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May 28, 2015 // 11:00 AM

How to Choose the Right KPIs for Your Business

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Whether your performance improvement goals are related to inbound marketing, sales, or any aspect of business for that matter, choosing the proper key performance indicators (KPIs) to focus on is the first step towards measurable improvement.

As they say, what get’s measured gets improved. If you can quantify your current performance you can then begin to measure how things are improving, or diminishing, over a period of time.

But how do you choose the right KPIs to focus on for you business?

The short answer is that it really depends. While there isn’t really a simple step-by-step process for choosing the proper KPIs, there are a number of things you should always take into consideration.

In this post we’ll walk you through some of the factors that will influence which KPIs you should focus on and help you hone in on the metrics that matter the most for your business.

Let’s get started.

Choose KPIs That Are Directly Related to Your Business Goals

KPIs are quantifiable measurements or data points used to gauge your company’s performance relative to some goal. For instance, a KPI could be related to your goal of increasing sales, improving the return on investment of your marketing efforts, or improving customer service.

Mark Hayes, Shopify’s Director of Communications, wrote a great post titled 32 Key Performance Indicators for Ecommerce. In the post Mark provides the following examples of common ecommerce goals and related KPIs.

Goal 1 – Boost sales 10% in the next quarter. KPIs include daily sales, conversion rate and site traffic

Goal 2 – Increase conversion rate 2% in the next year. KPIs include conversion rate, shopping cart abandonment rate, associated shipping rate trends, competitive price trends.

Goal 3 – Grow site traffic 20% in the next year. KPIs include site traffic, traffic sources, promotional click-through rates, social shares, bounce rates.

Goal 4 – Reduce customer service calls by half in the next 6 months. KPIs include service call satisfaction, identify of page visited immediately before the call, event that lead to the call.

As you can see, each of the potential KPIs listed in the four examples are directly related to the core business goal.

What are you company goals? Have you identified any major areas for improvement or optimization? What are the biggest priorities for your management team

Focus on a Few Key Metrics, Rather Than a Slew of Data Points

One of the great things about inbound marketing is that you can measure everything with very detailed metrics. Views, clicks, conversions, opens, sends, the list goes on. However, as you begin to identify KPIs for you business you should be aware that less is almost always more. Rather than choosing dozens of metrics to measure and report on you should focus on just a few key metrics.

Quite frankly, if you try and track too many KPIs, you might as well just not track anything at all.

As you can imagine, every company, industry and business model is very different so it is difficult to pinpoint an exact number for the amount of KPIs you should have. Although, based on our experience, in most cases you should aim to identify somewhere between four and ten KPIs.

Consider Your Company's Stage of Growth

Depending on the stage of your company (start up vs enterprise) certain metrics will be more important than others. Early stage companies typically focus on metrics related to business model validation while more established organizations focus on metrics like cost per acquisition and customer lifetime value.

Here are a few examples of potential key performance indicators for companies in various stages of growth: 

Pre-Product Market Fit Product Market Fit Expansion
  • Qualitative feedback
  • Customer interviews
  • Awareness
  • Stickiness
  • Monthly recurring revenue
  • Renewals
  • Churn
  • Customer satisfaction
  • Cost per acquisition
  • Average order size
  • Lifetime value
  • Number of customers acquired

Identify Both Lagging and Leading Performance Indicators

The difference between lagging and leading indicators is essentially knowing how you did, versus how you are doing. Leading indicators aren’t necessarily better than lagging indicators, or vice versa. You should just be aware of the differences between the two.

Lagging indicators measure an output of something that has already happened. Total sales last month, the number of new customers, or hours of professional services delivered are all examples of lagging indicators. These type of metrics are good for purely measuring results, as they solely focus on outputs.

On the other hand, leading indicators measure inputs, progress and your likelihood of achieving a goal in the future. These type of metrics serve as predictors of what’s to come. Website traffic, conversion rates, sales opportunity age and sales rep activity are just a few examples of leading indicators.

Traditionally most organizations have solely focused on lagging indicators. One of the main reasons for this is that lagging indicators tend to be easy to measure since the events have already happened. For instance, it is very easy to pull a report of the number of customer acquired last quarter.

But measuring what happen in the past can only be so helpful…

You can think of leading indicators as business drivers because they come before trends emerge, which can help you identify whether or not you are on track to reaching your goals. If you can identify which leading indicators will impact your future performance you will have a much better shot at success.

Understand That KPIs Are Different for Every Industry and Business Model

The KPIs that you choose will be greatly influenced by your organization's business model and the industry in which you operate. For example, a B2B software-as-a-service company might choose to focus on customer acquisition and churn, whereas a brick and mortar retail company might focus on sales per square foot or average customer spend.

Here are a few examples of some industry standard KPIs:

SaaS KPIs Professional Service KPIs
  • Monthly recurring revenue
  • Churn
  • Cost per acquisition
  • Average revenue per retainer
  • Lifetime value
  • Bookings
  • Utilization
  • Backlog
  • Revenue leakage (link)
  • Effective billable rate
Online Media / Publishing KPIs Retail KPIs
  • Unique visitors
  • Page views
  • Share ratio
  • Social referral growth
  • Time on site
  • Capital expenditure
  • Customer satisfaction
  • Sales per square foot
  • Average customer spend
  • Stock turnover

While you will most certainly want to consider industry standard KPIs, it is more important that you choose the KPIs that are relevant to your specific company and the goals you are working towards.

Key Takeaways

  • Ensure your KPIs will accurately measure your progress towards overarching company goals
  • Less is more - Choose somewhere between 4 and 10 KPIs to focus on
  • Consider your company’s stage of growth - The importance of certain metrics will shift as your company’s priorities evolve
  • Identify both lagging and leading performance indicators - It’s important to understand both what happened in the past and how you are progressing towards your future goals
  • Reference industry KPIs but keep in mind that you should choose the KPIs that are most relevant for your specific situation and company

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