What is a KPI?

A KPI, or Key Performance Indicator, is a metric chosen to measure your performance.

KPIs can be used to track progress across all levels of an organisation, from the overall business, to each department, all the way down to measuring each individual employee.

Any metric that can be measured and tracked can be a KPI. Here are some common ones from a sales and marketing perspective:

• Net profit margin (net profit as a percentage of revenue)
• Lead conversion rate (% of website visitors that turn into leads)
• Sales conversion rate (% of leads that turn into customers)
• Customer retention rate
• Employee turnover rate

While there is a lot of overlap in which metrics different businesses set as KPIs, the specific metrics you choose will depend on your department/ business goals.

Why are KPIs important?

The real value of KPIs lies in giving your team a unified direction, and motivating them to progress towards a common goal.

By setting specific KPIs, you can communicate your priorities to your team, allowing them to ensure their daily activities line up with the business aims. If each employee understands what you are collectively trying to achieve, they can make sure their day to day always contributes to the success of the team, however that is defined.

KPIs are also useful as a measure of your performance and whether your current strategies are working or not. If you’re putting lots of work into a campaign or project, you’re going to want to know whether it is achieving the desired outcome. Keeping track of KPIs is an objective way to do this.

Setting specific targets for KPIs can help to inspire new ideas for progress too. For example, aiming to increase website visitors by 10% in a month could be a great way to energise a marketing team to come up with new and exciting ways to achieve this goal.

How to define your KPIs

To truly benefit from the direction and motivation KPIs can give your team, it’s important to set the right ones, but how do you know what the right ones are?

There are so many metrics you could use, it can be difficult to know where to start in defining which to focus on. Here are our top 5 points to consider when you’re going through this process.

1. Start with your business goals and priorities

Consider exactly what you are trying to achieve. What’s the overall goal of the business, department, or team? Once you’ve clearly defined that, it will be easier to translate the goal into KPIs.

For example, if you manage a HR team and your goal is to increase employee satisfaction, your KPIs could include a combination of employee engagement survey statistics, and employee retention rates.

Or if your business priority is to grow as fast as possible, revenue or market share may be better KPIs to focus on for a while than profit margins.

2. Develop KPIs in collaboration with your team

To become a motivating force, KPIs must inspire employees as well as managers. You need your team to buy into them. That’s why it’s often more effective to encourage their input when setting new KPIs, rather than taking a top-down approach. Collaborate with your team to set the KPIs most suited to your team.

3. Consider how many KPIs to set

There’s a fine balance you must strike when considering how many KPIs to set. Too many will negate their benefits, by failing to set a clear direction or priority for your team.

However, putting too much emphasis on only one or two KPIs can lead to your team losing sight of holistic problem solving, and in some instances can encourage employees to ‘game’ the system. For example, if your sales team is instructed to focus on a single KPI, the number of meetings booked with potential clients, the team booking meetings with as many people as possible, regardless of the likelihood of the meetings leading to sales opportunities. The sole focus on one KPI may result in the quality of leads to diminish.

The solution to this problem is to set a small number of KPIs, but also emphasise that these should not be achieved at the expense of absolutely everything else. KPIs can be useful in giving direction and focus, without having to become the only performance indicator taken into account.

5. Keep KPIs under regular review

Even once you have defined your KPIs, they don’t have to be set in stone. A great business will shift its focus when the context or situation changes. So you should always have regular review dates for your KPIs, to ensure they still fit the direction you want to go in.

4. Make sure your KPIs are easily accessible

No matter which metrics you have chosen as your KPIs, they must be easily understandable and accessible to your team if they are to become good motivators. If people can easily view their KPIs in real time and track their progress, they are more likely to take KPI targets into account when planning their daily activities.

Creating a KPI driven culture will boost data literacy throughout your business. With an analytics platform like Power BI, you can create KPI dashboards that are easily accessible, interactive and secure and boost your competitive edge in the marketplace. Data is key and Power BI allows employees to drill down into the underlying data to gain insights and determine how to improve their KPIs, giving them drive and focus in their work and boosting your competitive.

Want to learn how Kagool can help you become more successful by setting up your own KPI dashboards and analytics? Please get in touch.