Fact: 100% of the statistics strategically placed atop blog posts are a direct result of people studying Key Performance Indicators, or KPIs.
An even more interesting fact is that the blogs we read on a regular basis are not only influenced by KPI management; they’re molded by its suggestions. Catchy headlines, backlinks to others bloggers who may tag you on social media or their own blogs, at least one numbered or bulleted list, and visuals, visuals, visuals. All these demands are not crafted out of thin air nor sung by the high council of Silicon Valley; they are created by us, the reader. And our demands are communicated to businesses via KPI examples.
KPI is a term coined by marketing professionals and business executives to describe how certain efforts resonate with target groups. As perplexing as KPI best practices can be, the fundamentals of measuring performance indicators are not all that different from the scientific method. Ask a question, set a goal, find a quantifiable means of achieving that goal, test these means, and then re-test for consistency.
Apply this methodology to how businesses engage with their clients. Company A asks itself what its best resources are for attracting customers. Company A then creates ads, launches a blog, boosts its social media presence, and optimizes its search engine ranking. The effort is a success, and more customers start pouring in. What happens next? How does Company A measure the success of each individual effort so that it can isolate strengths and weaknesses?
Through a KPI management system such a professional KPI software, that’s how. Without performance indicators, the bulk of B2B blogs may still be using classic storytelling to rope in readership, all while falling behind to competitors.
So why is something that seems rather entry-level often so difficult for some executive boardrooms to grasp? Because in practice, getting a handle on performance indicators is much more complicated and costly than an innocuous experiment. All businesses have a limit on expenditure; as essential as KPI management is to growth, an improper pursuit can become a heavy flowing drain on revenue.
In this blog, we will discuss KPI best practices and how to find and leverage the most effective KPIs for your business. But first, we will have a guest subject matter expert address a very important question.
Why Do KPIs Matter?
Bernard Marr is the author of several books, including Key Performance Indicators for Dummies, Key Performance Indicators: The 75+ Measures Every Manager Needs to Know. Marr asserts proper KPI management as the answer to this necessity. “It is more important than ever that business leaders and senior executives are able to make better-informed decisions, improve performance, and seek out new and novel ways to gain the edge over their competition,” Marr says.
It’s worth noting that there are countless businesses that have done just fine without ever thinking of performance indicators. Not every venture includes plans for expansion – and that’s okay. For those who want to grow their businesses and measure the best means to do so, KPIs are the choice unit of measurement.
Key indicators enable businesses to measure their own ability to set and achieve goals. They are often used to measure customer satisfaction, employee performance, and general engagement levels with any audience the company specifically targets, and handled through a KPI management tool. KPIs put numbers to behavioral responses by isolating indicating actions with sophistication. These indicators provide the most precious intel a business can buy, fostering a window of insight into targeted efforts that can consistently produce results.
Once again, the effort to gain this intel can be damaging if handled improperly. Ineffective KPI management means little actionable data. This will cause problems like wasted focus, wayward strategies, and loss of revenue. It is important to think deeply and collectively about KPI best practices, yet there are universal guidelines that can help steer businesses in the right direction.
How To Find The Perfect KPIs
Many industries have used KPI best practices and KPI management solution to isolate their strongest indicators, such as retail analytics. That’s not to say these indicators are the only choices for retail businesses; but they are a strong starting point. “The right KPIs for you might not be the right KPIs for another organization. KPIs should match your strategy, not just your industry,” says Ted Jackson of ClearPoint Strategy.
To choose between following industry standards or embracing unique indicators is an ultimatum every manager will have to face. For those who want to experiment with some less-explored KPIs, there are two standard practices for evaluation that can help businesses determine whether those particular performance indicators will be effective: the “SMARTER” criteria and the “6 A’s”.
- Specific – Start with a specific objective that can be isolated. Pick it apart- remember that customer satisfaction, sales, retention, etc. can all be measured by different KPIs.
