Growth is vital to business, but it’s just as important for a business to understand how it’s growing and how well every department is doing. It’s not enough to know that customers love your company, that sales are being made, and that your marketing is working. You need to know exactly what that looks like, and whether it’s improving from one financial period to another. That’s where KPIs are important.
What KPIs Are and Why They Matter
KPI stands for “key performance indicator,” and it refers to a metric that’s selected in order to measure and compare the demonstrable efficacy of a company to achieve its business goals. The important aspects to take away are that KPIs are measurable, and you ought to be tracking KPIs to compare monthly, quarterly and annually. (With some metrics, you might want to consider even smaller periods of time, depending on the needs of your business.) This helps you determine whether or not you’re meeting goals within a given period.
It’s not uncommon to hear about KPIs in a corporate environment, but a little under half of small and medium businesses fail to identify KPIs. Businesses that do track KPIs regularly are about twice as likely to hit their targets. For one thing, it helps owners and other important staffers have the means to do a business health check.
For instance, “customers love your company” is a KPI in the form of the percentage of your customers that would recommend your business or buy from you again, and you can see whether that number has increased or decreased since the year before. These types of KPIs can also be important to show shareholders or investors the growth and success of your company.
KPIs can also help with internal processes and communication. For example, “sales are great” can become hard data reflecting how many new customers have been brought in and how many sales are closed with loyal customers that make bigger purchases. This allows a business owner or marketing director to set realistic goals and sit down with the sales team when those numbers aren’t being met. At the same time, you would also be able to see whether or not the sales team is converting a reasonable number of potential customers that come in. If the numbers that are coming into your store are going down, this could imply that your sales team is efficient, but another factor—perhaps marketing—isn’t performing. Sit down to have a discussion about what isn’t working, rather than assume it’s one department or the other.
5 Types of KPIs
Though every business is unique, there are five major categories of KPIs that successful businesses track and each covers a host of metrics you can customize to best suit your business. Note that sometimes metrics will overlap—for instance, some of your financial KPIs could also act as or impact your growth KPIs.
1. Marketing KPIs
Your marketing KPIs measure the deployment of specific marketing strategies and techniques and the impact they have on conversions to sales as well as your brand awareness and positioning. Sample metrics include:
- Number of qualified leads per month
- Conversions per channel
- Cost per conversion by channel
- New versus returning website visitors
- Click-through rate for digital ads
- Radio or TV reach
- Video views
- Total time spent
- Average time spent
- Landing page traffic and conversion
- Cost per acquisition
- Engagement rate
- Movement of products featured in ads
- New versus returning customers during an ad campaign flight
If you haven’t previously advertised, it will make sense to take year over year measurements to fully understand the impact of your investment.
2. Financial KPIs
These examine your financial health and success. For example:
- Operating cash flow
- Number of accounts payable
- Vendor expenses
- Amount of long-term debt
3. Growth KPIs
These demonstrate how your business is growing and expanding. For example:
- Overall revenue growth
- Sales quota attainment
- Accounts receivable turnover
- Net profit margin
4. Operational KPIs
These cover the internal operations of your business to help you identify which areas are most successful, pinpoint inefficiency and determine where more investment or cutbacks are warranted. For example:
- Time it takes inventory to move off the shelf
- Shipping times
- Production times
- Staff turnover
5. Customer KPIs
These measure areas related to customer satisfaction and retention. For example:
- Number of repeat purchases
- Number of referrals
- Number of customer service complaints
- Speed with which complaints are resolved
Choosing the Right KPIs for Your Business
Knowing that you need to track KPIs isn’t enough. You need to know how to track KPIs that matter most for your business. So when you’re choosing your KPIs, ask yourself some questions:
- Do they match your business goals?
- Do they speak to your strategy?
- Do you have the means to track them?
- Can you act on the changes needed, as reflected by those KPIs?
Tips to Get Started
- Always rely on hard data, not assumptions. Numbers offer an objective picture of your business.
- Don’t start by choosing KPIs based on all the data you already have available. Identify what’s meaningful for your business, then gather and examine the data you have in order to understand where you are now (and what needs to change).
- Strategically build processes to collect the data for the right KPIs and get the tools you need to track and record them.
- Don’t be afraid to turn to your media partners for help with marketing KPIs. They understand the current best practices and have the latest tools. They can also help you understand how the metrics impact your marketing and your business.
Tracking KPIs is vital to running your business successfully while continuing to grow and exceed the goals you’ve set for your company. While some KPIs are universal (like revenue growth), others will vary by what your company needs and how it operates. For instance, marketing KPIs you track may vary by campaign since the specific goals may differ. Remember that there’s no one-size-fits-all solution. You need to commit to tracking KPIs that matter to your business and your needs.
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