Using Key Performance Indicators (KPIs) to Achieve GoalsOctober 7, 2019
Many individuals and businesses use key performance indicators (KPIs) to measure and define their success. While KPIs are most commonly used by organizations, employees can also use KPIs to set goals for their careers. Here’s how to set and analyze your key performance indicators effectively.
What are key performance indicators?
Key performance indicators are defined measurements that help businesses track performance over time. KPIs help both individuals and groups understand what it means to achieve success towards a goal. Organizations often evaluate these measurements to determine their progress and compare their business against competitors.
KPIs can be used to track progress toward goals of any level. Businesses typically apply them to measure the success of the entire company, departments, projects and even individuals.
As a result, there are different levels of KPIs. Key performance indicators that target an entire organization’s goals are called “high KPIs.” These indicators measure the company’s success as a whole. KPIs that target smaller projects, such as departmental strategies, are called “low KPIs.” Both are critical to helping a company achieve its objectives and identify ways to improve. Ultimately, low KPIs must contribute toward the high KPIs, or the organization’s overall goals.
Related: Guide to OKRs
What are KPIs used for?
Organizations use KPIs to help individuals at all levels focus their work towards achieving a set goal. Based on its measurements, the organization can make adjustments to tasks or goals over time. Employees can also set personal KPIs to gauge their individual success, guide their decision-making efforts and boost performance.
KPIs are sometimes compared to navigational tools like compasses or GPS systems. Similar to these instruments, performance indicators guide employees, managers and businesses on their strategic or financial journeys. If you’re measuring well on your KPIs, you can assume you have an effective strategy and should work to maintain it. If you aren’t, your key performance indicators will help you identify where you need to improve.
By tracking performance indicators, employees can better understand their career development and businesses can evolve with the market. In both cases, you can make the necessary changes quickly and try to stay ahead of the competition.
Types of KPIs
A company’s key performance measures will vary depending on the industry and the organization’s objectives. For example, a technology company might measure growth by comparing each year’s earnings, while a retailer might look at same-store sales.
Some KPIs will be more quantitative than others. For example, earnings are generally much easier to measure with hard numbers while user satisfaction with a product, service or site is open to interpretation. Performance indicators can be based on finances, customer service, marketing, sales, manufacturing, human resources, supply chain and more. Below are some possible KPIs for different industries.
Sales and finances
Examples of sales and finance-based KPIs might include:
- Earnings before interest, taxes, depreciation and amortization (EBITDA)
- Net profit (how much revenue the company retains after paying taxes, expenses, etc.)
- Gross profit (how much revenue the company retains after deducting the production cost of goods sold)
- Costs (to figure out ways to lower them)
- A comparison of projected vs. actual revenue
- A comparison of expenses vs. budget
- Debt vs. equity ratio
- Day sales outstanding (DSO) (the average number of days it takes to receive payment after a sale)
- Regional or national sales
- Sales from new customers
- Repeat sales revenue
- Proposals issued and/or lost
- Deals closed
- The number of prospect meetings across a set period
- The number of returned items
- The number of online vs. in-store sales
- Inventory turnover (how long it takes for products in inventory to get sold)
- Average sale size
- The cost of maintaining sales staff
Examples of marketing key performance indicators might include:
- Dollars spent on marketing over a certain period
- Online traffic (the number of visitors to the company website)
- Organic online traffic (the number of visitors to the company website via search engine)
- Web traffic (to determine how many visitors are new vs. returning)
- Mobile traffic
- Click-through rate (the ratio of web traffic that clicks on a particular ad)
- The number of visits to a particular piece of content
- SEO rank (where your web content appears in search engine results for certain keywords)
- Social media traffic growth
- Sales revenue earned from online marketing campaigns
- Marketing qualified leads (a potential customer who has indicated he or she is likely to buy the company’s product or service)
- Sales qualified leads (a potential customer who’s been researched, vetted and determined likely to buy the company’s product or service)
- Cost per lead
Examples of customer service-based key performance indicators might include:
- Customers gained over a set period
- In-store foot traffic
- Percentage of customers who don’t continue paying for service or buying products
- Cost of customer acquisition
- Customer lifetime value (to determine how to best gain and retain customers)
- Customer retention
- Customer satisfaction or customer satisfaction score
- Survey-based net promoter scores (to determine whether customers would recommend the company to others)
- Customer support tickets and their response or resolution times
- The number of calls to customer service
- The number of customer complaints via email, phone or other methods
Human resources and employment
Examples of human resources or employee-based key performance indicators might include:
- The number of new hires
- Cost per hire
- The number of promotions
- Employee turnover
- Employee satisfaction via survey responses
- Retirement rate
- Absenteeism rate (to determine how much productivity has been lost due to employee sick or personal days)
- The rate of training and development based on test scores pre- and post-training
- Salary competitiveness ratio (to determine how your company’s average salary compares to your competitors or the industry as a whole)
Examples of key performance indicators employees might use to track their own development include:
- Personal targets such as sales quotas
- Project completion within a certain time frame
- Units processed or issues resolved a day, week, month, etc.
