Metrics are an essential part of business. How we measure the success of a business and the strategies implemented are by setting and looking at KPIs (also known as ‘key performance indicators’). These types of metrics and standards have been around since long before the Internet. A businesses KPIs are metrics based on the critical elements of business performance that affect can overall success:
Within these areas there can be several different KPIs that point toward the growth (or lack thereof) for each. These are crucial in assisting with measuring the success and failure of each aspect of your business. Sometimes they are contained in documents called Flash Reports, allowing managers and business leaders to see how the entire business is performing at once, and instantly available to be pulled at the end of each business day. From these reports, managers can look closer into KPI metrics and details.
Before diving into the complexity of KPI analytics, identifying the basics of this type of analysis is essential. We are going to explore the following in this article:
In this guide, we’ll cover everything that you need to know, from the most fundamental definition and explanation of a key performance indicator to best practices, tips, and insights, and how to optimize your KPIs based on the reporting and metrics that you’re seeing.
At its most basic, a key performance indicator (KPI) is a metric that is used to measure the goals of the company against actual data collected over a certain period of time. It’s designed to offer a glimpse of how a department/element/factor is performing in real time.
KPIs may or may not measure overall performance. There are two main classifications of KPIs: high-level and low-level.
A high-level KPI is one that focuses on that overall performance.
A low-level KPI could be focused on a specific department like marketing or sales.
For a basic example, an eCommerce site could be measuring the number of items per transaction being completed. More items in fewer transactions means customers spend more on each visit. Sometimes referred to as units per transaction (or UPT), in the sales world, it’s an effective way for sales and retail brands to measure their efforts.
In this instance, the number of units per transaction doesn’t relate to overall performance directly, so it’s considered a low-level indicator. The number of transactions and their dollar amounts will, however. Therefore, if there are more items in each sale, the total sale amount will typically be higher, and the cost per lead will be lower because you’re getting more than one “sale” out of each customer.
Aside from the fact that these metrics help track valuable business data, there is a host of reasons as to why you should use KPIs in business. KPIs can increase productivity and employee engagement, which can lead to an increase in profitability (as much as 21% or more).
KPIs can also help connect the company’s culture with its purpose, hold everyone accountable for performance, close learning gaps, inform important business decisions, detect patterns in the business over time, and assist in setting plans and goals into action by breaking them down into smaller, manageable pieces.
Knowing the reason behind these metrics may also make the process more manageable for everyone involved. This results in removing any negative connotation associated with KPIs and other metrics. With modern software, it isn’t necessary to do a lot of the work yourself beyond choosing which metrics to monitor and setting the other attributes.
As far as collecting and sharing data, your chosen software platform will do the rest.
Most brands and businesses have at least a handful of KPIs. Larger companies or businesses with different departments, will most likely have KPIs for each department to ensure everything is working as it should. It’s a great way to manage the organization and make sure that all the moving parts are working together toward the greater goal of business success.
Having more than one KPI has proven to be successful, whether it’s having a handful, a dozen, or five top KPIs for each department in your company. Understanding what the term “key performance indicator” means to your business, then creating metrics for each answer that you come up with is essential to KPI analysis.
If you’re not sure if you have an effective KPI analysis, you can always check to see what the competition is up to. However, there’s several different ways that you can segment KPIs so that you can streamline your efforts to make improvements across the board.
Performance KPIs are the most common ones that businesses utilize. They’re simple to set up, they are usually almost formulaic, and they make sense.
For example, tracking sales volume is logical for a sales company. Tracking lead intake conversions for a law firm would be a good KPI in that scenario. It’s about figuring out which areas of performance you want to highlight to ensure that your overall strategies are effective.
If we use the sales/retail example from above, common KPIs that they follow include:
By measuring year-to-date sales, a company knows what business conducting. Comparing the daily and YTD to last year’s sales, a company can see how much they have improved or lost in comparison. By comparing the sales to the plan numbers, it’s possible to observe whether it is meeting the organizational goals and where to make improvements or adjustments (if necessary).
There can also be a set variety of different KPIs based on various mediums used. For example, having a specific conversion rate KPI on social media pages and a different conversion rate KPI for website landing page(s). It’s hard to set the same goals for different channels and mediums because each campaign and its intended audience will have different reactions per campaign goal.
Therefore, not only can you have multiple KPIs based on the channel and media, but it is absolutely recommended.
Common channel-based KPIs include; comments, follower count, likes, shares, or other interactions for social media channels.
For content marketing KPIs; unique views, inbound links, and time on page are key KPIs to measure growth or to identify lacking channels.
