day.

And I said, look, that's $3,000 revenue upside. Your margins are 30%. You're talking about a $900 upside.

If you focus your time here, like eliminate that 900 bucks is nothing. Instead, there was another thing she could have focused on that would have generated a hundred thousand dollars in upside. And that's like, focus your time and attention there.

The problem with leaders. And this was me back in the day. Like I used to do this all the time.

The problem isn't that we're working hard. Like we're hard workers. And oftentimes we're very organized.

The problem isn't necessarily working hard and just slacking off. The problem is we're trying to do too many things and we're not focused on the most important things. And this is what this exercise will allow you to do.

It helps you establish KPIs or key results for employees, however you want to look at it. And then it focuses them on the most critical things, the things with the most upside and the things with the highest probability of success. And when you could do this in your organization and with this starts from the very top and it trickles all the way down to the front line of amazing things will happen.

But this is the, one of the things that I do over and over and over again to turn around and grow businesses. And you can do the same exact thing in your company right now today. So I invite you to get started right now and in the comments box below, let me know if this makes sense to you.

And if you have any questions whatsoever, you can always reach out to me and you can find me at coltivar.com or you can hit me up on social media, or you can leave the comments down below and you can just give me your feedback and whatever you want to do. I'd love to hear from you to know what's valuable to you, what content you want to hear about, and how can I support you along this journey? All right, best of luck to you go out there and execute and amazing things will happen until next time. Take care of yourself.

Cheers.