What Are KPIs?
KPI simply means key performance indicator; it is a good measure of performance for a goal. In simpler terms, KPI can be described as a yardstick for evaluating a person, task, or company’s success. According to Investopedia, KPIs are also referred to as key success indicators (KSIs), varying from company to company. KPI in business is simply a means of monitoring growth to ensure the business’s success.
A classic example is if a clothing business needs to assess its broad customer base; it could check its revenue at the end of the year (as its KPI) compared to the previous year’s revenue. This shows them how many more people grew interested in the product and made a purchase.
Teams usually use key performance indicators to target high-level objectives that are time bound. This helps you set a goal to be achieved within a specified period of time. There is no company or business that would not benefit by setting KPI targets.
KPIs focus on the factors you should track the most to catalyze the actualization of the company’s goals. An excellent key performance indicator example is how many clients to target for the month. KPIs ensure that you see the goal and you take the right steps toward achieving it.
This is especially relevant for marketing teams, as it is crucial to have KPIs and targets for each marketing campaign. This is so that at the end of each marketing campaign, you can pinpoint if the aim of the campaign was reached. KPI metrics are the quantitative measurement of the performance of your business ideas, goals, and objectives.
You can set your metrics to ensure the company’s advancement, employee diligence, or customer satisfaction. KPI reporting gives you a clear-cut view of how your company is faring. You can use KPIs to analyze the growth rate of your company or business.
With your key performance indicators in place, you can see which practices are working best for your company and which are not doing well so you can adjust and improve. This allows you to notice which employees are adding value to the company and which are not. This will help you track the contribution of workers to the company.
In this article, we’ll be shedding more light on the following:
1. KPI Basics and KPI Metrics as a Benchmark
2. KPIs in Business and Marketing
3. The Five Main Types of KPIs
5. How to Set Practical KPI Targets
KPIs Explained
KPI stands for key performance indicators, which are valuable scales of how effectively a company’s goals are attained. Many companies use KPIs to evaluate the success of long-term and short-term goals. High-level KPIs are set to determine the company’s overall growth, while low-level KPIs measure how each team and process is doing. This means each team will have its own KPIs, including marketing, human resources, and customer service. This is because no two teams have the exact same processes; therefore, the measurement scale of their effectiveness and expertise will vary.
KPI Metrics as a Benchmark in the Workplace
KPIs are an excellent idea for every company as they communicate what you’re doing right versus wrong. Many company owners do not know how insightful and crucial KPI metrics are in the workplace. As a manager, if you need to know which team is working hardest to ensure the company is reaching its goals and which team is perhaps lacking, you can set KPI metrics per team depending on their processes. This way, you know which teams deserve accolades and which teams need more training.
For example, in a customer service company, the KPI metric for the inbound team may be the number of complaints they resolve at the month’s end. For the outbound team, their KPI metric could be the number of sales they were able to close at the end of the month. Although these are two teams under the same company, their job descriptions are different, so their KPI metrics would also vary.
You can not use the same KPI metric for both the inbound and outbound teams. The outbound team makes calls to close sales, while the inbound team receives calls to resolve customers’ complaints. The KPI then reveals which team is getting the company closer to its overall goal. Either the inbound team ensures customer satisfaction which fosters customer retention, or the outbound team follows up with customers and places more orders for customers, thereby there is a new influx of customers.
Although KPIs are not always as simple as the above example, this is only a basic analogy of how important they are, how insightful they are to the company’s progress, and how they would differ for each team. They are the ideal method of gauging how well your workplace is doing and if there is a need for any improvement. KPIs give you clear and relevant information that you want to work with to set goals for the next month or year.
To set actionable and reliable KPIs, you must have a KPI dashboard. To set up your KPI dashboard, you must understand your company’s objectives and the steps to achieve them. The essence of a KPI dashboard is to create KPI metrics that all users on the team can easily access. With this dashboard, you can create a KPI report. The data is there for everyone on the team to access and work on. It is easier to stay on top of all your data and easily analyze it with a KPI dashboard.
KPIs in Business and Marketing
KPIs in business are extremely powerful and useful tools to monitor the growth of your business or how products are performing. These KPIs focus on a specific outcome you want for your business. A great example is if you want to increase revenue and you need to implement a sales growth KPI; to do that, you need to put some things in place and map out some facts, which are:
- What exactly is your goal?
- Why did you set this goal?
- How will you know when you eventually increase revenue by 40?
- What steps do you need to take to achieve your goal?
- How to know the goal has been achieved?
- How often do you take an assessment of the goal?
It is crucial to set KPIs that are unique to your business based on your business information. Your KPI should be linked to the strategic objectives of your business. 95% of leading marketers agree that “to truly matter, marketing analytics KPIs must be tied to broader business goals”. Key performance indicators are more than just numbers. They are an indication of how close you’re getting to your goal.
KPIs are proof of efficiency, which can then be communicated to stakeholders and employees. This will help them understand where the company is at and your vision for where it can go. KPI reports are a means of communication as they put into words and statistics your business’s condition.
