Key Performance Indicators (KPIs) are measurable values that that show how effectively a company is achieving their business objectives. KPIs are not simply numbers, but metrics that result from some kind of juxtaposition, for example number of customers over time or revenue over time. They indicate in which areas the businesses are on the right track and where they need to make improvements. The amount of data companies generate today makes it sometimes difficult for them to determine which measures constitute key performance indicators. In case of doubt, it’s crucial to consider the company’s individual strategy and align the KPIs to company’s objectives.
Choose SMART KPIs
Many businesses think they choose the easier path when they blindly adopt industry-recognized KPIs and don’t take time to work out their own metrics. However, this strategy rarely brings any positive change. Defining KPIs should be a repetitive process that involves feedback from analysts, heads of departments and managers. Each team should come up with their own KPIs but for an organization as a whole it’s better to establish only a few that would keep all employees on the same page. To evaluate the relevance of them many companies use the SMART criteria. It stands for S like Specific, M – Measurable, A – Attainable, R – Relevant and T – Time-bound. In other words, before promoting your measure to the KPI rank, think whether it’s specific to your business, easy to measure, realistic to attain and relevant to your organization’s goal. It’s also important to set a time frame for reaching of particular goals.
Characteristics of KPIs
Other recommended characteristics are contained in the 6xA rule which summarizes 6 features that beneficial and effective KPIs should have:
Aligned. They should be aligned with your business strategy. While business performance may be a relative term, make sure to benchmark it against concrete goals that have been communicated to your entire organization.
Attainable. Try to estimate the cost in advance and set yourself realistic goals. They should be specific so that they can inform specific actions. It also means that you should limit the number of KPIs you focus on and concentrate on the most important ones.
Accurate. Base your key metrics only on the most accurate and reliable data. Try to eliminate all errors.
Actionable. Check whether your KPIs can be acted upon. Ask yourself if each KPI results from actions that can be controlled by your business.
Alive. Review the reasons behind choosing specific KPIs on a regular basis. Are those metrics actionable and aligned? As your business is evolving, so do your KPIs. Adjust them to suit the ongoing changes within your organization.
Department-specific Business KPIs
Each section of your business should define their own key performance metrics, the choice of which would vary depending on your business. However, there are some proven indicators that work in most industries. For example have a look at these KPI examples for sales, marketing, management or finance.
Let’s start with a very basic and important sales KPI – sales growth. In other words, the pace at which your sales revenue is increasing or decreasing. It’s a crucial factor when you plan your future business strategy, and, if analyzed regularly over longer periods of time, will help you to discern growth trends or even forecast in advance. This metric can also be drilled down to show how each sales team or sales representative contributes to achieving organizational goals and thus matches the actionable and acute characteristics. Rather than providing each sales team with a task of increasing total sales by 10% this year and later evaluating the whole team, set attainable objectives per person that will help your employees play an active role in achieving your business goals.
Your marketing department is probably using multiple channels and it’s important to specify which marketing KPIs is meaningful to each of them. If you’re into digital marketing and your business is an online shop, then it’s advisable to focus on goal conversion rates and check how effectively you can convert a page visitor into a customer and compare the numbers for different marketing channels or campaigns.
If you’re a SEO specialist who wants to increase the organic traffic, maybe start looking at your click-through-rates (CTRs) in the SERPs and measure the number of clicks you can generate compared to the total number of search impressions. Apart from keyword ranking metrics, the CTRs will show you what meta-descriptions and titles are most likely to attract visitors.
Social media specialist shouldn’t miss the correlation of social visits to leads. Analyzing how effective are social media campaigns at driving visitors and leads to your website and generating conversions is crucial for your social media strategy.
If your domain is e-mail marketing, look at open and click-through rates to see whether you can engage the audience with your newsletters and mailings.
Again there are multiple important Financial KPIs. Current accounts receivable and accounts payable is one example that displays the amount of money owed to your business as well as the sum that your business owes to creditors. This key accounting metric can help business accountants track the amount of income waiting to be collected and the expenses that have not yet been paid.
Whatever KPIs you choose to track, visualizing and sharing them with innovative dashboard software makes it easier to quickly get a sense of how well the organization is meeting its goals.