What Are Key Drivers?

Identifying and using key drivers may help you sustain your business through a growth period. Picking the right key drivers may also help you generate more profits. In this article, we discuss what a key driver is, how to pick one and give examples of factors you could choose when creating your business plan.

What is a key driver?

A key driver, also known as a business driver, is a factor that can affect the success or performance of a company. Key drivers can vary by organization. Even your direct competitors may use different key drivers to improve their performance. Most businesses use their own history or industry-standard data to choose their key drivers. These factors can include:

• Macro factors: These are natural, fiscal or geopolitical variables that affect a company on a regional or national level.

• Micro factors: These are variables that affect specific companies or industries on a local or individualized scale.

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How to choose key drivers

Use these steps to learn how to choose key drivers for your business:

1. Use a checklist

Effective key drivers meet four criteria. They:

• Affect performance

• Are measurable

• Compare to a standard

• Can change with additional information

When choosing key drivers, ask if your variable fits in all four categories. The more specific a factor is, the more likely it can fit all the criteria.

2. Look for profitable areas

Factors that directly affect sales figures, cash flows and costs may be important key drivers. Four items that influence profit include:

• Fixed costs or overhead

• Price

• Sales

• Variable costs

To find these items and your overall profit, consider looking at the line items on your financial statements to see which areas could be key drivers.

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3. Ask questions

When identifying key drivers, consider asking questions about what influences the different aspects of your business. For each potential driver, ask a question like "What influences this factor?" If you give an answer that fits the four key driver criteria, you may ask the same question again with the answer as the new factor. Continue this process until you arrive at an answer based on choice or uncontrollable circumstances.

For example, in a retail business, you may ask, "what influences my revenue?" Your answer may be product volume. You may then ask, "what influences my product volume?" and the answer could be the number of salespeople. The number of stores can influence the number of salespeople. However, the number of stores your company operates may be a personal decision. That means you may choose "number of locations" rather than "revenue" as a more specific key driver.

4. Consider benchmarks

Use data from across the industry to help you choose key drivers. You may use information about your company's own past performance or current fulfillment. You may also use data about the business models of similar companies and direct competitors. Consider searching an industry data pool or asking your accountant to help you access and compare this data.

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5. Track all the data

Once you've identified your key drivers, continue to collect and record data about the performance for each one. This may help you make strategic decisions, improve future success and choose or change your key drivers as the company grows.

Examples of key drivers in business

Here are examples of some key drivers that may affect your business:

Costs

The costs that you pay out to run your business may be a potential key driver. Costs can include things like purchase of production materials, employee salaries, renting office space or any other factors that require you to spend money instead of make money. Costs fit into the following key driver criteria:

Affect performance

The number of costs you pay out monthly, quarterly and yearly can have a direct impact on your profits and, therefore, your performance within a specific industry or market. Lower costs may allow you to be more competitive.

Are measurable

Costs are numerical financial data that you can track weekly or even daily. They are easily measurable and provide tangible statistics about the functionality of your business.

Compare to a standard

You can compare your company's current costs to your previous ones and to those of your competitors. You can also compare what you pay to certain vendors to what others charge. This type of information, average salary data for employees and rental rates in your local area may all be available online.

Can change with additional information

In most cases, you can change your costs after discovering extra information. You may find that office space rental prices are decreasing in your area, so you negotiate a change with the landlord. You may also find that a different vendor charges two dollars less per unit than your current supplier and choose to switch or negotiate a deal with your current partner.

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Customer satisfaction

Customer satisfaction is a less tangible key driver, but it may still be an important factor for your business. It fits into the following key driver criteria:

Affect performance

Customer satisfaction has a direct correlation on company performance. Happy customers may return for more services and may even be willing to pay a little more money for certain items if they develop loyalty to your brand.

Are measurable

You can measure customer satisfaction through channels like feedback forms, surveys, questionnaires and online reviews. More positive reviews may mean customers are pleased with the goods and services your organization supplies.

Compare to a standard

You may compare your customer feedback to that of competitors by browsing social media comments and online ratings and reviews. Sometimes customers may draw comparisons of their own between two companies or products in these types of forums.

Can change with additional information

You can attempt to improve customer satisfaction based on the data you receive. You may choose to sell different products, change your hours, hire new employees or provide upgrades to better align with customer needs.

Inquiry levels

In businesses that provide estimates or quotes, inquiry levels may be a suitable key driver. Inquiries fit into the following key driver criteria:

Affect performance

The number of inquiries received or quotes given may predict a potential rise in sales. As more potential customers learn about your company or its services, you may have a larger pool from which to gain clients.

Are measurable

You can count the number of inquiries you receive or quotes you give using a tally system or a spreadsheet. You may keep a record from month to month to predict future fluctuations in sales.

Compare to a standard

If you have been tracking this data over some time, you can compare your numbers from month to month. Some of your competitors may also share or post data about how many inquires they've received or quotes they've given to potential customers.

Can change with additional information

If you find a lag in customer engagement during certain months or seasons, you may enact marketing strategies to change this practice. You may attend vendor fairs or do community outreach. You may also consider purchasing more advertising space with local media outlets.

Number of locations

For larger companies, the number of locations you have may be a key driver. Especially in retail or service-based markets choosing where and how many locations to offer could have a direct impact on the profit margin. Locations fit into the following key driver criteria:

Affect performance

More locations may lead to more customers depending on the specific business and the market. Choosing to add a new location in an area with an immediate need and little competition may be a strategic move to advance the business.

Are measurable

You can measure the number of locations you have, the distance between all locations and the distance and number of competitor locations. This data may help you decide when and where to open a new storefront.

Compare to a standard

Comparing your locations to those of your competitors may be as easy as doing an internet search. Many companies list their location addresses on their websites or social media channels.

Can change with additional information

You may choose to add a new location if you learn a competitor's store is closing or that rental space is available in a new market. You may also choose to close a location in an over-saturated market and allocate those resources elsewhere.