- Speed of work
- Customer satisfaction
- Job satisfaction
Choosing key performance metrics
To make sure you’re measuring relevant information, it’s important to choose the right key performance indicators. This will help you save time, money and resources.
There are many KPI options, so you’ll need to research which metrics are best for your industry and strategy. The performance indicators you choose should be measurable, clear and relevant to your goal.
Follow these steps to choose and implement key performance indicators:
Determine your end goal. Create a clear vision of what you are trying to accomplish. Keep this objective simple and straightforward.
Create your KPQs. Once you can identify a question (For example, “What processes are costing the company the most money?”), it will be easier to determine which indicator or data set will provide the information you need. See more on KPQs below.
Identify what data you already have. Before coming up with metrics to address your KPQs, see if another department or manager is already collecting that information. If so, you can simply adjust the equation and apply it to your business strategy. Collecting existing data can also ensure you’re setting a realistic target for your KPI.
Collect supporting data. Take time to collect statistics on industry trends, demographics and competitors. Use this information to inform your key performance indicators. However, avoid simply measuring the exact same KPIs as your competitors. Every business is unique and what works for one company might not work for another. Dedicate time to clearly pinpoint what metrics will benefit your company.
Determine how frequently you’ll measure each KPI. You’ll need to gather information at the intervals appropriate for your needs. Monitor KPI status to make sure it’s still useful and tracking the information you intended it to.
Set short- and long-term goals for the performance indicator. If your long-term goal is to sell 2,400 memberships to your service over the course of a year, you’ll want to divide it into short-term goals you can assess. In this scenario, you might try reaching at least 200 new memberships per month. Then, you can use this rate to determine whether you need to change expectations or strategies as you go.
Delegate responsibility for KPIs. Make sure an employee or a manager is in charge of assessing each key performance indicator and of collecting, interpreting and presenting that data.
Share KPIs with the company and stakeholders. Be transparent when discussing performance. Contribute to your organization’s success by communicating strategies, progress and outcomes. It’s essential all team members are aware the objectives so they can work towards them and provide feedback as necessary.
As you can see, key performance indicators aren’t static, and it’s crucial you update them as your organization’s needs evolve.
Tips for choosing KPIs
You can also use SMART (Specific, Measurable, Attainable, Relevant, Time-bound) principles to determine if a key performance indicator is of value. These principals are:
- Is the goal you’re targeting specific?
- Are you able to measure progress toward meeting that objective?
- Is the goal attainable?
- Is the goal relevant to your company and its strategy?
- Within what timeframe do you expect to achieve your objective?
Here’s a resource for more information about setting SMART goals.
For KPIs to be useful, you might also consider developing key performance questions (KPQs), or the questions that determine whether you’ve met the objective. When crafting KPQs, try to avoid simple yes-or-no questions such as, “Have I met my sales quota?” Try to come up with open questions that are thought-provoking such as, “How well am I marketing my product portfolio?”
The answers to your KPQs will give you the information you need to make well-informed decisions and set more productive goals.
Creating a KPI template
When developing new or enhancing existing key performance indicators, it’s helpful to follow a basic formula. Here is an example of a completed template.
Customer satisfaction score
Goal: What strategy is the KPI aiming to measure?
The KPI measures how well we are boosting customer satisfaction.
Audience: Who will this data be presented to?
The data will be presented to the company’s board of directors.
Access: Who will be able to gather and access this data?
The digital marketing department will gather and acess the data.
Key performance question: What question does this indicator answer?