When measuring web-based KPIs for your website; bounce rate, click-through rate, mobile traffic, and conversion rate are essential.
Lastly, PCC/Paid search KPIs can be measured through cost per lead, cost per click, ROI, and conversion rate.
Ideally, you’ll be tracking conversion rates on all marketing efforts and channels. A business can also certainly monitor the conversion rate of social media, offsite content, and other online marketing and branding efforts.
There are other ways that KPIs can be divided, including by department, by marketing campaign/strategy, etc. Essentially, you can create as many KPIs, and categories of them, as you see fit to be able to get an appropriate gauge on the success of your overall business by monitoring these key metrics.
How do you go about setting up KPIs for your business?
First, figuring how to effectively implement KPI tracking takes a certain level of dedication and commitment, starting at the highest level of the organization all the way down to the frontline workers.
With that in mind, the following steps to help you easily create clear KPIs that will deliver the performance indicators that your organization needs.
If you haven’t already done this, it is a critical step in the process of building a successful strategy in business. KPIs are part of all the strategic planning, which also includes defining the goals and objectives of your organization. Creating meaningful metrics without clear goals to achieve, or which efforts are aiding to improve, should be the priority.
Creating a set of concrete goals and objectives that express, in a measurable way, what your business intends to accomplish both now and into the future is imperative. In creating those goals, consider which activities can help to reach them so a plan can be put in place for success. Part of that comes in creating KPIs that break down the larger goals into measurable, digestible metrics.
The SMART formula is key to keep in mind when it comes to goals and metrics, including key performance indicators.
That means that all KPIs and related goals should be:
Instead of “measuring sales”, break it down into a more focused metric, such as measuring sales compared to last year, compared to sales goals, etc. Improving profits is another largely generalized goal that too many companies settle on. Wanting to improve profits is a point of business. The question to ask is… ‘How will that be achieved’?
Which efforts could be monitored to help see that your profits are growing? Monitoring customer retention and dollars per transaction to see how repeat customers are helping drive profits can be of use to your company or business. You could also measure the profits earned from new leads and first-time visitors, which can help use those audiences to drive results.
Being detail oriented can fundamentally benefit a business in the long run especially if you want to stave off the risks of bad business, you need to dig into the details and define them all, starting with your KPIs.
To use the previous example, “sales” is a very generic metric to measure. You can measure overall sales, but measure daily sales, specific category or product sales, sales to plan, sales compared to last year are more detailed and important metrics as well.
In addition to being SMART, KPIs need defined attributes, including:
In modern KPI tracking platforms, having a dashboard for each KPI that includes these attributes is a very useful tool. This will make it much easier to keep track of all the details and ensure that your KPIs deliver as they should.
Finally, any good plan includes regular feedback. See how your team feels about each different KPI and make sure that they understand the task at hand regarding achieving those goals. Often, people are presented with valuable data from KPIs only to wonder why they’re collecting the data or try to figure out what it all means. The best way to avoid that is to educate the team from the beginning.
Once KPIs are in place, or an idea of what you want from them, you can schedule a meeting with the team. Whether that’s the entire team just the department heads, get the right people together and get them on board with the KPI process from the start. Make sure that they know why you’re measuring certain metrics and what they can do to assist in both achieving the goals and monitoring the campaigns.
Once everyone is on board and familiar with the value and the specifics of the KPIs and what you’re using them for, it will free up your meetings to discuss the details of those metrics instead of having to continuously have the discussion about what KPIs are and their purpose.
Another important step in creating KPIs and a plan for monitoring them is to see what the competition is doing. Using the information from those that came before can be a huge advantage to your business.
It’s important to not just paying attention to what is working or what isn’t working for every other company in the industry or niche. Monitoring this can waste time gathering information that isn’t going to provide much insight. Paying attention to what your business is doing allow for glean value-added insights from the competition.
After you’ve done your work to get the KPIs this far, you’ll want to make sure that you’re setting your organization up for success. That comes in seeing what others are doing, but the entirety of them. Here are a few tips to make it easier to take advantage of competitive strategy to improve your own plan for key performance indicators.
The competition is just an example. It can be used as an example of what to do, but it can also be used as an example of what not to do in terms of setting goals and KPIs, monitoring performance, etc. Take all this data and insight into account and use it to create your own KPI strategy. Results will be more accurate and insightful when you start checking up on those reports.
