Business these days isn’t run only on instincts; it is run by quantifiable, actionable measures that can determine the performance and give back insights as to what should be improved. These quantifiable measures are known KPIs or Key Performance Indicators. Also known as KSIs (Key Success Indicators), KPIs are used by organizations at multiple levels to gauge how effectively the strategic and operational goals are being met.
While high level KPIs usually gauge the overall performance of an organisation, including its performance and finances, against its competitors, low level KPIs are mostly used to monitor departments or processes like marketing, sales, or a call centre.
Monitoring KPIs can help you obtain a comprehensive overview of what is working and what isn’t, which can help you make informed decisions.
Examples of KPI
Many KPI examples are derived from departmental processes. Some of them are here:
- HR: Employee engagement, time taken to fill open positions, employee turnover, etc.
- Marketing: Customer value, traffic-to-lead ratio, organic traffic, landing page conversion rates, etc.
- Sales: Monthly sales target, product performance, sales growth vs. goal, cost of sales to revenue ratio, average follow-up attempts, average sales cycle etc.
Regardless of the department you are in, KPIs provide essential insights to make the right calls. However, the major challenge while setting up KPIs is finding relevant ones.
Distinguishing between the KPIs that will help and those which can lead to distractions makes all the difference. To choose the right ones, follow the KPI best practices below.
KPI Best Practices
In order to isolate some of the efficient indicators, organisations prefer following some KPI management best practices. However, the KPI for one process or organisation may not be right for other processes or organisations.
KPIs will have to be chosen regardless of how challenging setting them up is. Here are two standard practices to help a business evaluate their indicators:
SMARTER stands for Specific, Measurable, Attainable, Relevant, Time-bound, Evaluate and Re-evaluate.
To get a deeper understanding, here they are:
- Specific – Break down your goal into specific isolated targets. As sales, customer retention, customer satisfaction can be measured by different KPIs, and not isolating them would be foolish.
- Measurable – For each isolated target, find a conclusive method to collect and analyse data. However, each isolated target should have no more than one method.
- Attainable – The goals should be, by far and large, achievable. Setting unrealistic goals will take you nowhere. To check if the objectives are reasonable, ask if such goals have been met before.
- Relevant – How do these goals affect the target group? Are these even pertinent to the long-term goal? Will these targets affect the audience you are trying to draw in?
- Time-Bound – Setting due dates and deadlines are important if you wish to precisely gauge the KPI. Only timeframes can tell you if the goals are both realistic and challenging.
- Evaluate – There is no point setting up KPIs if they can’t offer enough actionable data required to achieve the objectives. Check whether some other points can be analysed.
- Re-evaluate – Unless the data is precise and specific, no viable business strategy can be built. Hence, testing and retesting the KPIs regularly is also a good practice.
The second standard practice is called the 5 A’s practice.
The Five A’s
- Aligned – The KPI should line up with the process it is monitoring, so that gathering any information is easy.
- Attainable – The KPIshould be consistent with the goal and should be attainable. Inconsistency in data streaming can only mean that something is out of order.
- Acute – If the purpose or measures of KPI are not clear, switching to a different one is better.
- Accurate – As the data derived by a KPI will help in achieving upcoming objectives, it has to be accurate and reliable without creating any confusion.
- Actionable – If the KPI isn’t followed up regularly, it might lose its value, especially when it sets up a plan of action for new processes.
Common Mistakes Made With KPIs
Using poor KPIs is like flying blind in a hailstorm without any instruments on a mountain range. It is better to trust your judgement than only data. Remember, it doesn’t take much for a KPI blunder to spiral out of hand.
There is a difference between ‘if it can be measured’ and ‘if it should be measured’. It might be lucrative to measure everything that is easy to measure but if it isn’t relevant to business, it is useless. More so, it is damaging to business. It wastes money, time, attention that could have been spent elsewhere.
Linking Incentives with KPIs
The purpose of KPIs is to help businesses know where they stand in proportion to where they want to be. Once incentives are involved, KPIs will become a target and not a navigation tool to success. Also, it would promote manipulation of information of behaviour.
Setting up too Many KPIs
The best part of Key Performance Indicators is the word KEY. As an organisation grows, KPIs tend to grow as well. There are seasonal KPIs, industrial standard KPIs, manager-imposed KPIs and before you know it, every employee has a truck full of KPIs.In fact, making more than 10 KPIs will result in unintended consequences and lack of engagement.
Collecting the same data as everyone else
Imposing what others are using doesn’t mean it will produce the same results for you. It may happen that the world is talking about employee engagement surveys and customer satisfaction surveys, but this doesn’t mean you need these KPIs, especially if they don’t align with your strategy.
Just aping what your competitors are measuring won’t get you anywhere, nor will it offer you an extra-edge.
KPIs are like thermometers and barometers. It might be interesting to understand when and how the temperature increases or decreases, but knowing about an imminent storm is more critical. The role of KPIs is to offer insights that can help in drawing a complete picture of the situation.