How’s your business doing?
Indeed, you must be checking the performance reports. However, unless you’re comparing that information with something else, how will you know whether you’ve met the mark or not? What gets measured gets improved; as the saying states. Using key performance indicators (KPIs) to quantify your performance will allow you to assess your progress.
The question is, how do you choose the right KPIs? In a nutshell, it depends. Formulas can’t select the right KPIs for your business based on a rigid formula, but you should always consider several factors. We will walk you through some of the factors that determine which KPIs to focus on in this post. We will help you decide which metrics matter most to your business.
KPIs: What are they?
Key performance indicators (KPIs) are metrics used to measure and track progress towards specific goals. KPIs, which can differ by department, provide insight into a company’s long-term performance compared to its targets and industry benchmarks.
How do KPIs reporting work?
KPI reports are visual dashboards that plot your metrics and show how your team is performing against your targets. Based on the data you want to display and the needs of your team, you can report insights using charts, graphics, and tables. As a business, you’ll likely receive daily data that has some relation to your KPIs and sometimes not.
How to identify and choose KPIs for business?
For your business, what are the key performance indicators that are considered “key”? When it comes to KPIs, less is more. Consider these factors when choosing KPIs:
- Business goals: KPIs should align with business objectives, so defining them is the first step. In general, a business should accomplish three to five goals in a year. During a specified period, KPIs evaluate whether the company is progressing toward its goals.
- Is your goal measurable? Specified and quantifiable goals are needed for KPIs to track progress. A measurable goal would be to “reduce customer acquisition costs by 10%” as an example, but “reduce customer acquisition costs” is less so. Conversion rate and cost of lead generation by channel can be KPIs for this goal.
- What about vanity metrics? These metrics may portray your product as successful, but they don’t lead to action. These include downloads for a free app, registrations on a website, or social media followers. They can also be misleading. In many cases, app downloads are the result of recent marketing campaigns rather than usage and popularity. Furthermore, most of these users won’t buy the product.
- Metrics that matter to a business. Various organizations, departments, industries, regions, and other factors influence the answer. To be effective, KPIs must be quantifiable, actionable, and aligned with goals and stages of development. Profit margin, revenue growth, employee turnover, cash flow, and customer acquisition costs are the metrics that most businesses matter.
- Leading and lagging indicators:
- There are two types of KPIs: leading and lagging. A leading indicator predicts the future. The size of a deal or the number of employees may indicate revenue growth. Businesses can adjust their strategies according to leading indicators.
- Lag indicators measure the consequences of past actions. Examples include recurring revenue and employee turnover. Companies can evaluate their progress using lag indicators, uncover trends, and influence future decisions by using them.
- Are you leveraging trends? Over time, KPIs can provide insight into whether or not a company is making progress toward its goals and whether it needs to alter its strategies. For instance, increased product selling over the past three quarters may help a business gear up for an upsell campaign.
Growth is the goal of every business. Business KPIs measure how well its strategic objectives are met. Monitoring KPIs allows you to monitor your progress and scale progressively to grow your business as you see fit. Dashboards tracking KPIs can provide valuable insight by revealing areas of strength and areas for improvement. Regardless of the stage of the business, KPIs should be easy to understand, balance the short- and long-term needs, and result in timely measures and reports. A company’s KPIs should, above all, align with its goals and should be limited in number to focus on its highest priorities.