It is common to think that choosing and strategizing your KPIs is the most important part of the process. However, tracking and reporting have as much value, if not more. You can create the best strategies in the world but if they aren’t monitored, how is effectiveness supposed to be monitored
Fortunately, today’s market is rife with KPI dashboard platforms that allow for setting, monitoring, and managing various metrics that you choose to report on. Unlike previous tools that were only used quarterly or monthly, KPI dashboards make it easy for companies to get real-time reporting with at-a-glance metrics that are available 24 hours a day, seven days a week.
It is essential to determine how often it is needed to monitor KPI efforts, as well as how frequent it is expected that reporting is done on each different metric or set of metrics. Choose the reporting frequency that works for your business and make a conscious decision about how many KPIs are going to be monitored. The final part of the equation is to get familiar with a software platform that will deliver valuable KPI insights and metrics to help better manage business efforts.
Remember to have measurable goals and KPIs that have been prioritized based on the needs of your industry. Look for the knowledge or skills gaps that could be areas for improvement and visual representations to understand where everything stands. Then, make sure that you’re able to link all KPIs reported back to an investment that was made or going to be made in the business.
For example, let’s say you’re looking to get your website bounce rate down to 30% from its current place at around 70%. For reference, SEMrush says an “optimal” bounce rate is between 26 and 40 percent. So, you need to set up a better website or change the strategy so that people stop leaving. That means finding out why they leave, what would keep them, and more.
As you can see, the KPI is the important metric, but what you’re willing to spend on reducing that bounce rate is just as important as the metric itself.
Creating a KPI strategy is like writing a story. There are going to be a few rough drafts before the final, finished product. If the job is well done, you’re going to see improvement with each draft. Your first attempt at KPIs will likely be a simple list of goals or initiatives that you want to work on. It doesn’t have a lot of substance to it, because you haven’t gotten to identifying exactly what is wanted to be measured.
Once KPIs are established, it is necessary to ensure that they’re optimized to deliver the best results possible. This includes prior to the initial implementation as well as with continued monitoring over time. It’s essential that to create KPIs that are customized to the exact needs and circumstances of your business so that goals are achievable. That includes having a clear objective and idea of how progress will be monitored.
When refining an optimizing KPIs keep in mind these questions. Make a note of this list that will help you define and optimize your KPIs so that they can realistically be achieved:
You will also know that it is time to change or optimize a KPI when objectives or goals have been completed, or if another KPI that offers better assistance in making decisions and business moves is identified. If the KPI isn’t leading to decisions or the company’s main initiatives change, it may mean that it’s time to update the KPIs.
To help further succeed at creating your own KPIs, we’ve collected some samples. Bear in mind that you can customize any of these metrics with specific percentages, dollar amounts, and other values, as needed. They’re also divided up among common departments such as sales, management, customer service, marketing, HR, IT, etc. You can divide your KPIs however it works best for your company.
As mentioned above, there are many ways that KPIs can be utilized to help see where and how your business is growing and succeeding, as well as distinguishing which areas need redirection. Getting more specific than these metrics by adding your own percentages, amounts, timelines, or deadlines, etc., will make it easier to track.
Don’t forget that there are numerous helpful tools at your fingertips, starting with notable KPI management dashboards. These will help define, display, and deliver goals by providing an instant, easy access to all the data in one simple place.
There is a significant amount of information regarding KPIs. Fortunately, it’s simple once it is broken down into a solid strategy and to manage your own KPIs once put into place. Getting your team involved and on board will ensure that the process is handled effectively, metrics are measured cautiously, and that the right information will get to the most capable part of your team to create a strategy. Employees want to feel informed about their roles within the organization. Involving them in the KPI process can have a role in delivering that to them.
Once you’ve got KPIs down to a science, you’ll be able to share the metrics with your team, teach others the process, and prove the true value of key performance indicators. You’ll also be able to see how you can capitalize on these indicators for the future growth and success of your organization. KPIs aren’t just about tracking another haphazard metric. These are real metrics that can give you genuine value, and they need to be utilized for the success of a company.
Measuring effective marketing techniques on all media platforms, it is crucial to understand your KPIs and how to achieve your business goals. Understanding what and how to measure the key performance indicators of your business is imperative in moving forward to create a plan for growth
MatrixPoint’s marketing, media, data, and cybersecurity consultants will ensure that your company makes the right decisions when it comes to determining the best KPI’s for your business and to be successful. Our experts will design a customized strategy for your specific needs, allowing you to immediately adopt industry best practices to ensure your marketing campaigns are effective and cost-effective. Not only can we research, design, and deploy these executions on your behalf, but we can also train your team to utilize and maintain it, allowing you to build in-house expertise in this complex, but critical component of marketing and business executions and strategy.
Ready to schedule a consultation with MatrixPoint’s marketing experts? Contact us now to learn more about how we can help.