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Intro to Key Performance Indicators

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In today’s ultra competitive business ecosystem, only the strong survive. In order to keep your team on top of their game, you need to cultivate a data-driven culture by sharing the right performance indicators and business metrics with your team.

A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the enterprise, while low-level KPIs may focus on processes in departments such as sales, marketing or a call center.

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Intro to Key Performance Indicators

  1. 1. KPI101|1
  2. 2. Table of Contents Lesson 1..............................................p.3 Introduction to KPIs Lesson 2..............................................p.11 How do define your organization’s KPIs Lesson 3..............................................p.17 Best practices for picking the right KPIs for your business Lesson 4..............................................p.25 The most important KPIs KPI101|2
  3. 3. KPI101|3
  4. 4. Introduction to KPIs In today’s ultra competitive business ecosystem, only the strong survive. In order to keep your team on top of their game, you need to cultivate a data-driven culture by sharing the right performance indicators and business metrics with your team. KPI101|4
  5. 5. A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. KPI101|5
  6. 6. Introduction to Key Performance Indicators Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the enterprise, while low-level KPIs may focus on processes in departments such as sales, marketing or a call center. Types of KPIs Depending on your industry and the specific department you are interested in tracking, there are a number of KPI types your business will want to monitor. Each department will want to measure success based on specific goals and targets. KPI101|6
  7. 7. What makes a KPI effective? A KPI is only as valuable as the action it inspires. Too often, organizations blindly adopt industry-recognized KPIs and then wonder why that KPI doesn’t reflect their own busi- ness and fails to affect any positive change. One of the most important, but often overlooked, aspects of KPIs is that they are a form of communication. As such, they abide by the same rules and best-practices as any oth- er form of communication. Succinct, clear and relevant in- formation is much more likely to be absorbed and acted upon. KPI101|7
  8. 8. Being SMART about your KPIs One way to evaluate the relevance of a KPI is to use the smart criteria. The letters are typically taken to stand for specific, measurable, attainable, relevant, time-bound. In other words: • Is your objective Specific? • Can you Measure progress towards that goal? • Is the goal realistically Attainable? • How Relevant is the goal to your organization? • What is the Time-frame for achieving this goal? KPI101|8
  9. 9. KPI Example 1 If you work in the highway division of a transportation authority, a key performance indicator could be to track the average driver’s speed from July to November, as many accidents happened during this time the previous year. In this case, it would be helpful to know that from July to November the average driver cruises at 60 km/h—which is 10 km/h higher than the posted speed limit of 50 km/h, and 6 km/h higher than they typically drive during all other months. KPI101|9
  10. 10. KPI Example 2 Let’s say you are the owner of a local pub. In establishing average pints per patron per visit (ppv) as a key performance indicator, you may notice that last month you averaged 1.1 ppv (compared to the local pub average of 1.4 ppv and last month’s average of 1.3 ppv). In this sense, establishing measures, metrics and KPIs can help open the door to questions about your business performance that you may have missed otherwise. KPI101|10
  11. 11. KPI101|11
  12. 12. How to define your organization’s KPIs It’s a question asked by leaders at maturing startups and at established companies alike: How do we define our organiza- tion’s KPIs? Defining your organization’s key performance indicators ultimately comes down to a two-step process: 1. Determine your organization’s most important objectives 2. Choose KPIs that are fixed, capable of forecasting, and that avoid common mistakes. Avoiding the most common mistakes Here at Klipfolio, we’ve been thinking deeply about KPIs for over a decade. After many iterations, here’s the simple definition we’ve come to find most valuable: A key performance indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. KPI101|12
  13. 13. To us, a KPI must remain fixed yet be able to forecast. KPI101|13