Marketing KPIs are the scales of value that a marketing team plans to achieve. These KPIs are important as they can affect the company as a whole. Marketing KPIs can help increase profit or help ensure better traffic on the company’s website. Marketing campaigns are pointless if they do not have a goal to attain. Either you want more customers’ interest, more dominion to become a household name or more social media following.
This is why you would need to set marketing KPIs to evaluate how well the marketing campaign is going and if it is effective. There are different marketing metrics which, some of which are:
- Marketing Qualified Leads (MQL)
- Sales Qualified Leads (SQL)
- Conversion Rate
- Brand Awareness
- Engagement Rate
- Cost per Lead
- Return on Marketing Investment
- Customer Lifetime Value (CLV)
- Customer Acquisition Cost (CAC)
- Customer Retention
Many marketing strategies are now digital. Because of this, you need to take note of digital marketing KPIs examples that you can use to measure how well your marketing strategy is going.
- An average lead score can be used to know how great your marketing is by the quality of your sales lead.
- Bounce rate is a KPI that indicates how many prospects visited the website without steering to other sites.
- Content download is the number of people that downloaded your content.
- Cost Per Action (CPA) is the amount of money spent on conversions.
- Cost Per Lead is how cost-effective a marketing campaign is.
- Customer Acquisition Cost (CAC) is the amount it costs to gain and retain a customer.
- Customer Attrition puts in view how many customers are lost over time.
- Customer Share by Category is the number of customers with the same demographic.
These are only a few of the digital KPI metrics. It is essential to know these factors so you can succinctly monitor the marketing campaign conversion rates. You can see how effectively your marketing strategies achieve your desired goals. A marketing campaign with zero conversion rates wastes money, time, and effort, and these KPIs exist to ensure that doesn’t happen.
What Are the Five Main Types of KPIs?
KPIs vary from business to business, but these five are utilized by almost every organization. The five general KPIs are:
- Revenue Growth: This is the amount of money made by your company over time compared to a previous, stipulated period. This means it is reaching how much money you made this year compared to what you made last year.
- Revenue per Client: The amount of money each wealth-generated customer has generated into the business or company. This is calculated by total customers/total revenue.
- Profit Margin: Profit margin is the amount of money your business makes. This is the difference between the cost of running your company/business and the total revenue brought in.
- Client Retention Rate: This is the percentage of clients with your company over time. You can use this information to understand what demographic of people stay with your company and why.
- Customer Satisfaction: Customer satisfaction indicates how pleased customers are with your service, products, or overall experience. You can learn about different types of customer satisfaction for a better understanding of how to enhance business products and services.
The data collected from these five factors can be used for analytical purposes to upscale any organization. A good KPI reveals useful information that can be used to track the progress of an end goal. The efficiency, quality, timeliness, and performance of your processes will be tracked and reviewed. Using a variety of metrics, you can use these types of KPIs to ensure your management makes well-informed decisions. Understanding exactly how to use KPIs can ensure the long-term success of your company.
Key Performance Indicator Examples For Employees
Employees are instrumental in the progress of every organization. Yes, you have hired the right people, but that’s not all there is to do. The next step is to ensure they are doing the right things to upscale the business. Companies use KPIs to find employees that are key to the company’s development.
A formidable employee team can lead to the most efficient and results-driven workforce that will align with your organizational needs and efficiently attain your objectives. Having a good set of KPIs can increase employee productivity and the company’s profit. A few KPI examples for employees that can help you see how well your workforce is doing are:
- Customer Retention
- Total Number of Customer Interactions
- Customer Service Quality
- Customer Satisfaction
- Number of Employees
- Employee Experience
- Performance Management
- Strategic KPIs for Organizational Goals/Business Objectives
- Completed Reviews and Performance Appraisals with Managers and Human Resources
How to Set Practical KPI Targets
As crucial as KPIs are, they won’t yield favorable results if not done right. This is why you need a guide to ensure that you’re on the right track. If you’re a CEO, executive, or manager, you need to prioritize the right KPIs so you can get the right results. It would help if you had a balanced KPIs scorecard to keep your strategy for long-term success.
Your KPIs are nothing without a realistic KPI target that makes them effective and focused. Many KPIs become pointless because they fail to have a target. Additionally, you have to ensure each KPI succinctly measures the area of business you want it to. For example, if a company wants to measure its financial performance, the net profit margin needs to be looked at as a KPI. In the end, whatever KPI you decide to set, don’t forget to ensure these five things:
- Precision: Make sure each KPI is clear on what to measure and why that KPI is crucial.
- Measurability: Ensure that the KPI you set can be measured and you have the tools in place to measure it.
- Viability: You must certify that the KPIs are deliverable as it would be a waste of time to aim too high, which would frustrate your workforce.
- Relevance: the KPI you set must be of relevance to the progress and performance of the company.
- Scheduling: Every KPI should have a deadline as this is part of the mode of measurement.
