Setting KPIs for Your Team: Why They Matter and How to Get Them Right

Welcome to this week’s episode of The Australian Small Business Show! Today, we’re diving into a topic that every small business owner with a team needs to think about: setting Key Performance Indicators (KPIs) for your employees.

If you’ve ever wondered how to get your staff performing at their best—or questioned whether they’re simply “doing their job” versus actually driving your business forward—KPIs are your answer.

What Exactly is a KPI?

Let’s start with the basics. KPI stands for Key Performance Indicator. Sometimes you’ll also hear them called KRAs (Key Result Areas) or simply “goals.” Whatever you call it,  the idea is the same: KPIs are the measurable markers that tell you whether someone is truly succeeding in their role.

An employee’s job description outlines what they’re supposed to do. KPIs measure whether they’re actually delivering outcomes that are important to the business. The job description says, “Answer customer emails.” A KPI says, “Respond to 95% of customer emails within 24 hours.” One tells you what the role is, the other tells you how success is judged.

This distinction is important -  “Doing your job” isn’t the same as performing at a level that drives your business results. KPIs set the standard.

Why KPIs Are Worth the Effort

Some small business owners don’t bother with KPIs because they sound too corporate or complicated. But the reality is, if you’re running a small business, you can’t afford not to have them.

Here’s why:

• Clarity for your team. Employees know exactly what’s expected of them, which removes ambiguity.

• Clarity for you. You can see, in black and white, who’s performing and who isn’t.

• Focus on results. KPIs tie everyday actions to business goals, keeping everyone aligned.

• Accountability. It’s no longer about gut feel—it’s about measurable outcomes.

• Without KPIs, you’re left with vague assessments like “they’re doing okay” or “they’re busy enough.” That doesn’t cut it when margins are tight, and performance matters.

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When, How, and Why to Set KPIs

So, when should you set KPIs? Ideally, right from the start. That way, from day one, they understand what “good” looks like. If you already have a team in place, it’s not too late—schedule a conversation and start implementing them now.

When creating KPIs, think about the why. What are the outcomes that really move your business forward? For a sales role, it might be monthly revenue targets. For a customer service role, it could be response times or satisfaction ratings. For an admin role, accuracy and turnaround time may be key.

A good KPI has three qualities:

• Specific – clear and not open to interpretation.

• Measurable – backed by data, not opinion.

• Achievable – challenging, but realistic in your business environment.

“Improve customer service” isn’t a KPI. “Achieve an average customer satisfaction rating of 4.5 stars or higher each month” is.

Measuring and Assessing Performance

Once you’ve set KPIs, you need to track them. Too often, business owners set KPIs and then let them gather dust. A KPI without measurement is just wishful thinking.

Decide how often you’ll review progress—monthly, quarterly, or even weekly for fast-moving roles. Use tools where possible: CRM dashboards, project management software, or even a simple shared spreadsheet. The key is consistency.

When reviewing KPIs, involve the employee. Show them the data, ask for their input, and have an open conversation about what’s working and what isn’t. This keeps the process collaborative rather than punitive.

What If KPIs Aren’t Met?

Here’s the uncomfortable but essential part: what do you do when someone doesn’t meet their KPIs?

First, don’t jump straight to discipline. Start with a conversation. Ask:

• Do they understand the KPI?

• Do they have the tools and resources to achieve it?

• Are there external factors outside their control?

  
  

Often, performance issues come down to unclear expectations, lack of training, or a mismatch between the person and the role. Address these before assuming the worst.

If underperformance continues, then you need to be clear about consequences—whether that’s a formal performance plan or ultimately letting the person go. Having KPIs makes these conversations much easier because you’re not debating opinions—you’re looking at facts.

Common Pitfalls to Avoid

• While KPIs are powerful, they can backfire if poorly designed. Watch out for these traps:

• Too many KPIs. Pick three to five that really matter, not 20 that no one can keep track of.

• Unrealistic goals. Setting impossible targets kills motivation.

• Measuring activity, not results. Hours worked or calls made don’t matter if outcomes aren’t achieved.

• Set and forget. KPIs should evolve with your business, not remain static forever.

Bringing It All Together

KPIs aren’t about micromanagement or creating unnecessary paperwork. They’re about aligning your team’s day-to-day work with the bigger goals of your business. They turn “busy work” into meaningful, measurable progress.

If you’re not already using KPIs with your employees, now’s the time to start. Begin simple, keep it practical, and refine as you go.

What about you? Do you set KPIs for your team members? If not, what’s stopping you?

Want to listen to us chat about KPI's on the podcast. Listen to the episode here