  14. 14. Finding fixed By fixed we mean there’s a continuity and reliability among the measured outcomes. This means that an outcome at one point in time can reliably be compared to an outcome at another time. For example, if in January and February you found that 1 out of every 100 people who started a trial of your prod- uct became a customer, this would be a fixed statistic from which you might want to build a key performance indicator. KPI101|14
  15. 15. Finding what can forecast There’s no need to go full-on artificial intelligence here, but KPIs must, at some level, help you forecast a result. Let’s say it seems the time between trial-to-customer becomes significantly shorter when you reach a certain Net Promoter Score. Seeing this correlation may allow you to forecast: increased customer success = decreased time between trial-to-customer. Depending on what organizational objectives you’ve decided on, building a KPI around this forecast may be worth your time. KPI101|15
  16. 16. Common KPI mistakes Even elite organizations struggle to avoid these mistakes. They can occur at various points of a company’s develop- ment—including when new team leaders are hired, when new objectives are established, and/or when old KPIs are held onto even as an industry undergoes rapid change. The most common KPI mistakes are: • Reliance on intuition. This can arise from the overconfidence effect. • Blindly adopting commonly-held best practices rather than creating your own. • Bias toward the most recent information learned. • Confusing lagging indicators (the easy-to-measure out- put) with leading indicators (the difficult-to-measure input). Once you’ve defined your organization’s KPIs, you’ll then be tasked with the responsibility of determining which activities (and all departments must be included on this) will best drive towards those KPIs. From there, you’ll need to regularly assess your objectives, KPIs and activities. They are all likely to change as you gather new insights into the market and/or your product, which means assessments can and should be done both at the company and departmental levels. Measuring and monitoring business performance is criti- cal, but focusing on the wrong metrics can be detrimental. KPI101|16
  17. 17. KPI101|17
  18. 18. Best practices for picking the right KPIs for your business Data and metrics are everywhere. Measuring and moni- toring business performance is critical, but focusing on the wrong metrics can be detrimental (as time and money are spent measuring, monitoring and trying to optimize metrics that don’t matter much). The same can be said about poorly structured KPIs and KPIs that are too difficult and costly to obtain and/or monitor on a regular basis. So what makes business performance indicators key and how should a business owner, executive or manager select them? Here are six strategies to help you separate effective, value-creating KPIs from detrimental, value-diminishing KPIs: KPI101|18
  19. 19. Best Practices: Pick KPIs that are aligned with your strategic business objectives Business “performance” is relative, and ultimately measured against an organization’s mission and goals. KPIs must be grounded by these goals. KPI101|19
  20. 20. Best Practices: Make sure the KPIs you pick are attainable What data points do I need to measure this KPI? & There’s no point selecting a KPI for your business if the data behind the KPI can’t be obtained and surfaced to stakeholders, or if doing so would be overly costly. KPI101|20
  21. 21. Best Practices: Be acute in your choice of KPIs KPIs should keep everyone on the same page and moving in the same direction, and they should be specific enough to inform specific actions. KPI101|21
  22. 22. Best Practices: Pick accurate KPIs Does the KPI include all relevant information? & How accurate is the KPI in reflecting and predicting business performance? KPI101|22
  23. 23. Best Practices: Select KPIs that are actionable Can the events grounding the KPI be controlled by the business? & Is the KPI structured and presented in such a way, and to the right people, to incite action? KPI101|23
  24. 24. Best Practices: Pick KPIs that are alive Do these reasons still hold true? & Has your business or the context within which it operates changed? Can your KPIs be refined to suit these changes? KPI101|24
  25. 25. KPI101|25
  26. 26. The Most Important KPIs The most important thing to remember when looking at a KPI is not what it means for your position, but what it means for the company as a whole. Yes, there are KPIs specific to marketing, development and support, to name a few, but pick KPIs that are aligned with your strategic business objectives. Because everything you do has these targets and goals in mind, adding them to your dashboard only makes decision making, reporting and effi- ciency, that much easier. KPI101|26
