KPI is an abbreviation of Key Performance Indicators, which means "key performance indicators" in English. Performance indicators are components of the strategic plan that the company plans to implement within a certain period of time. In other words, a KPI is a representation of a result that can be quantified.
Thanks to key performance indicators, the organization can assess how close it is, or, on the contrary, far from the goal set before it. The development or promotion strategy depends on which performance indicators are set and includes 5-7 KPIs.
Imagine that at the end of the reporting period you need to report to your colleagues and management how your project is performing. You understand that everything is going well and the set goals have been achieved. But how to confirm this with facts? How can I measure the success rate of the project or the degree of problems?
KPI is the answer to these questions. With these metrics, you can measure the right aspects of performance. You can also show them how close they are to the goals you set at the beginning. Because the evaluation is done numerically, KPIs can be expressed in graphs, charts, and other visual ways.
Difference between KPI and performance indicators
To grow a company in the future, you need to understand how to measure success in strategic planning. In order to continue or adjust the chosen path, it is necessary to evaluate whether the right decisions are being made. However, it is not necessary to analyze all available data. The key is prioritization: which indicators are more important than others.
The terms "performance indicator" and "key performance indicator" are sometimes confused. The difference in the word "key" means the selection of those parameters that are important for a given company in a given period of time. It is important to pay increased attention to those 5-7 KPIs that demonstrate the implementation of the plan.
Unlike KPIs, performance indicators report the results of standard business processes, but they are not such important indicators that you need to constantly monitor. They increase the productivity or value of the work, but are not critical. In addition, performance indicators do not always correlate with the values that the company plans to achieve.
In other words, any KPI is a performance indicator, but not every such indicator is a KPI.
What to choose as key indicators? Depends on current business priorities. Let's look at some examples.
Example:
The company plans to grow by 20% compared to the previous month. One of the KPIs can be formulated as "new deals this month". But simply the efficiency indicator will be responsible for a less important parameter, for example, "volume of site visits".
Selecting the appropriate KPI
If a company begins to use key performance indicators, it is important for it to clearly define priority plans and ways to achieve them.
How appropriate is a particular KPI? It should be:
- specific;
- measurable;
- achievable;
- appropriate;
- bound to deadlines;
- are available for evaluation, including re-evaluation.
Another common method of defining KPIs is Consistency, Coverage, Urgency, Accuracy, Feasibility, and Viability.
Let's take a closer look at the factors that are considered when choosing a KPI for a business.
Defining metrics for analysis
A properly designed KPI should clearly reflect the value to be measured. The more information an indicator contains, the better for your business. In order not to get confused, it is convenient to divide KPIs into several main categories.
Performance metrics. Display the dynamics of movement towards the goal. For example, these are actions, processes, number of potential customers.
Performance metrics. This is relative progress against the planned total. Expressed in percentages or shares. An example can be an increase in revenue compared to the previous period or to the planned amount of profit.
Project metrics. Refers to the progress of a specific project and is expressed as a percentage of completion or summarized results. For example, what percentage of project closing actions have already been completed.
Target metrics. This is a numerical result relative to the target date. For example, the strategic goal was to reach the revenue level of 1 million by December 1, 2020. A goal's KPI will show you how far it has been achieved by the desired date.
Setting a measurable goal
When it comes to KPIs, a target is a numerical parameter that a company wants to achieve. You must define the objective in the form in which the metric is measured. For example, if the indicator is expressed in percentages, then the goal should also be set in percentages. And for a numeric value, you need to set a specific number as the target.
Selection of data sources
Each KPI is based on raw data about the company's performance. Make sure that the plan indicates the source of this information and that the calculation formulas are uniform for the entire team.
Designation of the person responsible for KPI and frequency of monitoring
Key performance indicators should be monitored throughout your work. You need to appoint a responsible person to collect the data, monitor the results and provide reports. The optimal KPI monitoring frequency is a month.
Checking the selected KPI
It is difficult to answer unequivocally which KPIs were chosen correctly and which ones will have to be changed after the first report. But to make as few adjustments as possible, check the standard requirements for key performance indicators. KPIs should:
- show whether this strategy works now and in the future;
- focus employees' attention on indicators important for the company;
- promote transparent and understandable reporting;
- provide regular performance information;
- display reliable data about current business processes;
- lead from intermediate results to final results: show the speed of achieving the goal.
