A baby’s first steps after crawling is an improvement. Waking up without a stuffy nose for the first time in a week is an improvement. Not burning your dinner for the first time this week is an improvement.
But how much improvement is it?
These little things may not be so important to measure, but there are other instances in which progress is crucial to keep track of. Like the advancement of your entire business.
What is a KPI?
A key performance indicator (KPI) is a way to evaluate the success of an activity that an organization or department engages in. KPIs are values that can be measured against desired results. High-level KPIs are focused on the overall performance of an entire business, while low-level KPIs focus on the performance of individual departments within that business.
A key performance indicator is a quantifiable way to determine the success of the actions a business is taking. You might be thinking: isn’t that just a metric?
Not every metric is a KPI, but every KPI is a metric.
Think of metrics like characters in a story. Each character is part of that story and is there for a reason. But some of those characters only appear on a page, others show up in every chapter, and then there are those characters – the main characters – that a story can’t be told without.
Those main characters are the KPIs of your business’ story. Other characters are the metrics, which are there to assist the storytelling and support your main characters.
In other words, there are a ton of different metrics to choose from, but some are more important than others when it comes to your business goals. Those are your KPIs.
Because KPIs directly focus on the results of actions that a business takes in terms of success, KPIs are actionable, meaning that you and your team can take the results and take measures to improve them.
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How to develop KPIs
KPIs are the most important ways to determine whether or not your company is moving in the right direction. Because of this, establishing them means cutting the fluff and focusing on what’s absolutely necessary in order to determine success.
1. Identify goals and objectives
While traffic and email open rate are two great metrics to measure for a content marketing team, are those the ones that tell you how well your business is doing overall?
Goals will vary from business to business, and should not be focused solely on revenue. Goals should be related to all company operations, all the way down to following through with the business’ mission.
Further, all goals that a company or department sets should be specific, measurable, attainable, relevant, and time-focused. These types of goals are known as SMART goals and are crucial to goal-setting success.
2. Create key performance questions (KPQs)
Key performance questions, or KPQs, help identify the questions that need to be answered. Like any question, KPQs (questions) should be developed before KPIs (answers). Although it seems logical to do, many companies choose their indicators without actually taking the time to determine what they need to know.
KPQs should be written as open-ended questions that require critical thinking. They should not be questions that can be answered with “yes” or “no”. For example, “How satisfied are our current customers?” would be a KPQ.
Beginning with KPQs is a guarantee that the following KPIs you and your business determine are relevant. Developing KPQs also promotes critical thinking instead of blind decision making.
3. Guide yourself with competitor data
KPIs shouldn’t be pulled out of thin air. Taking a look at common goals in your industry and competitors can help you and your business make more informed decisions about what your key performance indicators should be.
Keep in mind that your business is unique, and it’s good for your KPIs to be, too. The way your business defines success will be different than your competitors. The metrics that benefit your company most are what you should focus on.
4. Determine collection and reporting frequency
Some KPIs require that data be collected once an hour, once a day, once a month, or once a quarter. Determining the frequency that you and your colleagues collect this information will ensure that the data being reported on is as recent as possible.
Similarly, the frequency at which you report should be determined. While this may not be as frequent as your data collection, reporting your findings should be consistent.
5. Set short-term and long-term goals
Setting long-term goals is typically what people think of when they hear “KPI”, but setting a long term goal often leads to losing sight of the incremental steps that are needed along the way. Be sure that you’re setting goals for short-term periods leading up to that ultimate goal in order to keep you and your departments in check.
Setting short-term goals can also indicate whether or not the current strategies or expectations are realistic.
6. Assign responsibilities
When determining KPIs for an entire company, it’s crucial that responsibility for tracking these metrics are delegated, and delegated appropriately. The person most relevant to the metric should be the one held accountable for assessing their KPI(s) and collecting, analyzing, and presenting that data to higher-ups.
7. Encourage open communication
When discussing performance, there’s nothing better than honest, clear communication. Each individual responsible for tracking KPIs is contributing to the overall success of the company by not only reporting the current data, but discussing progress, learnings, and strategies.
It’s crucial that all team members are aware of the overall objectives that the company has set so that contribution to success can come from all departments.
KPI best practices: the 6 A’s
Monitoring your performance as a business is critical, but knowing how to do that isn’t always intuitive. It’s not unheard of for a business to pick KPIs to measure, only to find that they’ve wasted time, money, and resources measuring indicators that weren’t truly “key”.
Below are the six A’s, which, if followed, help ensure that the KPIs you’re choosing are the ones that matter most.
