There are literally hundreds of key performance indicators, or KPIs, that business owners across industries use to measure performance. Does anyone use them all?
The KPIs a business chooses are as unique as the business itself. The decision depends on industry, organization size, business goals, available data, and more. Most importantly, however, the right KPIs measure things that actually matter to a business.
There’s no point in spending time, money, and resources tracking KPIs that don’t shift you or your teams’ actions towards achieving goals. If no one’s paying attention to your KPIs, what’s the point of having them?
Successful businesses depend on teams that have a clear understanding of and investment in the business’s goals. Wondering how to choose KPIs that direct attention to the most important aspects of your business? Read on.
Define your business goals.
Before diving into KPIs, you need a clear vision of your business goals. What are you trying to accomplish that KPIs can help measure?
This may be tricky for large organizations with mission statements, vision statements, long-term and short-term objectives, multiple departments and managers, etc. That’s okay! Try to focus on your business’s larger purpose and narrow down the goals most important to your business’s performance and success.
Every business has different goals (and thus will use different KPIs). You may be focused on sales, conversion, and/or cost reduction. Or perhaps you’re more concerned with customer success and/or reducing calls to customer support.
Whatever it is, narrow down your business’s unique finish line. Try using SMART goals to flesh out your vision of business success:
- Measurable (KPIs will really come in handy here)
Consider stating time-bound goals for different time periods. What do you want your business to achieve in the next 3 months? 6 months? Year? How about longer-term, like 2-5 years, or even 10 years from now?
You can also map out which teams, managers, and resources will be involved in achieving each goal you set. Understanding all the people and moving parts involved in meeting goals will inform your decision on which KPIs to track, and how to ensure your teams are invested in them.
Choose KPIs that are aligned with your goals.
Now that you know where you’re going, it’s easier to choose KPIs that track your journey and gauge success. How will you know you’re on your way to meeting, or have met, your business goals?
Let’s take the example of a business owner looking to increase sales. Many things contribute to or measure sales: customer acquisition, average purchase value, quote to close ratio, average purchase value, and many more. So which ones are right for you?
Look at the “specific” part of your SMART goal for an indication. A specific goal of “Increase sales by 25% by this time next year” means that annual sales growth will be a critical finish-line indicator. Along the way, monthly sales growth may be helpful for gauging progress.
For each of your goals, consider the possible indicators, and highlight the most important ones for measuring the success of your specific business goals.
Specific KPIs provide a clear objective to all team members. If the entire organization rallies behind increasing sales, for example, then every team can actively search for ways to meet that specific need, from improving product design to increasing marketing and outreach and beyond.
SMART goals and specific KPIs make objectives easy for teams to understand and get behind, which is critical to your business’s success.
Use just a few KPIs for your growth stage and budget.
Technology today makes it possible to track everything, but that doesn’t mean you should.
Every business goal you make will have a slew of related KPIs that various platforms are happy to report on for you. While it’s generally true that you can do more with more data, it’s also possible to get overwhelmed or even look at the wrong data for your business’s growth stage. It’s also possible to spend too much money tracking KPIs that aren’t helpful.
A business still working out product-market fit will have very different goals, budgets, and KPIs than a large enterprise focused on customer retention. And while it’s wise to look at the competition for an idea of their goals and metrics, remember that your business is unique—your KPIs should reflect that.
As a result, it’s probably not a good sign if you’re tracking and reporting on close to 20 KPIs. As your business grows and evolves, it will grow out of some KPIs needed for early-stage goals and grow into new KPIs that measure late-stage performance. Choose less than 10 KPIs that reflect your current goals and growth stage, and focus on them until it’s time to make new goals.
At the end of the day, it’s important to remember that the KPIs you choose for your business are just numbers. Your team members and customers are people, and business and markets grow and fluctuate thanks largely to human efforts and impacts. Avoid becoming so attached to your KPIs that you lose sight of the goals they were designed to support, and remember that you can—and should—choose new, relevant KPIs as your business goals change.