You won't be the first and certainly won't be the last to assume KPIs are all numbers. While many of them are, it's important to think of KPIs as measurements of progress that often go beyond a number. There are various types of KPIs, all of which add value and direction to your business strategy.
Using a combination of quantitative and qualitative KPIs is recommended for a more complete understanding of performance and to identify areas for improvement. Choosing relevant KPIs and regularly evaluating and adjusting them is important for effective measurement of progress.
As you can see, KPIs, unlike metrics, carry a degree of subjectivity. They are shaped by the context in which they are being used, and the people or companies who are using them. That's why you may see some companies use completely different KPIs to other businesses.
Key performance indicators (KPIs) refer to a set of quantifiable measurements used to gauge a company's overall long-term performance. KPIs specifically help determine a company's strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.
As mentioned before, website traffic may be a useful metric for SaaS companies. However, it's not likely considered a KPI because it isn't a direct path toward increasing revenue or growing the customer base. Instead, a KPI may be the number of new customer trials for the software or the revenue per new customer.
Today, I want to look at how we can set up good KPIs, metrics that drive both team and business growth. These KPIs always exhibit three key aspects: relevance, measurability and simplicity. Let's see what that means in practice.
KPIs have a high-level perspective. They represent key business goals that are relevant for various departments. On the other side, metrics are considered lower-level indicators and they track activities or processes that are specific to a department or business area.
In other words, all KPIs are metrics, but not all metrics are KPIs. KPIs are specific measurements that are used to track progress toward specific goals. On the other hand, metrics can be any type of data collected as part of routine business operations.
Key Performance Indicators help define your strategy and clear focus. Metrics are your “business as usual” measures that still add value to your organization but aren't the critical measure you need to achieve. Every KPI is a metric, but not every metric is a KPI.
Make sure each KPI meets the SMART framework.
Specific: It should be clearly defined and not too broad. Measurable: It should be easily quantifiable. Attainable: It should be realistic to obtain. Realistic: It should be practical and pragmatic.
An effective KPI avoids generalized goals like, “Improvement in warehouse department.” Instead, an effective KPI should be based on a solid, focused goal that can produce qualitative and quantitative measures. A good example could be to 'decrease dead stock by 20% within the next quarter'.
Common things Key Performance Indicators might track are: Revenue: average profits, total revenue, and new customers. Employment statistics: employee turnover, employee performance, and vacancies. Customer service: average call time, efficiency and customer satisfaction.
Realistic: KPIs should be realistic. Good advice is to start small. Big, lofty KPIs—while they might look good on paper—aren't doing you or your team any favors if they're unrealistic from the get-go. Measurable: KPIs should be measurable.
Worst KPIs to track: KPIs that are too vague
If an employee performance indicator is too vague, employee engagement can easily suffer as your people struggle to meet their goals. For example, say your business had a KPI along the lines of “make the workplace neater” or something else similarly vague.
SMART KPI examples are KPIs such as “revenue per region per month” or “new customers per quarter”. Iterate and evolve. Over time, see how you or your audience are using the set of KPIs and if you find that certain ones aren't relevant, remove or replace them.
Social Media Followers
Metrics that focus on your number of followers on social media platforms are often vanity metrics. The more followers you have, the more likely you are to be seen as an influencer, thus attracting the attention of other people who want to work with you.
But KPIs are NOT the same as goals. The goal is the outcome you hope to achieve; the KPI is a metric to let you know how well you're doing working towards that goal.
A good way to determine whether or not something is a project is to see if you can answer “yes” or “no” to it, or if you can determine that they are a certain percent complete. If you can, you're looking at a project, not a measure. “Yes” or “no” questions are not SMART KPIs, which brings me to my next point...
A KPI is a tool to keep track of how a key area of your business is performing. A KPI always contains a metric to measure the performance of that key area. A Key Result is a tool to positively impact the performance of a certain metric. Therefore, a Key Result also always makes use of a metric.
However, there are several characteristics that all successful KPIs share—they are specific, measurable, attainable, relevant, and time-bound. If you can make sure your KPIs meet these standards, you're on the right track to improving your sales performance.
Key Performance Indicators are performance measurements that help you know if your business is reaching its goals and operating optimally. Use a KPI checklist to help you measure, detect and respond to dips in sales and margins and other strategic facets of your business.
Try not to have too many KPIs: the optimum number for most areas of a business is between four and 10. Just make sure that you have enough to measure how your team or organization is performing against your key objectives.