Aligning your KPIs with your business objectives is a crucial part of setting them. But businesses set goals that are short, medium, and long-term, and it becomes difficult to determine which of those goals should be prioritized to be paired with KPIs.
In order to tackle all of those goals, set KPIs for different management levels. C-Suite executives are likely more concerned with long-term goals, managers with medium, and associates with short-term goals.
Similar to setting up different personas to market to, KPIs should be set up for different personas to achieve instead of “mass marketing” and expecting that everyone can contribute to one KPI in an equal manner.
While ready-made KPIs are nice to have to base your own off of, they should be avoided. The KPIs you set should be directly aligned with your goals, and it’s likely that the KPIs you found online weren’t designed with those same goals in mind.
Setting goals means reaching for the stars – realistically. If you’re choosing KPIs that are overly-expensive or impossible to measure, think again. To ensure that the KPIs you’re choosing are obtainable, make sure that you:
- Can identify the data points needed to measure the KPI
- Can determine the technology, processes, and people necessary to access the data on a regular basis
- Can determine the technology, processes, and people necessary to present the data to relevant parties
- Can calculate the cost and return of the KPI
Being specific about anything in the work environment is hugely important, but when it comes to KPIs, it’s essential. A vague KPI leaves room for interpretation, which can lead to multiple people attempting to obtain success in various ways.
KPIs should be designed for business decisions to be made. If your KPI isn’t specific, how will stakeholders know where to take the company next?
Being specific in your KPIs isn’t enough; the number of KPIs you choose shouldn’t be too many. Limit your KPIs to the ones that are truly crucial to your business’s success. Focusing on few rather than many will allow more attention to be given to each one, and more time spent critically thinking and adjusting when the time comes.
Choosing a KPI doesn’t mean just making a decision and stepping away from it. KPIs need to be accurate and reliable in reporting and predicting the performance of your business.
This can be done in several ways. First, make certain that your KPI includes all necessary and relevant information. Failing to do this can provide an incomplete picture for stakeholders as well as yourself, whether you realize it or not. No matter how difficult or tedious the data is to collect, a well-rounded KPI is better than a half-baked one.
Even if your KPI includes all of the necessary data, is that data accurate in reflecting and predicting the performance of your business? Again, doing everything you can to verify that your key performance indicators are actually key is a must.
The purpose of a KPI is to monitor the current success of your business as well as inform leaders and decision-makers of how that success can grow over time. There are two things you can do to make sure that your KPI is actionable.
First, are the events leading up to the KPI ones that the business controls? For example, the number of calls that customers make to a business is not one that the company can control, and therefore a KPI should not be based on that factor.
If the KPI is actionable, it’s still not enough. The element that’s missing? KPIs can’t just be set; they need to be presented to the right people in the right way to encourage people to take action.
Your business, no matter how old, likely doesn’t have the same plan, goals, or even employees as it did when they opened the doors on day one. KPIs are another part of your business that shouldn’t be set in stone.
KPIs should be alive – constantly evaluated, changed, and evaluated again. Remember why you chose to set the KPIs you did and think again about whether they’re still relevant. If your business is evolving (which it almost definitely is), your KPIs should be evolving with it.
Not only should the KPIs themselves be evaluated and reevaluated, but the ways in which you collect data for your KPIs should also be checked on periodically. The software you’re using, the people responsible for collecting, and the way you’re reporting should all be as up to date as possible.
Types of KPIs
Like business strategies, there are many different kinds of KPIs. The ones that your business chooses should make the most sense for the goals you have set in place.
Quantitative indicators can be presented numerically.
EXAMPLE: Number of customers retained
Qualitative indicators cannot be presented numerically.
EXAMPLE: Employee satisfaction
Leading indicators can predict the outcome of a process.
EXAMPLE: Number of new customers
Lagging indicators can present the success or failure of a process after it’s taken place.
EXAMPLE: Total shipment errors
Input indicators measure the number of resources used during the generation of the overall outcome.
EXAMPLE: Money spent
Process indicators represent the efficiency of the process.
EXAMPLE: Customer tickets resolved
Output indicators reflect the outcome of the process activities. These are one of the most-used KPI types.
EXAMPLE: Profit made
Practical indicators interface with existing company processes.
EXAMPLE: Will be specific to the company
Directional indicators specify whether an organization is improving.
EXAMPLE: Time spent resolving tickets
Actionable indicators are in the control of the organization in regards to change.
EXAMPLE: Will be specific to the company
Financial indicators measure economic stability or growth.
EXAMPLE: Gross profit margin
KPI examples by department
KPIs are unique to each business and department, because each business and department has unique goals. However, there are enough similarities between the departments within a company that their KPIs can be written in a similar manner.
