Key Performance Indicators (KPI’s) are one of the most over-used and little understood terms in business development and management. They are too often taken to mean any metric or data used to measure business performance.
The role KPI’s play is much bigger and more important. In fact, KPI’s are one of the most important guideposts for any business. Every business should have them.
Here’s one of the best definitions I’ve heard: KPI’s are an actionable scorecard that keeps your strategy on track. They enable you to manage, control and achieve desired business results.
You don’t need a lot of metrics, but you do need to carefully select, report, and take action from the handful you choose. Let’s break down this definition so it’s useful for your business, especially considering the guideposts available on the internet.
Desired Business Result
Always begin the construction of KPI’s with a clear understanding of the desired results. There’s nothing wrong with starting by saying you want to sell more of what you make. But try to be a little more specific. How will you do it? Will you:
- Shorten the sales cycle by half
- Generate 50% more leads
- Create a new usage occasion
- Get loyal customers to buy 30% or more
If you are clear about where you are going, you can construct KPI’s that get you there.
An Actionable Scorecard
(“Raw #’s:” The top left portion of the Whiteboard)
Now, pick the handful of measurements (generally no more a half dozen or so) that you believe are most important to the achievement of this goal. For example, if you wanted to shorten the sales cycle by half, you could measure:
- Keyword search for the term(s) that describe the need your brand meets
- Unique visitors to your website
- “Bounce Rate” to determine if your site is relevant and people view more than one page
- Sales (if products are sold on your site)
- “Average Shopper Value,” since buying more can help determine if you’re meeting your goals
Keep your strategy on track
(The rest of the Whiteboard):
Figure out the “Source” for the “Raw #’s” and how frequently (“Freq”) you report. Then, in the second column, set goals to measure “Progress” to seem realistic to the achievement of the desired results. Finally, in the third column, pick a comparison period like the previous year, or the previous month if you are a start up. Now, the key measurements are more than raw data; they are actionable metrics.
Of course, that’s one opinion, but there are others.
Here’s how 12 experts define Key Performance Indicators (KPI’s).
- “A metric that helps you understand how you are doing against your objectives.” – Avinash Kaishik
- “Measures that help decision makers define and measure progress toward business goals. KPI metrics translate complex measures into a simple indicator that allows decision makers to assess the current situation and act quickly.” – KAIZEN Analytics
- “A KPI: 1) Echoes organization goals, 2) is decided by management, 3) provides context, 4) creates meaning on all levels of the all organizational levels, 5) is based on legitimate data, 6) is easy to understand and 7) leads to action!” – Dennis Mortensen
- ”The most important performance information that enables organizations or their stakeholders to understand whether the organization is on track or not.” – Bernard Marr
- “The selected measures that provide visibility into the performance of a business and enable decision makers to take action in achieving the desired outcomes.” – Aurel Brudan
- “The data necessary to understand the implications of whatever he/she sees and the wherewithal to take appropriate action.” – Shalin Shah
- ”Measurable industry, department or task relevant performance metrics that are evaluated over a specified time period, and compared against acceptable norms, past performance or targets.” – Allan Willie
- “Measurements of activity that is a vital gear in your business machine.” –John Standaloft
- “Help organizations achieve organizational goals through the definition and measurement of progress. The key indicators are agreed upon by an organisation and are indicators which can be measured that will reflect success factors.” – Bruce Clay
- “A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals.” – James Oh
- “High-level snapshots of a business or organization based on specific predefined measures.” – (Avinash)
- “Should not constitute every company metric for analysis and evlaution. Rather, KPI’s should reflect the most important objectives of the business.” – (Avinash)
Do these definitions help explain KPI’s to you? Have you thought about what is the actionable scorecard for your business?