Key performance indicators (KPIs) are metrics used to determine the performance of a business based on its goals and objectives. Understanding KPIs is critical for long-term success. The purpose of measuring your KPIs is to help you evaluate how your marketing strategies are working and help you determine key areas for improvement. However, not all KPIs are created equally. In fact, you could end up focusing on the wrong KPI and not understanding whether your goals were met. With that in mind, here are some tips for leveraging your KPIs:
Types of KPIs
There are several different types of KPIs that can help you measure your outcomes. The five areas to focus on are:
- Sales KPIs: number of contracts signed per period, number of qualified leads, average time for conversion
- Customer KPIs: average turnaround time for customer support, number of repeat customers
- Financial KPIs: gross profit margin, growth revenue, operational cash flow
- Marketing KPIs: monthly website traffic, traffic-to-lead ration, landing page conversion rate, organic traffic
- Operational KPIs: employee turnover, order fulfilment time, spend per period
Depending on your business, chances are you’ll be tracking multiple goals and using multi-faceted KPIs to help determine the success of your efforts.
Choose the Right KPIs
As previously mentioned, if you fail to choose the right areas to measure, you’ll never get the right results. Start by thinking about your company goals and what you want to achieve. If your goal is to build brand awareness, then you might be more focused on website visits and engagement than revenue. Once you decide on your goal, you can take the next steps towards determining how you can make it measurable.
It’s also important that your KPIs help you look towards the future. For example, instead of simply tracking the amount of people that visit your website, you should also dive a little deeper into the type of people visiting your website. Knowing how many visits you got is one thing, but knowing where they’re coming from and who they are will help you glean insight into the future.
Steer Clear of Vanity Metrics
Your KPIs should act as a navigation tool. But there’s a stark difference between vanity metrics and actionable metrics. Vanity metrics are metrics that help make your company look good on paper but don’t actually help achieve your business goals.
For example, a social media vanity metric might be the number of followers you have. While follower growth might be an important metric for a social media influencer, it does little for a business if they can’t prove that an increase in followers directly correlates to higher sales. If you sold $100,000 worth of product in one year with 500 followers, and sold the same amount the following year with 1,000 followers, what good is your follower count serving?
Choosing the right metrics means avoiding the metrics that don’t matter for you. Every business is different, and not everything is worth measuring. When you focus too much on measuring the wrong things, you end up losing time and money. Too much data can be just as harmful as too little data.
Avoid Linking KPIs to Incentives
It may seem like a good idea to provide incentives (such a financial bonus) when your staff achieves goals as demonstrated by your KPIs, but in many cases, it should be avoided at all costs. The core purpose of a KPI is to help you determine where your business is headed. When you connect incentives to KPIs, it’s not uncommon for your staff to get creative in order to manipulate the data in their favor, and the goal for them suddenly becomes to get a bonus versus gain valuable information and get a pulse on the company. Furthermore, sales goals can create a toxic work culture, and you may find that the company vision is lost in financial greed.
Don’t Stop Talking to Customers
Having data is a powerful thing, but it’s easy to get lost in the numbers. As a business owner, it’s important to remember that your customers are people and not numbers. As such, you should prioritize talking to them and learning from them. The future of innovation and growth relies on having one foot on your data and one foot on your customers. The human element of business can mean the difference between a sale and a loss opportunity. Engaging with your target market provides context for your data, and can help you make better decisions moving forward.