Choosing Key Performance Indicators
One of the most important steps when transitioning from the early stages of becoming operationally sound to the stage where your company actively seeks growth is the establishment of key performance indicators.
Tracking your data and measuring your success kpi’s is the most important tool for gathering information and forecasting.
Key performance indicators or KPI are the measurable metrics you use to determine what aspects of your business are healthy and what is stifling your growth.
When selecting key performance indicators it is important to choose unique factors.
KPI’s Indicate Trends
The key is to show trends over time.
Data will show how this key performance indicator compares with other businesses within the sector. In conclusion, doing so establishing reasonable expectations for performance.
Most importantly, a good key performance indicator functions as a call to action.
Mostly to identify what aspects of your organization need work to maintain operational stability and growth potential. When seeking to track new key performance indicators, consider the following.
Is My Key Performance Indicator Objective?
The structure of a key performance indicator is such that it must be a numbered score.
A score that can be tracked over time to determine if the goal has been met or exceeded. The most common failure seen in key performance indicators is when the metric chosen is not able to be measured objectively.
Categories that are too broad, such as “number of loyal customers” are not informative. Similar parameters that are not specific and are subject to interpretation.
Better metrics would include “number of newsletter subscribers”, “number of repeat customers” or “members of the loyalty program”. The first metric could potentially contain all of the next three, but does not differentiate, making the data hard to use.
You may decide to track all three of those metrics as key performance indicators. They should be distinct data points in order to remain relevant.
Another possible pitfall when choosing a key performance indicator is choosing a metric which is subject to opinion, such as “customer satisfaction”. This is an open ended metric. While it may be based on objective data like a review rating or satisfaction survey, it attempts to describe “satisfaction” rather than displaying the actual data. Make sure your measurable metrics are fact based and not something that you “feel”.
A better choice would be to track how many stars out of five product reviews receive or how subscribers respond to customer service surveys. These metrics are objective, number based, and verifiable.
Is my Key Performance Indicator Actionable?
A key performance indicator is a data point, and is only useful if it functions as a call to action. When tracking and displaying key performance indicators, the plan of action should be clear.
A good key performance indicator includes a range describing performance of that indicator. It should be clear to anyone viewing the key performance indicator where the goal lies.
The objective is considered under tolerance. Our goal is figuring out actions could potentially be taken to improve the metric.
As an example, consider the key performance indicator “number of subscribers who stay subscribed for three months”.
- What is an ideal amount of subscribers?
- When is your subscriber amount an issue?
- How many subscribers stay subscribed for three months with other companies?
Those questions are answered by comparing previous data as well as evaluating market standard for your niche.
What is Your Goal?
Once you begin tracking the metric as a key performance indicator, it should be clearly stated what the goal is. That way, if the goal is not met, it is a call to action relating to that metric. In our example of subscriber retention, a suffering key performance indicator functions as a call to action on retaining subscribers. This indicates clearly that customer retention should be the focus of marketing efforts for this quarter, as your profits are directly linked to this opportunity for growth.
Often, in order to properly assess what your goals should be and how your performance relates to similar businesses or competitors, a consulting firm may be brought in to evaluate your scores and help set goals.
The value of a consulting firm in relation to key performance indicators lies in the ability to compare your performance and expectations with others. While your goals should always aim high, and aim for growth over last quarter and last year, you must be able to pin your key performance indicators on something external to measure your success or failure.
KPI Goal Oriented?
Once you begin to evaluate the data you have available to you, it can be all too easy to become fixated on metrics that have little to no effect on your profit margins or company objectives.
Do you take pleasure in watching your number of social media likes soar?
Can be linked to sales in a meaningful way, before you put additional money into growing your social media presence. Similarly, don’t spend too much time stressing out about a lack of loyalty members if the program does not generate income outright and your sales goals are being met.
These metrics may still be useful, and from a marketing standpoint. Drive profits by telling a story.
That said, they are not universally applicable data points and do not outright relate to the bottom line.
Which makes them department specific metrics and not a key performance indicator.
That isn’t to say that all key performance indicators should be revenue based. Many good key performance indicators relate to customer satisfaction, marketing impact and market capture.
There is more to understanding a key performance indicator than counting revenue.
With that said, a key performance indicator should be a metric that measures the health of the business. Profitable business is a healthy business to be in. When considering a key performance indicator, ask yourself if it relates to the core objectives of the business.
The best KPI’s can be demonstrably linked to income.
KPI’s understood at all organizational levels?
One of the most important traits of a good key performance indicator is that it provides information and value to employees at all members of the organization. Specific and technical metrics such as CRT may be important information for some departments, but incomprehensible for others. When choosing a key performance indicator, ask yourself if it is clear and provides value for every member of an organization.
Key performance indicators that are too specific are not bad metrics, but they are not good candidates for the metrics you wish to make all staff aware of. That does not mean that metrics relating to marketing, social media or profit margins should not be key performance metrics.
Part of maintaining a transparent and integrity based company is sharing data. A good Key Performance indicator is pertinent to all employees and clearly understandable by anyone.
How to Set KPI Goals
Once you have identified kpis that are pertinent, measurable and relevant, determine where to set the bar for success and failure. Naturally, you want the best score you can have. You want to see positive growth each quarter and each year.
In order to be useful, key performance indicators must be measured against the past. One of the hardest aspects of market research is the ability to measure. Your key performance indicators against your competitors. How many subscribers should you have? What growth should you expect? What level of customer satisfaction do your competitors have? These questions, along with countless others, should not be mysteries for long.
Once you find your key performance indicators and compile some good data about your company and its performance, its time to contact a consulting firm to check your numbers against more than your own expectations.
Consulting firms are a great way to tap into a vast bank of market data. Once utilizing the firm you ca relate it back to your performance and growth.
Consulting firms analyze key performance indicators and compare your data with similarly structured businesses. The goal is to help you build a plan of action that hits lacking metrics. We want to capitalize on those metrics that shine.