What Are KPIs And How To Measure Them – A Complete Guide
Failing to adequately assess your business’s performance despite conducting performance reviews every quarter? It’s about time you start using the right KPIs.
But what are KPIs really? Whether you are an experienced business owner or a solopreneur venturing on their first project, we bet you have come across the term before at some point. Maybe you have even looked forward to learning about it but couldn’t get your hands on an article that explains KPI in detail.
If that’s the case, well, you are in luck, as in this blog post, we will discuss everything you need to know about KPIs. From its importance in measuring a business’s performance to how to measure it, we will cover it all.
So, without further chit-chat, let’s get straight to the real stuff.
What Are KPIs?
KPIs stand for Key Performance Indicators. They help measure the progress and performance of a business organization toward achieving a certain objective. Whether it is for a one-time campaign or a long-term project, a KPI can help organizations track their progress, enhance results, and stay on track.
Different teams in an organization may use different KPIs to demonstrate their efforts toward the business. As you can imagine, such performance indicators ensure the teams work towards pre-set objectives and resolve any issues that might prevent them from achieving those objectives.
Similarly, employees may use KPIs to determine how their individual performances contribute to the team, project, and organizational objectives. KPIs can also help measure the efficiency of strategic chances, campaigns, processes, and projects.
Importance Of Key Performance Indicators
Many businesses underestimate the true power of KPIs because they think they are just numbers, but that’s far from the truth.
When you choose a KPI for your team or business, it breaks down the focus of your efforts, helping your team focus on the most important things. It can give the team the much-needed push to be more efficient and make useful changes whenever required.
Thus, we feel it’s safe to say that KPI is a story, a message that shows your employees whether or not they are moving towards the pre-set organizational goals. It can help:
- Prevent data overload
- Transform ideas into small, doable targets
- Keep the most important goals at the forefront
Strong and clear KPIs can help a business acquire critical insights, save time and resources, guide management, and set it on a course of long-term growth, which is why KPIs are so important.
And since they are so important, it’s imperative for all business owners and employees holding managerial positions to choose the right KPIs for their businesses and teams. Otherwise, they can adversely disrupt any team.
Let’s assume your content team chooses a KPI for its growth goal. Since ranking on Google is crucial for a blog, the number of #1 ranking keywords could prove to be a good KPI. However, if your blog’s top-ranking keywords have no connection with your business goals and if those keywords have a low traffic volume, then organic traffic might be a better KPI.
Different Types Of KPIs
Although there are a ton of different performance indicators that a team or business can measure, most fall under the following two categories:
1. Quantitative KPIs
Perhaps, the most common type of KPI is quantitative KPI, which uses numbers to track and measure progress toward a goal. Some examples of quantitative KPIs are annual revenue, customer service tickets, the number of closed sales, etc.
2. Qualitative KPIs
As far as qualitative KPIs are concerned, they help track non-numerical data such as employee engagement and customer comments. Although there are several ways to derive quantitative data from qualitative research, qualitative KPIs mainly focus on non-numerical data.
For instance, let’s assume you have launched a new product online. As soon as the sale goes live, qualitative KPIs can help you track qualitative data, such as customer testimonials and surveys. Thus, it can help you identify how people are responding to your product and how you can improve its quality.
How To Choose KPIs?
Before measuring KPIs, you’ll need to choose which metrics to track; this will significantly depend on the goals of your business. As soon as you have figured that out, set your targets; just make sure they align with your previous performance and the industry standards. You’ll also need the answers to the who, when, and why:
Who will be managing your KPIs? Identify the people responsible for managing the KPIs from your team so you know whom to reach out to in case an issue arises that could negatively affect the performance of your business.
As far as the “when” is concerned, it is the timeline to reach the set targets. More often than not, businesses set their targets on a quarterly or monthly basis, but that doesn’t mean you have to follow suit. Your timeline can be longer or shorter depending on your goals.
Finally, we have the “why,” perhaps the most crucial factor to consider while measuring KPIs. Why are you working towards your goal? When you have your goals identified and articulated to your employees, it can help motivate and inspire them and ensure they are on the right track.
Following are a few steps that can help make the process easier:
1. Select KPIs That Are Directly Related To Your Goals
As stated previously, KPIs are quantifiable data points or measurements that are used to track a business’s performance toward a goal. For example, a KPI might be related to your goal of enhancing customer service quality, improving the ROIs of your marketing efforts, or increasing sales.
So, what are your goals? What are some of the areas of improvement? Knowing the answers to such questions will help you figure out the right KPIs for your business.
2. Take Your Business’s Stage Of Growth Into Account
Certain metrics will be more important than others, depending on the stage of your business. Is your company a startup or a full-fledged enterprise? While most startups usually focus on business model validation, established enterprises focus on customer lifetime value and cost-per-acquisition data.
