How can you tell if your business is growing?
Of course, you can talk to some team leaders and report regularly on their performance. But if you don’t measure this information against something else, then how do you know when you hit the mark or fell short?
As they say, what is measured is improved. By quantifying your current performance using Key Performance Indicators (KPIs), you get a framework against which you can evaluate your progress.
But how do you choose the right KPIs for your company? The short answer is that it really matters.
While there isn’t a hard and fast rule for choosing the right KPIs, there are a number of factors that you should always keep in mind.
In this post, we’re going to walk you through some of the factors that influence which KPIs to focus on and help you identify the metrics that matter most to your business.
What is a KPI?
A key performance indicator (KPI) is a metric that you can use to measure and track your progress towards a specific goal. Business KPIs, which can vary by department, can help measure a company’s long-term performance against its own goals and industry standards.
One thing to remember about KPIs is that they are designed to measure your most impactful indicators.
For example, your social media team may have a variety of data points that can serve as KPIs. However, you should only choose those that align with the broader business goals. Let’s say it’s brand awareness. In this case, the number of followers, post reach, and impressions are likely the social media KPI metrics to measure.
With that in mind, KPIs mean you have less to focus on a few key metrics that will affect your business the most.
OKR vs. KPI
Goals and Key Results (OKR) and KPIs are often used interchangeably, as both terms refer to goals that are being pursued and measured. Where they differ, however, is intent.
In simple terms, KPIs indicate whether your company is achieving its goals. They are often referred to as health metrics as they tell you how the company is achieving a goal that has already been set.
OKRs, on the other hand, are general goals for your company with the key results that mean achieving those goals. They are aggressive and ambitious goals that speak for the overall vision of the company.
For example, let’s say a tech company aims to become one of the top 10 vendors in its industry by 2021. The main results could be:
- Acquire 1,000 new customers by the third quarter.
- Generate 3,000 leads every month.
- Increase annual membership sales by 30%.
While KPIs are ideal for scaling, OKRs are designed to grow dramatically. They are more ambitious and push the teams to expand their skills.
It’s also important to note that while KPIs may be the most important results in your OKR, the opposite is generally not the case.
For example, your marketing team could have a KPI of 3,000 leads, as mentioned in the example above. However, it is unlikely that any department would list the “Top 10” target as a KPI, as it suggests a broader vision and a more flexible schedule.
What is KPI reporting?
A KPI report is a visual dashboard that allows you to track your metrics and evaluate how your team is doing against the goals. You can use charts, graphs, and tables to view your report, depending on the data you want to view and the needs of your team.
As a company, you will likely receive data on a daily basis that may or may not be related to your KPIs. A reporting tool does a few things, including:
- You can track your most important measurement data and filter out irrelevant data
- Make it easier for decision-makers and employees to access the data
- You get a quick and easy-to-digest overview of your team’s performance
- Align everyone with the goals
How to measure KPIs
Before you can measure your KPIs, you need to determine which metrics to track. This depends a lot on your goals and your team.
Once you’ve narrowed that down, set your goals. They are usually based on a combination of factors including historical performance and industry standards.
You also need to answer who, when and why. Who is responsible for this KPI? Identify the person on your team who is managing this KPI so they can be the point of contact for resolving any barriers that can affect performance. You will also be responsible for reporting progress.
For the “when” you need to know the timeline to achieve these goals. Many companies set them on a monthly or quarterly basis, but your schedule can be shorter or longer depending on the team.
Finally: the why. This is the most important thing to keep in mind when measuring your KPIs. Once you have clearly identified your goals, you can motivate your team and make sure everyone is focused on the direction you are going.
Types of counters
KPIs can be set on a team basis. Sales KPIs are completely different from HR KPIs. Aside from these differences, there are also differences in the types of indicators you can measure.
Here are some of the most common types of KPIs:
- A quantitative KPI relies on numbers to measure progress. For example, “Sales team to generate 100 sales-qualified leads every month.”
- A qualitative one KPI deals with opinion or emotion-based data. For example “brand sentiment”.
- A leading KPI can predict future performance. For example “website traffic”. More traffic can mean more conversions, more leads, and more sales.
- A lagging KPI describes a past result. For example “Turnover Rate”.
- An input KPI Measures the resources, time, and resources required to complete a particular action or project. For example “number of employees, budget.”
- One process KPI evaluates the efficiency and productivity within the company. For example, “Average Sales Call Time”.
The business model of your company and the industry in which you operate influence the KPIs you have selected.
For example, a B2B Software-as-a-Service (SaaS) company might focus on customer acquisition and churn, while a brick and mortar retail company might focus on revenue per square foot or average customer spend.
Here are some examples of industry standard KPIs:
KPIs for professional service
Online Media / Publications KPIs
While you might want to consider industry standard KPIs, it’s more important that you select the KPIs that are relevant to your business and the goals that you are working towards.
How to determine KPIs
Choose KPIs that are directly related to your business goals.
KPIs are quantifiable measurements, or data points, that are used to measure your company’s performance in relation to a goal. For example, a KPI can be related to your goal of increasing sales, improving the return on investment in your marketing efforts, or improving customer service.
What are your company goals? Have you identified important areas for improvement or optimization? What are the top priorities for your management team?
By answering these questions, you will take one step closer to identifying the right KPIs for your brand.
Focus on a few key metrics rather than a lot of data.
When you start identifying KPIs for your business, less is more. Instead of choosing dozens of metrics to measure and report on, focus on a few.
If you track too many KPIs, you may become overwhelmed with the data and lose focus.
As you can imagine, every company, industry, and business model is different, making it difficult to pinpoint an exact number for the number of KPIs you should have. A good target number, however, is between two and four KPIs per target. Enough to get a good sense of where you are, but not too many that aren’t prioritized.
Consider the growth phase of your company.
Depending on the stage of your business – startup vs. company – certain metrics are more important than others.
Early-stage companies tend to focus on data to validate business models, while more established companies focus on metrics like cost-per-acquisition and value-to-customer life.
Here are some examples of potential performance indicators for companies in different growth phases:
Pre-Product Market Fit
Fit product market
Identify both lagging and leading performance indicators.
The difference between lagging and leading indicators is essentially knowing how you did it and how you are doing. Leading indicators are not necessarily better than lagging indicators or vice versa. You should just be aware of the differences between the two.
Lag indicators measure the output of something that has already happened. The total sales in the last month or the number of new customers or the hours of professional services provided are examples of delay indicators. These types of metrics are good for just measuring results because they focus solely on the results.
On the other hand, leading indicators measure your likelihood of achieving a goal in the future. These serve as predictors of what is to come. Conversion rates, age of opportunities, and sales force activity are just a few examples of leading indicators.
Traditionally, most organizations have focused solely on lag indicators. One of the main reasons for this is that they are easy to measure because the events have already occurred. For example, it is very easy to get a report on the number of customers acquired in the last quarter.
But measuring what happened in the past can only be so helpful.
You can think of leading indicators as business drivers because they happen before trends appear. This will help you determine if you are on track to achieve your goals. If you can determine which leading indicators will affect your future performance, you have a much better chance of success.
Growth is the goal of every company. KPIs allow you to track your progress and incrementally scale to grow in ways that are important to your business.