How to choose KPIs and metrics that matter to your business
Setting your goals correctly is very important for the company's efficiency. In other words, goals are what we strive for, and metrics or indicators are the guides that lead us towards our goals. These help determine if we are on the right track on the way of achieving our goals. On the other hand, they can also show what went off the plan so that we can make adjustments in the process.
Many different metrics that we can track are existing. It is essential to understand what is worth paying attention to for analysis. Measuring and monitoring business performance is crucial, and at the same time focusing on wrong metrics can be a waste of your time, resources, etc. In this article, we will look at some ways to choose KPIs to make sure those are effective and necessary for the business.
1. Use ratios and rates
When working with KPI indicators, it is crucial to pay attention to the dynamics. For example, if you are analysing the traffic or engagement of your website, the main thing is to look for changes, how much have the numbers increased or decreased in percentages compared with the previous period. If your traffic is stable or increasing, but its ratio to the main indicators is low or decreasing, this is a sure sign that something is missing. So you can identify the weaknesses of your site, information content, design and improve these characteristics.
KPI dashboard provides an analysis of these indicators as frequently as you choose it to. And that is why you can observe the process and make adjustments anytime you want.
2. Choose wisely: don’t measure everything
It is known that anything that can be measured can also be improved. If it is possible to assess your current performance, then it is also possible to observe how the situation improves or worsens over a certain period of time.
Instead of selecting dozens of metrics for measuring and reporting, you should focus on some key parameters. Since each company, industry and business model are different from each other, it is difficult to determine the number of KPIs you need accurately. Although, the experience shows that in most cases, one should try to set four to ten key performance indicators. For example, for the logistics department, delivery time, shipping costs, number of deliveries, etc. are essential. However, choosing the job satisfaction rates as a KPI metric isn't going to help you much in achieving efficiency in your supply chain.
It is important to remember that KPI indicators are associated with costs as well as your time and resources, so it is recommended that you make the best decisions your business will benefit from.
There is no simple step-by-step process to choose the right KPIs, but there are several other things that you should always take into account while making the decision.
3. Use both qualitative and quantitative KPIs
The name already tells us that both qualitative and quantitative indicators are essential. To illustrate this statement, let's take an HR department as an example. While the average number of job postings and applicants in a week are quantitative indicators, some parts of the employee evaluation are qualitative and both of these together give you a bigger picture of how the HR department performs.
Bringing in the qualitative KPI indicators along with the quantitative ones reduces the risk of missing out one of the most crucial success factors - your target audience and people who use your product.
4. Define metrics by departments
For different departments of the company, individual KPIs, as well as their combinations, may be selected.
At the same time, there are also general key performance indicators, which are necessary for the marketing, sales, finance and management departments. Many sales strategies focus on simple but visual indicators. For instance, for the sales department, the most important KPI is sales growth, which is easily measured. This indicates the speed with which sales revenue increases or decreases. It characterises the dynamics and changes in the company's revenue. Through continuous monitoring and analysis, you can identify growth trends and factors affecting the sales growth.
5. Have both short-term and long-term KPIs
Setting long-term goals is very important; this is a kind of mission and vision for your business. The strategy is set based on long-term goals, and to implement it you need short-term goals to guide you on every step of the way.
For the business to be on the right path, you need to monitor, track and carefully select your goals to achieve at different stages of the process. For example, if your goal is to increase the number of your subscribers by 1000 each quarter, divide this period into shorter terms and track the dynamics. It is difficult to achieve results at the last moment; you should be able to see the growth for every short period. Based on these observations, you will be able to solve the issues of your business more effectively.
6. Choose only actionable KPIs
While considering all the points mentioned above, do not forget about the simplest, but at the same time, the most important thing. After getting the data of the KPI indicators, select the most important ones for specific issues you need to solve. Take into account that some data might not be accurate enough for a particular situation. There might be distortions, therefore consider that modifications in the policy and tactics of your business might be necessary. Be open to new opportunities and changes.
The most crucial part is that data analysis should be efficient and impact your business positively.
All the noted recommendations regarding the identification of KPI indicators will be useful if you choose only those that the most relevant to your business. You will be able to make this choice based on the specifics of your company, the market in which it operates, as well as the future projections.