Following are a few examples of possible KPIs for companies based on their growth stage.
a) Pre-Product Market Fit
- Customer interviews
- Qualitative feedback
b) Product Market Fit
- Customer satisfaction
- Monthly Recurring Revenue (MRR)
- Number of clients acquired
- Lifetime value
- Average order size
- Cost per acquisition
3. Recognize Both Leading And Lagging Performance Indicators
Next, you need to identify the difference between the lagging and leading performance indicators. It’s worth noting that leading indicators are not necessarily better than lagging ones; just make sure you know the difference between them.
Lagging indicators assess the outcome of something that has already occurred, such as the number of new customers, hours of services delivered, and total sales last quarter. As you can tell, these types of metrics are ideal for tracking and measuring results since they only focus on outputs.
Talking about leading indicators, they typically help measure your likelihood of accomplishing a specific goal in the near future. These indicators are essentially forecasters of what’s about to happen. Sales rep activity, sales opportunity age, and conversion rates are some examples of leading indicators.
Most businesses focus on lagging indicators since they are easy to measure because the events have already taken place. Isn’t it easier to pull out the sales report for the last month? But then again, measuring what has already happened can only go so far.
If you want to take your business to the next level, it’s better to identify and focus on leading indicators. Consider leading indicators as “business drivers” since they come before the trends emerge, helping you figure out whether or not you are on the right path to achieving your goals.
4. Shift Your Focus On A Few Specific Metrics
Once you start identifying the KPIs for your company, make sure that you focus only on a few metrics instead of choosing dozens of them. If you measure too many KPIs, you’ll likely become overwhelmed with all the data and lose objectivity.
How To Measure KPIs?
1. Identify The Tools Or Software You’ll Be Using
Your data sources and business tracking tools will play a pivotal role in KPI measurement. Without the proper tools, acquiring accurate data becomes significantly more difficult. While multiple options are available, pick the one that best suits your company. Here are a few things that you might want to consider.
Make sure the software you choose can connect to all of the different data sources you use. This way, you’ll be able to get a complete picture.
Dashboards can be incredibly useful for visualizing data and spotting trends. Look for a solution that makes it easy to create custom dashboards.
c) Data Export
Being able to export data is also important. This way, you can further analyze your KPIs in Excel or another tool.
d) Custom And Standard Reports
Many software solutions come with a range of standard reports. However, you may also want to be able to create custom reports. This way, you can get exactly the information you need.
2. Set Up A System For Tracking KPIs
Now that you have the right tools in place, it’s time to set up a system for tracking your KPIs. This includes deciding who will be responsible for measuring each KPI and how often they will do it.
Having a clear system in place will help ensure that your KPIs are measured accurately and consistently, giving you the most accurate picture of your business’s performance.
- Who will be responsible for measuring each KPI?
- How often will they measure it?
- What tools will they use?
These are all important questions to answer when setting up your system. By having a clear plan in place, you can be sure that your KPIs are being tracked effectively and efficiently.
3. Collect Data And Track Progress Over Time
With a system now set up, it’s time to gather data. Keeping tabs on this information will show you how much progress has been made and where room for further development still exists.
You must establish key performance indicators (KPIs) to do this effectively. These are the metrics that you will track over time to gauge your progress.
Some examples of KPIs include:
- Sales figures
- Traffic levels
- Conversion rates
Once you have established your KPIs, start tracking them regularly. This will give you a good overview of how your business is performing. From here, you can identify areas for improvement and make changes accordingly.
4. Analyze The Data And Make Changes Based On Your Findings
Analyzing your data is an important step in improving your business. Here are a few tips for doing it effectively:
- Look for trends over time as it will help you identify areas of improvement.
- Compare your data to industry benchmarks. This will help you see how your business stacks up against others in your industry.
- Use data visualizations to make it easier to understand your data. This can help you spot patterns and trends that you might otherwise miss.
5. Share Your Findings With Your Team
Once you’ve analyzed your data, it’s time to share your findings with the rest of your team. This will help everyone be on the same page and ensure everyone is working towards the same goals.
Measuring KPIs can seem like a daunting task, but it doesn’t have to be. By following these best practices, you can ensure that you’re tracking the right data and making decisions that will help your business grow.
Well, that was a long ride, but we believe it was worth your while.
KPIs are important tools that help organizations track and measure progress toward specific goals. When used correctly, they can provide valuable insights into organizational performance.
But remember that KPIs are only one piece of the puzzle – they should never be used in isolation. Instead, they should be considered alongside other data points to get a complete picture of organizational performance.
On that note, we wish to take your leave. See ya!