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What are KPIs? | That’s it

Key performance indicators (KPIs) are data that measure how effectively a business is progressing toward achieving a strategic business objective. These metrics can reveal how well teams or the business as a whole is performing over a period of time.

The late Peter Drucker—the father of modern management—once said “[i]if you can’t measure it, you can’t fix it.” This system is done through KPIs.

Let’s dive deeper into KPIs and answer some of the following questions:

  • What is a KPI?
  • What are some examples of KPIs?
  • How do you create KPIs?
  • Do small businesses need KPIs?

What is a KPI?

The term ‘KPI’ stands for ‘key performance indicator.’ Over the past decade, the term has gained a lot of traction as technology and other new businesses develop management strategies and set goals based on these key data points.

A KPI is simply a metric that measures performance, or is used to evaluate a particular activity in order to achieve an overall goal. For example, if you are trying a new diet (workout) to get healthier (goal), you can use weight (lbs) as a KPI. If you have lost 3 pounds after a week, the weight KPI will show that the new diet is helping you reach your ultimate goal of good health.

In the business world, KPIs measure action against an organization’s strategic objective. By measuring a KPI metric before starting a project and again at the end of the project, a change in that KPI metric—positive or negative—will reveal how well that person or team performed on that task and how important that task was to that task. the main goal.

For example, if your business goal is to keep your top performing employees from leaving, you might decide to implement weekly happy hours for 6 months to improve employee satisfaction.

You can use the KPI of employee attendance at those happy hours over a 6-month period to measure performance. If there is a positive trend in the attendees and you see a few high performing employees leaving, you can feel confident that the activity is working and will help you reach your ultimate goal.

Examples of KPIs.

At this point, we have an idea of ​​what KPIs are, but let’s actually see them in action. Below are a few KPIs based on areas of business where they can help the most—and remember that this is just the tip of the iceberg. There are thousands of KPIs in every business environment, and many can be used to measure different objectives.

Examples of KPIs for sales

  • Cold calls: How many accounts have you hit?
  • Leading: How many new prospects are found?
  • Sales calls: How many prospects were referred to the sales call?
  • Total new customers: How many new customers were brought in?
  • Net worth: How much sales revenue was earned?

Examples of Customer Service KPIs

  • Customer retention rate: What is your customer benefit?
  • Net Promoter Score (NPS): How likely are your customers to refer your business?
  • Average response time: How long does it take your team to respond to customers?
  • Customer lifetime value (CLV): How much do customers spend with your company in their lifetime?

Examples of productivity KPIs

  • Energy consumption: Is your production line at full capacity?
  • Overall equipment effectiveness (OEE): Is your equipment working properly?
  • Error rate: Do you maintain quality control?
  • Return rate: Are your customers satisfied with your products?

Examples of HR KPIs

  • Employee satisfaction index: What is the passion of your company culture?
  • Number of absentees: How often do employees make mistakes at work?
  • Employee benefits: What is the attrition rate of your employees?
  • Level of variation: How effective are your inclusion and diversity practices?

KPI examples for advertising

  • Customer acquisition cost (COCA): How much does advertising pay per sale?
  • Click through rate (CTR): How often do leads click on your ads?
  • Return on investment (ROI): How much do you earn per dollar spent on advertising?
  • Impressions: How many eyeballs see your ad?

KPI examples for marketing

  • Email open rate: How often do people open your email marketing?
  • Page views: How many visitors come to the website?
  • Organic social media reach: How big is your social media audience?
  • Event attendance: How many people attended an event hosted by your business?

How to create KPIs.

KPIs are part of goal setting, and their purpose is entirely based on a few key factors:

  • Compatibility: KPIs must be goal-oriented—that is, the metric must directly affect the action tied to the goal. Take the previous diet and health example: the KPI of average hours slept throughout the week will not measure the effectiveness of your diet because sleep is not related to the activity we are evaluating (weight loss), or it can be linked to a larger one. the goal of better health.
  • Rating: You need to be able to measure your KPIs to do any testing. Determine how to gather the data needed to effectively measure any KPI you choose—and do so before you begin to ensure you have the necessary baseline against which to measure.
  • Specifications: KPIs are tied to goals, and goals need to be defined. The narrower your goals are, the easier it will be to evaluate the effectiveness of the action.
  • Time: Create a deadline to hold yourself and your team accountable for work. Remember that too short of a timeline may not give you a solid sample size to measure a KPI—and too long of one may skew your results, too.
  • Fact: Are your goals and your actions related to those goals realistic? For example, you cannot expect to double sales in 30 days if you increase your advertising budget by 10%. Don’t set yourself up for failure—take a proactive approach to goal setting and be realistic about your expectations based on what you’re willing to invest in the project. A KPI is simply an assessment of that performance, but if it doesn’t align with your chosen goal, you’re less likely to see a positive trend in your metrics.

How important are KPIs to small businesses?

A big question for small businesses is whether you really need to use KPIs. Short answer: you probably already do.

KPIs are just another way to measure your business performance, and many business owners already focus on the metrics they feel are most important. If you run an Amazon store, you probably look at your daily sales and estimate that from yesterday, last week, or last year. If you have a bakery, you probably monitor which items are sold and which ones you discard each day, and you may be adjusting your cake production based on this information.

Whether or not you call them KPIs or use a different goal-setting strategy to measure metrics is irrelevant. What is something The key: taking the time to evaluate your performance and making strategic decisions based on that insight.

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