- Measurable – Find a definitive way to measure the data that needs recording. Once again, simplification is key here; there should only be one effective method of measurement.
- Attainable – Make sure the objective is something that can be readily attained. One way of testing this is making sure the business has completed this objective before.
- Relevant – Ask if these goals are relevant to the target groups. Would achieving this objective impact the groups you are trying to engage, and in what manner?
- Time-bound – Create timeframes and deadlines to accurately measure the KPI. If primary trials produce the desired results, extend the time frame on the next round.
- Evaluate – See if the KPI provides the actionable data needed to achieve set goals. Brainstorm with the team to see if any other angles should be examined.
- Reevaluate – Test and retest for consistency before regular implementation. Effective business strategies are built around KPIs, so ensure the data is providing exact and specific answers.
The Six A’s
- Aligned – The KPI aligns with the activities of its specific targets. So long as business continues as normal, collecting the data should be fairly effortless.
- Attainable – The indicator is easily attainable so that it can be measured. If data doesn’t start regularly flowing once the trial has begun, there may be something amiss.
- Acute – The KPI makes others well-informed, or acute, of the goal and its measurement. If the purpose of the KPI is at all unclear, it may be a sign to try a different indicator.
- Accurate – The data pulled from a KPI will be used to accomplish future objectives; it must be reliable and accurate so that it does not lead to any misinterpretation.
- Actionable – KPI results produce data that influences a plan of action. KPIs should fuel new processes; if there is no follow-up then the metric loses its value.
- Alive – The data can be leveraged throughout the company’s lifespan. It should become a constant throughout an ever-evolving business.
Marketing may be all about ROI, but that doesn’t negate the need to correctly connect the dots. And to do that, businesses need to achieve actionable results through KPI best practices.
Avoid These KPI Mistakes
Choosing the wrong indicators can turn into an expensive witch hunt, sending marketing departments spiraling into the abyss of pointless data. Ironically, many cost-minded professionals prefer KPIs that seem more direct, such as financial goals. However, focusing all your efforts on instant gratification can be a huge mistake. In one blog article, Levi Newman of BSC Designer explains: “Many managers set goals that are based on the wrong performance measures, meaning they’re not accurately describing the main objective. It’s like saying your target is a dartboard, instead of the bulls-eye.”
When setting up your KPIs, try as much as possible to focus on future standards and not past performance. Keep in mind however that these future standards you want to achieve have to be realistic, otherwise it will only need to a performance assessed as “poor”, frustrated managers and frustrated employees that will feel less and less motivated. Finally, once you know what to measure and how to measure it, agree on an action plan: define who does what, place milestones along the way, while keeping communication open is a best practices. Too often, no clear action plan is defined after setting up the strategy, which leads to misunderstanding and different priorities, that impact the team work and atmosphere.
Get On The Right Track With KPIs
A good starting point would be looking at the standard KPIs used in your industry. For simplicity’s sake, let’s stick with the retail example. In these businesses, some standard retail KPIs are: Average Transaction Size, Total Volume of Sales, Back Order Rate, Customer Retention, Total Sales By Region Order Status, Perfect Order Rate, or Return Reason, among others. All of these metrics integrate cohesively with a retail operation.
In the end, to have an effective strategy built around KPIs, you must clearly define your goals. Do you want to create a conversation, or do you want to engage individuals? Do you want to sell them a single-use product, or an idea that would influence them to keep coming back? Are you measuring the output of your employees by their sales numbers, or by something a little more abstract? These are all questions worth asking; and for every one of them, there is a matching KPI. To polish your reporting techniques, you can have a look at some of our best practices for different function in the company – management reports, sales reports, or marketing reports, the choice is yours!
Goals, assessments, management techniques, and performance are cornerstones of calculating business efficiency. At datapine, we want to leverage technological innovation to provide the answers managers need to narrow their goals and move their businesses forward. KPI analysis is just one of the many duties integrated into the our self-service BI tool. To learn more about how we can help your business, sign up for a free trial today!