Key Performance Indicators 101
Image courtesy of @chuttersnap via Unsplash.
What are KPIs?
‘KPI’ is a phrase that’s thrown around a lot in business.
But what does it actually mean?
KPI is short for ‘Key Performance Indicators.
The official Oxford English Dictionary definition is
“A quantifiable measure used to evaluate the success of an organization, employee, etc.
in meeting objectives for performance.”.
Basically, they’re the things that you track to determine your success. Every business must have KPIs, otherwise you won’t know what success is for your business.
How will you know if you’re doing well if you have nothing to measure it by?
They can be split into two different types: Numerical KPIs and Ratio-based KPIs.
Numerical KPIs are metrics that are number-based, like total page views, profit figures, etc.
Ratio-based KPIs are metrics that are portrayed through ratios, like bounce rate, click-through rate, etc.
Every KPI is a metric, but not every metric can be used as a KPI.
Here are a few examples of numerical and ratio-based KPIs:
A few examples of numerical and ratio-based KPIs
How do you create effective KPIs?
When setting any goal, you need to make sure that they’re SMART:
Specific
Not just generic, like ‘More customers’. Specify how many more customers is equal to success to you.
Measurable
Your KPI needs to be numeric, so it can be measured, and that it’s clear when you’ve hit that target, and you need to be able to measure it. There’s no point in setting a target for something when you don’t have access to the programme where that target is shown. For example, ‘100 new customers’.
Achievable
Make sure you can realistically achieve your KPI. If you’re starting out, and you aren’t sure, you can always tweak your KPIs as you grow.
Relevant
Don’t just choose KPIs that are interesting to you. They need to be relevant to your activities. For example, if you’re not pushing anyone to your website with any activities, then maybe website views isn’t an appropriate KPI for you.
Time-based
Set a deadline for your KPI, like ‘100 new customers by the end of the financial year’
However, with KPIs, you should go one step further, and make them SMARTER, by evaluating and re-evaluating.
Especially if you’re starting out with a new business, setting concrete KPIs isn’t the way forward.
You need to keep evaluating and re-evaluating your KPIs, seeing which targets you’re hitting, and which ones you aren’t, and tailor your KPIs to your business activities.
KPIs should be clearly linked to business objectives.
For example, if you’re looking to increase sales, you’d be looking at KPIs like conversion rate.
You don’t have to go by industry-standard KPIs, like the ones I’ve mentioned above.
You can create your own unique KPIs, that’s the beauty of them!
Just make sure that they’re SMARTER - specific, measurable, achievable, relevant, time-based, evaluated, and re-evaluated.
Your KPIs are a really useful form of communication within different parts of your business.
They can dictate which activities you should be emphasising, and the activities can also dictate your KPIs - it’s a synergetic, two-way communication.
To determine your business’ KPIs, ask yourself these questions to get all the information you need:
What is success to you?
Why is that important?
How will you measure your progress?
How can you impact the rate of your success?
Who is responsible for measuring success?
Who is responsible for completing the activities to reach success?
How will you know when you have been successful?
Do you have a schedule in place to evaluate your success?
Once you’ve answered those questions, and made sure that your targets are SMARTER, then you have your KPIs!
Just make sure to keep measuring, evaluating and re-evaluating them – otherwise there’s no point.
That’s KPIs 101!
If you’ve got any other hints and tips, or useful or unusual KPIs that you use or have come across, we’d love to hear about them – pop them in the comments below.