If you have checked your KPIs in this list and they meet these requirements, then the indicators are selected correctly. However, you should take into account the specifics of your business, the scale of development plans, and other individual characteristics. There is no single correct guide to action here.
KPIs in Internet Marketing
Marketers use dozens of KPIs for advertising campaigns and other activities. However, the list of KPIs varies depending on the specific business area and its specifics.
Let's analyze seven common KPI categories.
Traffic. Choose branded advertising from search engines, contextual advertising and social networks. Traffic is measured by traffic, page views, sources and click-through rate (CTR).
User behavior. Includes bounce rate, time to site (TSS) and depth of view (PPV) calculations.
Exchange rate. The conversion rate is calculated as the number of users who completed a target action divided by the total number of users. Often, an indicator of goal achievement is also calculated.
Attraction cost. Costs are calculated per user (CPV), per click (CPC), per order (CPO) and per lead (CPL).
Average receipt. We use Average Site Order Price (AOV) calculations. Thanks to them, marketers optimize advertising costs and implement pricing.
Return on investment. This is an indicator of the return on investment - for example, in advertising, building an office, purchasing equipment. ROI is the ratio of net profit to investment, expressed as a percentage.
Repeat sessions and sales. The most commonly used are site return rate (RVR) and customer lifetime value (LTV). The last indicator is calculated only for regular customers.
Web analytics systems allow you to track key performance indicators. For example, Google Analytics. It is a built-in web analytics that allows you to calculate:
- clicks;
- unique users;
- impressions;
- depth of interest and viewing time on the site;
- ability to click;
- failure rate;
- exchange rate;
- CPC;
- pay for the promotion and more.
These metrics give you an overview of your ad serving and sales situation. But if you want to keep your finger on the pulse of all your marketing KPIs, you need end-to-end analytics – a combination of data from your CRM, multiple ad platforms and other tools
What indicators will be available to you:
- the cost of attracting ice;
- return on investment;
- return on advertising spend and other important indicators.
Building a strategy with KPIs
The primary purpose of KPIs is to help you make informed decisions and improve business performance. It does not matter whether you have chosen KPIs to achieve global strategic goals or to solve current team tasks. We offer you 3 tips for building an effective strategy using KPIs.
Always watch for changes. Continuous monitoring of KPIs provides information on whether everything is working as planned. Prompt response to changes in key performance indicators means confidence in the right path and timely adjustments, which means saving the company time and money.
example
An important KPI for your online store is the percentage of abandonment of purchases at the checkout - "abandoned cart". You changed the design of the order page - and the number of "abandoned carts" increased dramatically. Because you caught the problem quickly, you can fix it before it causes damage.
Consult the team. Within the team, it should be agreed which indicators are important and which can be considered secondary. This will allow you to develop a single strategy for monitoring KPIs and maintain them at the desired level. When a company changes key performance indicators or even adjusts its strategy, management needs to quickly communicate the information to employees. So the whole team immediately restructures the work and harmoniously implements the new standards. Sharing key information within the company will allow you to discard unnecessary data and establish effective work.
example
You always want to get more ad impressions online. Now the management has decided to pay attention to other KPIs - the rate of clickability of advertising and the level of conversion into an order. According to this change, marketers should start working in the new regime immediately. As a result, impressions may decrease, but the number of actual transactions should increase.
Measure success numerically. Company goals should not be generalized or vague. Let's say you set a goal of "becoming a leader in the microelectronics market." How do I know if my goal has been reached? How to determine how close the company is to achieving this goal? Obviously, operating at a loss is hardly an indicator of an achieved goal. However, even a high level of income is not proof that you are a market leader.
KPI requires that the objectives are clear and measurable. In the above case, you can choose the phrase "have more customers than your direct competitors". Or "get more revenue per year than other manufacturers in the country" etc. Continuously tracking your KPIs will allow you to quantify how close you are to market leadership.
Once you have selected your business's key success indicators, you can determine how to measure your achievements. Up-to-date and reliable data will help you evaluate your progress, adjust your strategy or get the expected profit.
Grow your business with KPI tracking
Key performance indicators are numerical measures of results or actions important to the business. With the help of KPI, you track your progress in achieving your goal in detail and in a reasonable way. Learn the rules of working with KPIs and achieve success even faster and with lower costs!
