With 2020 being right around the corner, it’s always a good idea to take stock of your company’s performance in 2019, and set new goals for the coming year. The best way to kickstart the process is to check if your KPIs are properly aligned with your goals and to reevaluate if you’re tracking the right KPIs.
Measurement is key when it comes to growth. There’s no debate there. Without proper measurement in place, businesses cannot accurately track their progress which leads to having a difficult time setting goals and quantifying success. Executives know that measurement is essential. However, one of the issues that companies struggle with the most nowadays is finding the right indicators to measure.
There are countless eye-catching stats that might seem right at first, but only a handful of those is what you actually need to pay attention to for your business.
So how do you know what data to measure for your business? Well, it depends.
What Are KPIs?
As a quick refresher, Key Performance Indicators (KPIs) could be defined as quantifiable measurements used to evaluate your company’s performance relative to specific goals. By using KPIs, you can get an accurate measurement of your company’s progress and be able to monitor performance. KPIs are a great way to quantify improvements over time, especially in the same areas.
However, many companies make the mistake of not staying consistent with their tracking across multiple reporting periods and choose different KPIs. You should always aim for consistency to see progress and have relevant data at-hand to compare historical performance and anticipate trends.
For example, if you’re an e-commerce website and your company is tracking website visits, you may have a 500% increase. However, if you don’t know the progress of your conversion rate, that information is mostly irrelevant.
Do you make money from website visits or from completing transactions? Where do your clients get stuck? Where do they abandon the shopping cart? What’s the main pain point on your platform? You cannot answer any of these questions unless you start tracking what really matters.
Keep KPIs Specific, but Simple
KPIs will help you identify major areas of improvement across your organization. By carefully selecting KPIs tailored to each department, you will focus your teams on what really matters for your business goals.
Don’t get stuck by selecting flashy KPIs and imposing them across all your teams. Make sure that your company understands that if a specific KPI worked for a specific industry, that doesn’t necessarily mean it will provide the same value for another.
As a rule of thumb, don’t start choosing dozens of KPIs to track. Keep it simple. Ideally, start off with no more than 10 indicators.
Companies should choose which KPIs to track based on the following questions:
- What are your business goals?
Setting realistic business goals is essential before starting to think about KPIs. You need to know your goals before starting to measure. Try setting realistic expectations for your teams and to project the company’s growth forecast as accurately as possible on all metrics.
- How big is your company?
KPIs should be dependent on the size of the company. For example, if the company is a startup, leaders will be more likely to focus on KPIs that relate to the core business, validating the business model and tracking short-term progress like daily sales, conversion rate, site traffic, etc. On the other hand, if the company is well-established, leaders are more likely to be forward-thinking and track KPIs like customer lifetime value or cost acquisition.
- What’s your business model?
Choosing KPIs could differ drastically from one business model to another. For example, in our post about the four business models for the content industry and KPIs that shouldn’t be used, we covered what content businesses should track. However, for an e-commerce website, the same KPIs that made sense for a content publication might be completely irrelevant. Instead, it would be more beneficial to focus on tracking the conversion rate or the shopping cart abandonment rate.
- Which department are you choosing the KPIs for?
Different departments = different KPIs. Marketing does not focus on the same goals as sales for example, and therefore, the KPIs should also be different. Growth rate, revenue, and new clients fall under the umbrella of sales, while website traffic increase, impressions, and click-through rates are more on the marketing team’s plate.
- What’s your industry?
KPIs being tracked are significantly different across industries. For example, if you’re in retail, you’re more likely to choose KPIs such as average customer spend, sales per square foot, sales per employee, conversion rate, average order/cart value, etc. If you’re in the software development industry, KPIs such as product cycle time, velocity, flow efficiency, churn, and so on could be more related to your business.
Lagging KPIs vs Leading KPIs
There are two kinds of indicators you need to be aware of when classifying what you track: lagging and leading indicators.
With lagging indicators, you can see how your company has performed in the past. Lagging indicators address what has already happened, such as total sales of a previous period or last month’s acquisitions.
On the other side, leading indicators are KPIs that show what is happening now or how the company is currently performing. In terms of KPIs, you can monitor things like conversion rate or website traffic.
One type of KPI is not more important than the other, but managers should be aware of the difference so they won’t use real-time indicators to analyze the previous performance of a business.
Leading with SMART KPIs
Many business leaders advocate for using the SMART model when choosing the right KPIs. This means that KPIs should be Specific, Measurable, Attainable, Realistic, and Time-related.
1. Specific: A specific goal has a much greater chance of being accomplished than a general goal. Keeping goals clear and detailed is a great way to avoid confusion across the organization and teams pretending to have goals completed when in fact what was achieved wasn’t the actual focus.
2. Measurable: Choose a goal that can have progress be measured so that changes can be analyzed in real-time and help establish a growth trajectory.
3. Attainable: An achievable goal should underline an outcome that isn’t too far out of reach and considers the current social, economic, or cultural resources of the company.
4. Realistic: Don’t start with a big goal like saving the world. Start small and focus on incremental increases as time progresses. If the goals aren’t realistic, you should redefine them. The same applies to goals that are too easily accessible. Balance is key.
5. Time-related: Goals should always have a time frame so that you know how to guide your progress. Establishing an endpoint for the goal gives participants a clear target to achieve.
Choosing the right KPIs for your business is extremely important, regardless if you’re a startup or a well-established enterprise. There is always room for improvement, and everything starts with gathering and analyzing the right indicators.
If you want our expert consultants to help you with the process, you can always contact us. We could help you figure out exactly what you should be tracking, how to clearly define your goals to suit your business model, or simply how to optimize your growth path for maximum results.