Below are some examples from several common departments with which you can use to guide your KPIs if your goals allow for it.
A marketing KPI is used to evaluate the success and impact of marketing activities on the department or entire company. These KPIs can be measured on a marketing dashboard. Examples of marketing KPIs may include:
- SEO ranking
- Number of marketing qualified leads
- Cost per lead
- Amount spent on marketing over a certain period of time
- Sales revenue earned from marketing campaigns
- Click-through rate
A sales KPI is used by sales teams as well as company management to keep track of the effectiveness of sales activities to optimize overall sales performance. Examples of sales KPIs may include:
- Sales from new customers
- Deals closed
- Number of prospect meetings held over a certain period of time
- Number of abandoned carts
- Number of returns
- Repeat sales revenue
Customer service KPIs
Customer service KPIs measure performance to visualize, analyze, and optimize customer service performance. Examples of customer service KPIs may include:
- Number of customer support tickets logged
- Amount of time it takes to resolve a customer support ticket
- Customer satisfaction score
- Number of calls made to customer service
- Customer retention
- Customer lifetime value
Human resources KPIs
HR KPIs are a way to track goals of human resources management to optimize processes like recruiting, office and employee management, and employee programs. Examples of HR KPIs may include:
- Number of new employees
- Employee turnover
- Employee satisfaction (based on survey results)
- Training efficiency and effectiveness (based on test scores)
- Cost per hire
- Number of promotions
Using a KPI template
The steps towards creating KPIs for your business may feel a little abstract. It may be helpful for both you and your colleagues to ground these steps with a worksheet or KPI template.
Laying out the questions that need answering can help clear up confusion while simultaneously holding key players accountable.
Below is a template that you and your team can follow to make sure that you’re being thorough when setting your KPIs.
|What goal is the KPI assessing?||Grow customer satisfaction|
|Who is this data for?||CMO|
|Who will have access to the data?||Marketing team|
|What question will the KPI answer?||How satisfied are our current customers?|
|How will this KPI be used?||This data will be used to report customer satisfaction internally.|
|How will your data be collected?||Online survey sent via email campaign|
|How often will this data be collected?||Monthly|
|How often will this data be reported?||Quarterly|
|Who is responsible for tracking and data entry?||Mark Ruffalo, Senior Marketing Manager|
|How will you determine performance levels?||NPS score|
|What is your goal?||Average NPS score of 7.3|
|What do you estimate your expenses will be from tracking and maintaining the indicator?||Costs are low because data is readily available|
|How well is this indicator answering the KPQ and what are the limitations?||NPS score provides us with a number, but we will need to log additional customer feedback that comes with the number they provide.|
|Are there ways in which this KPI could be intentionally or unintentionally affected by external factors?||The customers selected might be more likely to reply in a positive manner|
|How long will this indicator be valid before termination or revisions need to be made?||12 months before target revision|
Tips for creating a KPI report
Measuring your key performance indicator is one thing, reporting it is another. Often, these reports are presented to stakeholders, C-Suite executives, VPs, or others in management positions within your business.
When presenting your findings, keep your report clear and concise so it’s easier for everyone to identify the key takeaways. Below are a few additional tips to help make your KPI report one to remember.
- Data visualization can be used to make your findings more digestible and easier for management to recall.
- Leverage historical data to compare past data to current so that both you and management can view progress.
- Be honest. Regardless of how poor the results turn out that make you want to avoid telling the truth, failing to be honest in your KPI report will be doing more harm than good to both your company’s reputation and your own.
Like any report, a KPI report should be designed for the audience it’s being presented to. They’re likely not going to be as interested in smaller details, but they will be interested in hearing about the following:
- Goal: Be specific about exactly which company goal the KPI is addressing and evaluating.
- Metrics: List the key performance indicator you’re using to measure this goal, regardless of whether it’s quantitative, lagging, financial, or otherwise.
- Purpose: Provide an explanation of why the particular KPI was chosen and how the findings will contribute to the success of the company.
- Frequency: Provide readers with information related to how often you measured the KPI and how often you’ll continue to measure it.
- Data source: Specify how and where you collected the data you’re presenting.
- Visualizations: In tandem with the suggestion above, visualizations should be used to summarize your findings as well as compare them to past findings.
- Additional information: Any information that you think is important for the readers to know in addition to what precedes it should be mentioned to help contextualize your KPI report.
If it cannot be measured, it cannot be managed
Key performance indicators exist to help businesses determine how successful their actions and progress truly are. With KPIs, companies can make better decisions, grow their reputation, and exceed current performance.
If you’re working in marketing, knowing your metrics like the back of your hand can help make your KPIs crystal clear.