What is a KPI? A key performance indicator — commonly referred to as a ‘KPI’ — is a quantifiable measurement of a business outcome, which a company can then use to evaluate how effectively it’s reaching business objectives.
Another simpler way of saying this? Simply that a KPI is a measurement you can use to understand if you’re doing well or poorly on reaching a particular business goal.
KPI As a Tool
A well-designed KPI is both a great diagnostic as well as communication tool. A good KPI is a clearly defined numerical data point that is directly relevant to your business goals, with its relevance being a key reason why it’s a good indicator.
A well-used KPI is lends itself to being concisely expressed, easily recorded, and quickly understood by all team members.
KPI reporting over time is one way to measure how the business performs within a specific time period, and therefore must be consistently, reliably recorded. Using graphs or other data visualization methods can help make the meaning of a KPI measurement clear.
What is KPI Reporting?
KPI reporting is the collection, presentation, and storage of KPI data. There are two key concerns here:
- How is the data collected? Depending on the size of your business and the extent to which you’ve integrated technology into your daily operations, the amount of automatic data collection in place varies widely. For example, you may have a customer relationship management (CRM) platform that automatically calculates numbers, such as number of business contracts closed, based on data your company is already inputting as part of its daily operations. Alternatively, you may need to start keeping track of a data point – such as time spent on a particular task – in order to track it; data that is manually input is less likely to be consistent, because of the error that may result from variable entry. If you’re going to need to set up manual data collection, make sure it is easy for different team members to repeat the collection accurately over time.
- How is the data accessed? If the data isn’t easily visible or handy to team members, they cannot use it. How simple is the data point to explain? How much does it make sense with the business goals? Where are the numbers stored? Additionally, good KPI data is stored so that trends over time might be monitored. Is the KPI expressed in a clear, concise way? How hard is it to apply modern data visualization techniques to the data? Factoring in all of these concerns ensures that the KPI reporting is usable, actionable, and well-understood. Again, consistency is key.
What are KPI Benefits?
A good KPI is a multi-tasking tool. It provides an objective evaluation of success, or of what progress is needed to generate success. Because of this, one of the key KPI benefits is that it is also a powerful tool for business communication.
In order to define a KPI, your business must have clearly defined goals; setting up KPI reporting facilitates this discussion. There will likely be several layers of goals and objectives to set, as the company might have specific long-term and short-term goals, but then each department and team will have its own sets of goals, broken down by timeframe.
Establishing KPIs drives accountability for defining these goals, while the KPIs themselves hold you accountable for reaching them.
Getting your colleagues on board with expressing their desired outcomes is critical to aligning your processes for success and discussing them effectively. The data points used for KPIs can provide your teams with a vocabulary by which to discuss progress. Accountability is one of the key KPI benefits.
You also need to make sure everyone is on the same page with the data being collected, which means both the number itself as well as how the number is defined. Periodically reviewing the KPIs to both check that they are still being measured well, and also checking to ensure they are still relevant, is one way of maintaining KPI health, as well as organically convening to discuss process health.
Another one of the KPI benefits is that it also empowers business teams to discuss exactly what solutions are needed in order to drive progress, as well as how to measure those solutions’ success.
What is KPI for Sales? What are KPI Examples?
A KPI for sales expresses some important characteristics of the company’s sales activity, indicating its relative health or flagging its need for improvement. Maximizing sales while minimizing business costs is a fairly universal goal, and so it’s no surprise that this is most commonly the primary sales objective.
As an organisation, you can break down that main objective into multiple layers of smaller objectives and attach one or more KPIs to each objective to monitor their performance over time.
This frequently happens in sales, as there can be both short-term and long-term sales goals. You will also need to tailor-fit your KPIs to match your business’ vertical, niche, how you document your sales and other business processes.
Sales KPI Examples
Some KPI examples of a good KPI for sales include:
- Annual, quarter, and monthly sales targets, which can be expressed in terms of both goal money amounts as well as percentage of growth.
- All of these sales targets, when placed over the sales goals, can tell you how far you are from reaching your sales goals.
- Annual, quarter, and monthly costs for sales, as well as the ratio between the cost of sales and the revenue generated.
- The ratio of sales leads to deal conversions, so that you can understand the rate at which sales leads are turning into won deals.
- Consider what actions your sales team is making to qualify and win leads. Are they placing phone calls, sending out emails, conducting demos, or even sending out proposals? Comparing these to the number of won deals is one way to quantify how effective your efforts are, while comparing each can help you identify which mode(s) of conducting sales are proving to be most effective.
- All of these comparisons can be broken down in terms of demographics like sales region. The level of comparison you can perform depends on the extent of detail available in your data.
One reason why companies resort to using complex CRMs is because of the advanced level of business intelligence – including KPI reporting – that is built into these platforms.
What is KPI for marketing? What are KPI examples?
Just like with the KPI for sales noted above, the KPI for marketing must express some important characteristics about the company’s marketing activity. However, setting the KPIs for marketing can get a bit trickier, because good marketing does not necessarily translate into immediate, quantifiable success in the same way sales does.
The critical term to keep in mind when trying to build a KPI for marketing is “conversion,” which denotes when a member of your audience interacts with your brand. Some moments of conversion – such as checking out a virtual shopping cart – translate closely to conversion of the public into consumers of your products, and the ultimate goal of marketing is to help drive sales success.
KPIs for Marketing
However, that’s not the sole goal. Good marketing is in fact oriented with building relationships with the public so that, ultimately, when they need a product in a specific niche, they turn to you.
So how do you quantify marketing efforts? You use a KPI for marketing – or a number of them – that relate to customer engagement with your company’s marketing materials. High-volume engagement means that your marketing materials are reach high volumes of prospective customers.
Again, the best KPIs are tailored to your particular organization: your business’ vertical, the data you already collect, your goals, and so on.
Some KPI examples of a good KPI for marketing include:
- Cost of customer acquisition, how much it costs to turn a prospect into a buyer
- Marketing qualified leads – their number as well as any details about them – as well as their rate of conversion into deals
- Email (open rates, click-throughs) and social media engagement (which can be broken down into more passive forms such as Facebook likes all the way through more active forms like content shares)
- Website traffic, which nowadays it’s easy to tie into demographic details as well, allowing you to better profile your market segments and understand who’s buying vs. who’s not
Summary: KPIs…a Business Essential
KPIs are vital for tracking the growth and success of any business, allowing your employees both to better understand how their efforts are performing while also allowing them to identify potential solutions.
Again, the more sophistication you are able to bring to your KPIs – by automating their collection, by collecting a wide range of relevant data points, by tracking them over time and generating reports that are clear and easy to digest, and so on – the better your business intelligence will be.
This all means it will be easier than ever to identify value-adds to help your business. Good luck!
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