  27. 27. Sales Growth Sales Growth metric measures the pace at which your or- ganization’s sales revenue is increasing or decreasing. This is a key metric for any organization to monitor since it’s an essential part of growth projections and is instrumental in strategic decision-making. Monitor this metric over multiple time periods to gain a clear indication of growth trends and normalize your values. This will help you account for month- ly or quarterly spikes in revenue. KPI101|27
  28. 28. Purchase Funnel The Purchase Funnel KPI analyzes your customer acquisition process to help you understand how potential customers discover your product or brand and, more importantly, how they eventually become a loyal customer. This KPI is typically broken down into five stages: awareness, interest, consider- ation, preference, and purchase. From a measurement point of view, this may map to a variety of sales and marketing channels from social media and web visits to mailing lists and sales contacts. The strength of the funnel is the ability to zero in on your strengths and weakness. KPI101|28
  29. 29. Product Performance The Product Performance KPI ranks product sales based on revenue performance to inform your sales team which prod- ucts are selling well. At the same time, you should rank the poorest performing products to determine which products are failing to resonate with your customers. When monitoring this KPI, it’s important to consider the spe- cific contexts surrounding each product. For instance, is a certain product receiving a boost due to a viral marketing campaign? Or, are you experiencing a slump because your competition is offering a similar product at a lower price? KPI101|29
  30. 30. Sales Targets The Sales Target KPI measures current sales (either dollar value or number of wins) and compares that value to a target or past performance. The key to this KPI is setting an appro- priate sales target. This requires a deft touch, as a goal that is set too high will be viewed as unachievable and will drain morale; on the other hand, a goal that is set too low will fail to motivate your team to go that extra mile. One of the most common ways to develop this KPI is to compare current per- formance to the previous period, for example, showing new wins this month compared to wins last month. KPI101|30
  31. 31. Marketing ROI The Return on Marketing Investment KPI measures how much revenue a marketing campaign is generating com- pared to the cost of running that campaign. Effective marketers are driven to connect their time, energy and advertising spend with results that contribute to company growth. This KPI answers the question, are we recouping the time and money we spent developing and executing our marketing campaigns? KPI101|31
  32. 32. Goal Completion Rate The Goal Completion Rate (GCR) metric measures the number of people that complete a specific marketing goal, such as signing up for a trial or subscribing to a mailing list. GCR should be paired with sales KPIs such as your lead to win rate to provide an indicator as to the quality of leads your marketing efforts are attracting. KPI101|32
  33. 33. Average Lead Score Lead Scoring is the process of measuring the quality of mar- keting and sales leads based on predetermined criteria and targets. These criteria and targets can range from demographics to buyer behaviour and user activity, and they are typically determined by evaluating the characteris- tics of a current customer base. KPI101|33
  34. 34. So now what? Once you have established benchmarks and targets for measuring KPIs, you’ll want to establish processes for mon- itoring this and other KPIs. Dashboards can be critical in this regard. KPI tracking can be done using dashboard soft- ware, giving your entire organization insights into your cur- rent performance. KPI software enables businesses to create, manage and analyze data from KPIs. The software allows organisations to enter their data into one specially designed system, or connect external services for faster and more accurate data collection. This type of software allows businesses to visualize and comprehend data from a number of KPIs that represent different areas of a business, all in one place. KPI101|34
  35. 35. KPI reports and dashboards To be useful, KPIs need to be monitored and reported on; if they change in real-time, they should be monitored in real-time. Dashboards are the perfect tool for your KPI reports as they can be used to visually depict the perfor- mance of an enterprise, a specific department, or a key business operation. Have a look at some of our live dashboards to demon- strate how you can present key performance indicators to your team: Digital Marketing Dashboard Monthly Sales Performance Davshboard Executive Reporting Dashboard Support Tickets Dashboard KPI101|35
  36. 36. Want more metrics? We’ve got over 350 KPI examples to inspire you. Find metrics relevant to your industry. KPI101|36