How can you tell if your company is growing?
Sure, you can speak to a few team leads and get regular reports on their performance. But if you're not measuring that information against something else, how will you know when you've met the mark or fallen short?
As they say, what gets measured gets improved. Quantifying your current performance through key performance indicators (KPIs) will give you a framework from which to assess your progress.
But how do you choose the right KPIs to focus on for your business? The short answer is that it really depends.
While there isn't a hard-and-fast rule for choosing the proper KPIs, there are a number of factors you should always take into consideration.
In this post, we'll walk you through some of the factors that 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.
What is a KPI?
A key performance indicator (KPI) is a metric used to measure and track your progress toward achieving a specific goal. Business KPIs, which can vary by department, may help gauge a company's long-term performance against its own targets and industry standards.
One thing to remember about KPIs is that they're meant to measure your most impactful indicators.
For instance, your social media team may have a ton of data points that can serve as KPIs. However, they should only choose the ones that align with the broader business goals. Let's say it's brand awareness. In this case, follower count, post reach, and impressions will likely be the social media KPI metrics to measure.
With that in mind, having KPIs means narrowing your focus on a few vital metrics that will influence your business the most.
OKR vs. KPI
Objectives and Key Results (OKR) and KPIs are often used interchangeably because both terms refer to goals that are tracked and measured. However, where they differ is intention.
Put simply, KPIs indicate if your business is hitting its targets. They are often called health metrics as they tell you how the company is doing to meet an objective that's already set.
OKRs, on the other hand, are broad objectives for your business with the key results that will signify achievement in meeting those objectives. They are aggressive and ambitious goals that speak to the business's big-picture vision.
For instance, let's say a technology company has the objective of becoming one of the top 10 providers in their industry in 2021. Their key results could be:
- Acquire 1,000 new customers by Q3.
- Generate 3,000 leads every month.
- Increase annual membership sales by 30%.
While KPIs are ideal for scaling, OKRs are designed for dramatic growth. They're more ambitious and push teams to stretch their capabilities.
It's also important to note that while KPIs can be the key results in your OKR, the opposite is generally not true.
For example, your marketing team could have a KPI of 3,000 leads as mentioned in the example above. However, it's unlikely that any department would list the "Top 10" goal as their KPI as that speaks to a broader vision and has a more flexible timeline.
What is KPI reporting?
A KPI report is a visual dashboard used to track your metrics and assess how your team is performing against the targets. You can display your report using charts, graphics, and tables depending on the data you want to display and the needs of your team.
As a business, you'll likely have data coming in on a daily basis that may or may not relate to your KPIs. Having a reporting tool does a few things, including:
- Allowing you to track your most impactful metrics and filter out irrelevant data
- Making the data easily accessible to decision-makers and collaborators
- Giving you a quick and digestible snapshot of your team's performance
- Aligning everyone on the goals
How To Measure KPIs
Before you can measure your KPIs, you'll need to determine which metrics to track. This will greatly depend on your goals and your team.
Once you narrow that down, set your targets. They're usually based on a combination of factors, including historical performance and industry standards.
You'll also have to answer the who, when, and why. Who is responsible for this KPI? Identify the person on your team who is managing this KPI, so they can be the go-to when addressing roadblocks that may affect performance. They will also be responsible for reporting on progress.
As for the "when," you'll need to know the timeline to reach these targets. Many businesses set them on a monthly or quarterly basis, but your timeline can be shorter or longer depending on your team.
Lastly: the why. It's the most important thing to keep in mind when measuring your KPIs. Having your goals clearly identified can help motivate your team and make sure everyone is aligned on the direction you're going in.
Types of Key Performance Indicators
KPIs can be set on a team basis. Sales' KPIs will be completely different from HR's KPIs. Beyond those differences, there are also variations in the types of indicators you can measure.
Here are a few of the most common types of KPIs:
- A quantitative KPI relies on numbers to gauge progress. E.g., "Sales team to generate 100 sales-qualified leads every month."
- A qualitative KPI looks at opinion- or feeling-based data. E.g., "Brand sentiment."
- A leading KPI can predict future performance. E.g., "Website traffic." More traffic can mean more conversions, more leads, and more revenue.
- A lagging KPI describes a past result. E.g., "Turnover rate."
- An input KPI measures the assets, time, and resources needed to complete a certain action or project. E.g., "Employee count, budget."
- A process KPI assesses efficiency and productivity within the business. E.g., "Average sales call time."
Your organization's business model and the industry in which you operate will influence the KPIs you choose.
For example, a B2B software-as-a-service (SaaS) 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:
Professional Service KPIs
Online Media / Publishing KPIs
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 toward.
How To Determine KPIs
Choose KPIs directly related to your business goals.
KPIs are quantifiable measurements or data points used to gauge your company's performance relative to a 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.
What are your company goals? Have you identified any major areas for improvement or optimization? What are the biggest priorities for your management team?
Answering these questions will bring you one step closer to identifying the right KPIs for your brand.
Focus on a few key metrics, rather than a slew of data.
As you begin to identify KPIs for your business, less is worth more. Rather than choosing dozens of metrics to measure and report on you should focus on just a few key ones.
If you track too many KPIs, you might become overwhelmed with the data and lose focus.
As you can imagine, every company, industry, and business model is different so it is difficult to pinpoint an exact number for the amount of KPIs you should have. However, a good number to aim for is somewhere between two to four KPIs per goal.Enough to get a good sense of where you stand but not too many where there's no priority.
Consider your company's stage of growth.
Depending on the stage of your company – startup vs. enterprise – certain metrics will be more important than others.
Early-stage companies typically focus on data 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
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 the output of something that has already happened. Total sales last month, or the number of new customers or hours of professional services delivered, are examples of lagging indicators. These types of metrics are good for purely measuring results, as they solely focus on outputs.
On the other hand, leading indicators measure your likelihood of achieving a goal in the future. These serve as predictors of what's to come. 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 they 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 customers acquired last quarter.
But measuring what happened 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.
With every business, growth is the goal. KPIs help you track your progress and scale progressively to grow in whichever way that matters to your company.
Originally published Mar 25, 2021 7:00:00 AM, updated March 25 2021