What Are KPIs?
A KPI (key performance indicator) is a metric used to evaluate the success of a business, department, team, or individual.
KPIs vary from company to company and are based on sales metrics, business growth objectives, customer satisfaction metrics, and other key goals. They’re also not just for managers — everyone at a company can have KPIs to follow.
For example: let’s say your goal as a social media manager is to get new followers on Instagram. Your KPI could be an increase in Instagram followers by 10% each month. If you’re able to achieve this goal every month for multiple months consistently, that would mean you were successfully meeting your KPI!
How to Set KPIs
- Identify the focus areas in your business. Break your business down into broad chunks. For example marketing, sales, and customer service.
- Identify what you have to measure within each area of focus. For example, if you’re looking at marketing, you might want to measure the number of visitors to your site or the number of new leads (the people who fill out a form somewhere on your site).
- Identify the data points you will need to collect and analyze in order to measure these things. If you need to measure visits to your website, for example, then you’ll need to know where those visits are coming from and what people are doing when they get there. You can use something like Google Analytics (it’s free!) or other tools that track web traffic.
- Identify who will be responsible for collecting and analyzing this data. In many cases, it could be someone with an IT bent in your organization; however, it may also involve working with outside vendors or consultants who specialize in analytics development and implementation. These folks may act as extensions of your team—so make sure they understand what’s important about everything they’re collecting and why!
- Identify who will be responsible for using the data once it is collected and analyzed
Types of KPIs
You can think of the three types of KPIs from a time-based perspective. You can use them to see where your business is today or overtime, or you can use them to see what direction you’re heading in (or both). The three types are:
- Leading (what’s happening now)
- Lagging (your overall progress/past performance)
- Performance/coincident (your current progress)
1. Leading KPIs are Predictive
They focus on what’s happening right now and what’s likely to happen in the near future based on current trends. Unlike lagging KPIs, which reflect past performance, leading KPIs are proactive indicators that help companies focus on acting rather than reacting.
2. Lagging KPIs are Retrospective
They measure how well your company has achieved its goals. These indicators show what has already happened and don’t necessarily indicate future performance. It’s important to measure lagging KPIs to get an accurate picture of your company’s overall progress and success over time.
3. Performance/coincident KPIs
Track the current status of your operations and can be used to measure the effectiveness of day-to-day activities. Performance KPIs typically measure a specific function or department within a company, such as sales or marketing efforts.
Why KPIs Are Important
A major part of good business is the ability to take a look at your company, and figure out the best ways to measure its success. You can do this with Key Performance Indicators (KPIs).
KPIs are metrics that help you monitor and measure the performance of your company. These indicators will allow you to identify how well your company is achieving its goals and objectives, so they’re a great way to track progress.
Additionally, KPIs also measure the success of specific projects or tasks within a business. By using KPIs, you can compare how different tasks or projects performed against each other, and use that information to inform future projects or improve existing ones!
KPI Management Strategies
As simple as the above steps may sound, it’s worth repeating them. KPI management is a commitment that requires dedication to a process and a positive attitude. Do you have what it takes? If so, be sure to communicate your KPIs with your team members and follow these four steps:
- Measure your results
- Review the data
- Adjust your strategies if necessary
- Share the results with your team
Measure your Results – You want to measure your metrics and key performance indicators at least once per month. You can do this by looking at your data in a dashboard or a spreadsheet.
Review the Data – Once you’ve measured your KPIs, review the data. Ask yourself what data shows progress towards your goal and which metrics show a lack of progress.
Adjust Your Strategies if Necessary – If you’re not making progress towards your goal, adjust your strategies. This includes everything from improving communication with team members to changing the way you run pay-per-click ads based on what’s working (and what isn’t).
Share the Results with Your Team – Share all of the above steps with your teammates, whether it’s through a monthly meeting or email updates at the end of each week. Knowledge is power and sharing information gives everyone in your company
How to Measure and Track KPIs
- Set up a spreadsheet.
- Use software tools.
- Set up a dashboard.
- Track progress over time.
- Use data visualization.
Set up a Spreadsheet – Google Sheets is a free, cloud-based tool that makes it easy to create spreadsheets. You can also set them up as templates so that they’re ready for every new campaign or month of the year.
Use Software Tools – There are many software programs designed specifically for small businesses to help them track their key performance indicators. Some accounting software, such as QuickBooks, include data analysis tools to make tracking easier (and make sure the numbers are correct).
Set up a Dashboard – A control panel for monitoring your KPIs can help you see quickly at a glance how your business is doing and where it needs improvement. It should be easy to read, so you don’t have to look closely at tiny print or squint at small graphs in order to understand which areas need work and which are going well.
Track Progress Over Time – A single data point isn’t very useful, but when you track progress over time, patterns will emerge. This will help you understand what’s working and what isn’t, so you can adjust your strategy accordingly.
Use Data Visualization – Spreadsheets are useful, but graphs and charts can be much more effective at displaying trends in a way that’s easy to understand at a glance. There are many software programs that display data visually if your current accounting software doesn’t have this capability.
Don’t Collect Irrelevant Data – If the data doesn’t support a decision you’re making, it’s not worth collecting it in the first place. Choose a few key metrics to focus on — no more than five or six for anyone’s goal — and measure those consistently over time.
KPI Dashboards, Scorecards, and Reports
In addition to KPI tracking tools, there are several other helpful ways you can keep tabs on your performance metrics. Results will vary depending on the tool you choose, but these three, in particular, should be useful as you work toward a more performance-driven marketing strategy:
KPI Dashboards – A dashboard is a visual representation of KPIs that allows you to see multiple metrics at once. You can create your own dashboard using a variety of tools or work with experts to design one for you.
Scorecards – Scorecards are another visual representation of KPIs. They can take the form of pie charts, graphs, or any other way that makes sense for the data in question—and they’re often displayed in an infographic format.
Reports – KPIs are meant to help guide decision-making and shed light on where your company is headed. Creating regular reports provides a clear picture of how your business has evolved over time, which will come in handy when assessing whether or not a particular KPI has been effective.
What Makes a Good KPI
A good KPI should be:
Aligned – The KPI should be directly related to the strategic objectives of the business, department, or individual.
Specific – It should focus on an important aspect of what the business or person does, not be a general overview.
Measurable – It should have a clearly defined method of measurement.
Actionable – It should provide information that can be used to take action and drive change in the business.
Timely – The data collected should be available quickly enough to influence decisions when they need to be made.
Comparative – A baseline should have been set and goals identified so that progress can be measured against these figures.
What to Include in a KPI Report
Goal – The ultimate objective you’re trying to achieve.
Metric – How you’ll measure progress toward the goal. A metric should be quantifiable, so it’s easy to see how close you are to your target.
Rationale – Why did you choose that particular metric. Why is this measurement important?
Frequency – State how frequently you measured your key performance indicator and how often you’ll revisit it.
Source – Identify where you got your data and consider sharing the formula you used to calculate it.
Visuals – For easy comprehension, use a chart, table, or graph. Compare it to previous visuals of the same type, if applicable, to track progress over time.
Comments – Include any additional relevant information or interpretations of the metrics you obtained in this section.