Key Performance Indicators (KPIs) help you understand whether you are achieving your target goals or not. KPIs also tell you how close you are towards achieving them. KPIs can help you track progress related to expenses, customer insight, revenue, etc.
There are KPIs for every business function within an organization. Important sales related KPIs include number of wins, deals, and opportunities, sales qualified leads, etc. Return on marketing investment, customer retention, customer acquisition cost, etc. are examples of marketing KPIs. Measuring customer service KPIs is important too, as it tells you how happy or satisfied your customers are with your brand. Key performance indicators of customer service include Customer Satisfaction Score, first response time, customer retention rate, SERVQUAL developed by Valerie Zeithaml, which measures service + quality, etc.
In this article, let us take a look at how you can choose the right KPIs and set targets so that you are always on track.
Choosing the right KPIs to improve performance
KPIs can be grouped under lagging and leading indicators, and you will need to monitor both. Lagging indicators are those which can be easily measured but hard to influence. Leading indicators, on the other hand, are easy to influence but hard to measure. An example of a lagging KPI is the number of orders placed on a certain day, while an example of a leading indicator would be return on marketing investments.
Key performance indicators should be SMART, i.e., specific, measurable, attainable, relevant, and time-bound.
Specific KPIs are easy to track and monitor than vague ones. For instance, a specific KPI would be “exact number of orders placed every week”. A vague KPI would be “Satisfactory order processing”. In other words, it should be reduced to a number in order for it to be tracked.
An example of KPIs :
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However, you might wonder what a “metric” is. Metric is a quantifiable measure or that which can be reduced to a number. The number of orders placed on a given day is a metric. However, only when it is studied over a period of time (number of sales per week, observed over many weeks) does the metrics become a KPI.
While a KPI helps you measure performance and success, a metric is simply a number that needs to be assessed within a KPI.
Recent research reveals that setting realistic KPI targets help employees to perform better. Not just that, rewarding employees when they achieve or surpass KPI targets will incentivize their performance.
This IBM white paper explores how the right employee behavior can be rewarded and motivated by using KPIs. An interesting observation of the paper is to reward teams instead of choosing individual employees for rewards. This motivates entire teams to work harder to achieve set KPI targets.
Key Performance Indicators (KPI): The 75 measures every manager needs to know by Bernard Marr is an important book that can help you familiarize with using the right KPIs to evaluate employee performance and encouraging them to achieve KPIs set for other areas.
Conduct regular audits of the KPI targets and assess the metrics associated with each KPI. If they are under-performing, you might want to set a more realistic goal. If you have been consistently performing high, set yourself a higher target that is tied around time phases. Choose a different KPI is the one you have chosen is not getting you the result you need. You may also need to vary your targets consistently depending on your business success.
A neutral observer will help you take an objective look at your KPI performance, and provide you with a more realistic picture of your situation. Speaking to a consultant that specializes in KPI metric analysis helps.
KPIs help businesses to get back on track
KPI is a measurable value that helps businesses achieve targets. KPIs help businesses to understand and evaluate their performance so that they can be further improved over time. Choose the right KPIs carefully and make sure that they are specific in what they measure, quantifiable so that what you measure can be reduced to numbers, and that they can realistically be attained. They must also be relevant to your goals and success, and must always be measured against time. Once you choose your KPIs and set targets, you should continuously monitor and measure your chosen KPI metrics. Make sure to reward employees (preferably teams) who enthusiastically work towards attaining KPIs. Finally, always review your KPI strategy and make changes to it if need be.