Key Performance Indicators (KPIs) is a measure of how your teams are performing to meet the overall business goals and objectives. KPIs can be used to track the performance of the different functions within an organization as well as individual team members. Do you like to know the difference between KPI vs Metrics, read here.
Other Definitions of KPI
Hubspot: “A KPI is a key performance indicator that measures how your company is performing at achieving a certain goal or objective. There are KPIs for every aspect of business, whether it's financial, marketing, sales, or operational”
Kpi.org: “Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.”
Clearpoint strategy: “Key Performance Indicators (KPIs) are the subset of performance indicators most critical to your business at the highest level of your organization. KPIs are used to help you measure your progress toward achieving your strategic goals.”
Why are KPIs important to hit organizational goals?
For a really long time, organizations over indexed on just two components when it came to managing teams and achieving business goals:
1. Creating a plan
2. Executing the plan
Teams focused on the end goal, went about executing their tasks, and finally the big end of the quarter meetings was when the leaders discovered if they managed to hit the numbers - depending upon which the next set of action items were planned.
However, this process often left teams blindsided where a lot of effort is invested but without the desired result - by the time the leaders became aware of the situation, it was already too late to course correct.
Then in the early 90s, Peter Drucker came up with the concept of performance indicators which would give organizations a better way to understand the progress teams make on key business goals on a regular basis instead of learning it right at the end.
Importance of KPIs
Making key business decisions
One of the important reasons to define organizational KPIs is it gives you a crystal clear picture on how different functions within the company are performing and if they are aligned toward the overall company goal.
Having a clear grasp on the KPIs allows you to make important big picture decisions - whether it is creating product roadmaps, deciding on the marketing budget, making new hires that is reflective of the current state of the company.
For example, say your customer support KPIs show that it takes more time to close tickets than you’d like, perhaps it is the cue for you to add one more person to the CS team.
Rewarding Team Members
Defining KPIs sheds light on the team performance and in the process acknowledging significant individual contributions and even rewarding their performances.
It not only boosts employee morale but it also motivates the entire team to perform better.
How would it feel to be able to see how your SaaS business is performing in real-time? See how live KPI dashboards give you visual feedback on multiple metrics that helps you take data-driven decisions.
When it comes to defining KPIs, one of the lesser emphasized aspects is how KPIs allow you to surface business outliers and take the right course of action, which wouldn’t be possible if not for the regular tracking.
Seeing the right KPIs or sometimes a combination of different KPIs in a single dashboard gives you insights and patterns on organizational functions that you couldn’t have possibly found on their own.
For example, say your Marketing KPIs reveal a lot of lead conversations around a particular feature before they convert, yet your Product KPI suggests that the same customers are not actually using that feature - it is a sign of whether you want to consider working on that feature in the next product roadmap.
Likewise, if your Google Ads account is not performing at the level you want, it's time to take a deeper look at which KPI you should be measuring and optimizing.
Different types of KPIs
There are many types of KPIs that you can use in your business. Some KPIs are high level, others are low level within an organization. The common thread is that all of these are objectives and you should use the ones that make most sense for your business strategy, some of the most common categories are,
Qualitative KPI or Quantitative KPIs
A quantitative KPI is a measurable characteristic, really anything that involves numbers. This is the most common type of KPI and covers many things for instance like users, impressions, sessions and so on.
Whereas qualitative KPI is a descriptive characteristic, something like employee satisfaction.
Operational Key Performance Indicator (KPI) evaluates the efficiency of its day-to-day operations within an organization. These KPI helps management identify which strategies are effective. Examples for operational KPIs are cost per conversion, Lead conversion ratio, cost per acquisition etc.
You know what KPIs are and why they are crucial to your organization’s overall growth - but before starting to define KPIs, you wanted to do your research and noticed that there was one particular term that popped up more than anything anytime someone talked about KPIs - Metrics!
The simplest difference between KPIs and Metrics is KPIs are a measure of your teams’ performance across functions at an organizational level while Metrics are a measure of smaller individual activities rolled out within functions.
1. Describe the actionable end result you want to achieve 2. Have a specific timeframe 3. Set Performance thresholds
Set a concrete goal
The first step in defining KPIs is setting a concrete goal you want to achieve at the end of the specified time frame. This goal is also known as the North Star Metric for your organization - the single number that every team and individual in the organization is working to improve.
For example, in Facebook’s early days the company’s goal was as simple as getting users to add 7 friends in their Facebook account. Once they knew this was the number they were going after every activity they did across engineering, product, and marketing was closely tied to achieve that goal.
North Star Metrics: Popular Examples
If you are a product company, here are examples of North Star Metrics defined by some of the most popular SaaS companies:
Note: When defining your North Star, ensure that it’s a tangible and specific number that is directly tied to what your product does instead of business goals like revenue or customers.
Have a specific timeframe
When setting KPIs it is crucial to have a specific time period during which you will track the performance of your teams. Without this you will not be able to accurately gauge how the numbers are improving .
For example, if your KPIs are tied to say, the number of weekly active users which you’ve set as your North Star, you need to know how the timeframe it takes to move the needle on that number.
Say, your weekly active users continue to rise steadily, but it takes twice the time than what you expected, would you consider that as a win? Definitely not! That is why it is important to always have a specific time frame when tracking KPIs.
An ideal time period to track your KPIs can be somewhere between 3 and 6 months depending on your demographics.
Set Performance thresholds
Performance thresholds are organizational benchmarks you set when measuring KPIs - it includes defining numbers for what is an ideal performance or what constitutes a good or bad performance.
Having clear thresholds makes it easy for you to review the performance of the team as well as individual members and even set up incentives like rewards for crushing the numbers.
Mistakes to avoid when tracking KPIs
1. Measuring what you want to see
One of the biggest blindspots teams fall in when it comes to KPIs is measuring what is easy and convenient - or worst, measuring numbers that they know will make for a good show in front of the team.
Keep in mind that the purpose of KPIs is to measure the team’s performance holistically - sometimes that means talking about KPIs where the team didn’t hit its goals or ignoring KPIs where you flourished but it does not tie down to what you want to achieve.
When it comes to KPIs, it is better to be ruthless than be sorry.
When tracking KPIs, teams often tend to err on the side of information overload, filling up the spreadsheets with lots and lots of KPIs just because they are to measure - this is where you should exercise great caution because sometimes even no information is better than irrelevant information.
Make sure that you narrow down your objectives to a handful of KPIs that tell you how well you performed.
3. Having KPIs that are not tied to your North Star Metric
KPIs are a handful of numbers that exactly tell where your teams are with respect to your goals - and any number that does not directly help you in understanding where you stand have no business on your KPI dashboard.
Having KPIs that don't impact your North Star is a big waste of time and resources which could be utilized working on the right KPIs instead.
In order to be super organized, look for a good Data visualization tool that helps to represent data in an actionable way. There are a plethora of data visualization alternatives in the market today with the help of which you can take smart data-driven decisions.
Ready to track and measure your KPIs? Check out how Dataflo supercharges your team when it comes to KPIs.
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