KPIs: Do Your Decisions Match Your Destination?

Regardless of what industry you are in or what your business goals are, you have no doubt heard of a Key Performance Indicator (KPI). By assigning the appropriate KPIs, you can easily evaluate how effectively you’re meeting your strategic and operational goals.

For a quick example, let’s use the past holiday, Thanksgiving, as your campaign. Using KPIs, we can evaluate how the overall experience was for your family members and therefore, determine if you made a good investment in the holiday. For this example, we will assign some basic Thanksgiving Day ‘metrics:’

  • The in-laws got along with your parents
  • Your Aunt got lost and didn’t make it for dinner
  • The side dishes were delicious, but the dog got the stuffing
  • The turkey was sub-par, according to some attendees

For the holidays, it’s important that everyone gets along, so it’s a huge success if you’ve accomplished that. But your dad loves turkey, so he’s not impressed, your mom made the sides, so she’s satisfied in that area, and your wife hates your aunt, so she’s on top of the moon.

So, was it a success, or not? It’s too hard to tell without setting clear markers of success. You have a KPI definition problem.

What is a KPI?

It’s important to understand that a KPI is not just another word for “metric.” While any metric can conceivably be a KPI, one of the biggest mistakes analytics users make is considering everything a KPI. Simply put, a KPI is a quantifiable measure used to evaluate the success of an organization, employee, etc., in meeting objectives for performance. Selecting a metric and calling it a KPI is much different from selecting the most relevant metrics to the success of your business.

A strong and effective KPI is one that provides the most accurate measure of your overall performance against your specific business goals. If you are running an up-and-coming eCommerce website, it’s unlikely you are going to set your KPI as ‘Facebook Likes’. You’d most likely be better served with a metric like ‘Revenue Growth’ or ‘Sales vs. Projection.’

There are a lot of metrics out there in addition to many new and exciting data-points to measure. But before calling them KPIs, stop, they aren’t all KPIs. In many cases, metrics are better classified as ‘supporting’, or ‘tactical.’ To help distinguish between KPIs and supporting or tactical metrics, ask yourself the following questions.

A KPI should tell you two things:

  1. Are you successfully achieving your business goals or not?
  2. Should you take action?

Meanwhile, a supporting metric can help you:

  1. Determine what factors correlate to changes in performance (based on your KPIs).
  2. Develop tactics to move the needle and improve performance.
  3. Measure the performance of individual tactics.

Defining your KPI’s

An effective KPI definition process should be kept very simple:

  1. Determine your business goals – use only the most important ones, these are the business goals that define success for your business.
  2. Assign KPIs to goals – what are the best measures of these goals? There are hundreds of metrics out there, but you need to decide which ones tell you the most about your business.
  3. Develop a measurement strategy – how will the quantifiable data that allows you to accurately and efficiently report on these KPIs be collected?

For example, if your goal is to grow sales by 20% each year, then your KPI definition process would result in defining Sales Growth as a KPI. However, it’s not always that easy. If your goal is more abstract, like ‘awareness’ for example, then more critical thinking about your industry, business, and customer behavior may be needed.

An effective KPI should drive action, alerting you to when you need to make a change to your strategy or when you’re performing at a high level. Quite often, a KPI is the number your boss is going to ask about. They might not care if you had ‘one heck of a month on Twitter’ if the KPI is performing poorly.

Utilizing KPIs AND Supporting Metrics

Earlier I mentioned that it’s important not to consider every metric a KPI. However, that does not mean that supporting and tactical metrics aren’t important and should be forgotten. The mistake businesses make is not trying to collect all available data. It’s focusing on the data that doesn’t directly impact their ultimate business goal(s) and using the improper metrics to drive business decisions.

Once you’ve analyzed your KPIs at a high level and determined if you’re meeting your goals, that’s when your supporting metrics come into play. Now you get to step into the analytics playground and use the data that you’ve collected across your platforms to find correlations or the underlying nuggets of information that can help move the needle. Ultimately allowing you to better test and optimize the small things that help contribute to overall success. Below, I’ve included a few sample questions.

  • Does increased social chatter correlate with sales?
  • Do video views directly lead to increased sign-ups for your online services?
  • Is your website seeing an increase in 404 errors on crucial pages?

This supporting analysis is important and vital to deciding what smaller, more focused business units need to do on a day to day basis to help drive successful outcomes. However, in order to do it right, you need to know why you’re doing it and what you’re trying to achieve. Having a plan is a critical first step to ensuring that your KPIs are delivering the important and relevant info needed to make smarter, more informed, business decisions.

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By James Martin
About the Author:

James Martin is a Senior Consultant at Stratigent 

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