It answers the question, “How happy are our customers with our service?”
KPI use: How do you intend to use the data collected?
We will use the data to evaluate our relationship with our customers.
Data collection source: How will you collect this data?
We will collect the data from online surveys emailed to existing customers.
Collection frequency: How often do you need to source KPI data?
We need to source the data monthly, from a random sampling of our customers.
Reporting frequency: How often will you report on findings to maintain current information?
We will report these findings monthly.
Responsible party: Whose job is it to collect and enter this data?
Digital marketing assistant, Jarrod Smith.
Assessment: How will you gauge your company’s performance in this area?
We will gauge a performance on a 1 to 10 scale, with responses of 7 and higher considered positive.
Targets: What is your goal for this indicator?
Our goal is to increase customer satisfaction to 75 percent positive over the next two years.
Expense: How much will it cost to collect and analyze this data?
The cost of building the online survey and the hours the responsible party dedicates to this project.
Usefulness and limitations: Does this KPI answer the original KPQ well, and does it have any limitations?
We’ll receive an accurate score on the level of customer satisfaction but anticipate limited customer feedback on what we could improve.
Unintended consequences: How could people negatively influence this data?
Only customers that are unsatisfied may choose to complete the survey.
Expiration date: When will this KPI expire or need to be revised?
We will review the KPI every year to ensure it remains relevant.
Creating a KPI report
Once you’ve measured a key performance indicator, it is wise to summarize your performance in a KPI report. This is typically a helpful step for project leaders, team leaders, managers and supervisors.
Often, leaders will present this report to stakeholders, such as company management, department heads or other employees. Here are a few helpful tips when preparing your presentation:
Be concise: Your report should be succinct and easy to understand. Consider refining your data to only the crucial takeaways.
Use visuals: Charts and trend graphs can make results easier to retain.
Simplify technical information: Be sure to explain technical terms using resources such as glossaries.
Be truthful: Be honest, regardless of the results of the report. If a key performance indicator shows the company or department did not reach its goal, craft a plan for how you’ll achieve better outcomes in the future.
Include historical data: If the company has run previous metrics on this key performance indicator, compare current data with past data to evaluate progress.
There are four main KPI report categories you might create depending on the information your audience needs and your goals:
Analytical: This report details the KPI and works to explain what impacted your results most. This might include historic KPI data for comparison.
Operational: This report provides data about how KPIs measure an organization’s daily operations so management can make well-informed decisions.
Strategic: This report reflects the health of the organization and its progress so stakeholders can determine whether the company is meeting goals.
While your report should certainly be written to address the needs of the audience in a way that appropriately reflects your goals or projects, there are a few key pieces of information that might be helpful to include.
Here are a few examples of key information you might include in your KPI report:
Goal: Clearly identify which objective the KPI is evaluating.
Metric: State the quantifiable, relevant and actionable key performance indicator you’re using for measurement purposes
Rationale: Explain why the company chose this KPI and how the resulting data contributes to the company’s success.
Frequency: State how often you measured your key performance indicator and at what frequency you’ll re-examine it.
Source: Identify where you gathered the data and consider sharing a formula for calculating the data.
Visual: Use a chart, table or graph for easy comprehension. If applicable, compare it with previous visuals of the same type to track progress over time.
Comments: Here you can briefly add any other relevant information or interpretation of the metrics you obtained.
Schedule regular updates across the lifespan of the KPI to present and compare data as it changes. Monitor progress and determine how often you’ll present your findings to stakeholders.
Follow this guide for tips on how to give a presentation in case you need to present your KPI report.
How to define key performance indicator success
Before spending time and resources on analyzing the success of your KPIs, it is important to first define what it means to achieve success.
Here is an example of a sales team’s KPI framework that defines exactly what it means to achieve success by asking a few simple questions. Your questions can vary depending on the KPI, your industry and your goals:
What result do you want?
To boost sales-related revenue by 15 percent within the next 12 months
Why is that outcome important?
This growth will help the company to remain profitable
How will you define progress?
Increased revenue in dollars spent
How can you affect the result?
By promoting our product and brand and bringing on a new salesperson
Who is responsible for the resulting information?
The sales director
How will you know you’ve reached your end goal?
If revenue increases by 15 percent within the next 12 months
How frequently will you assess progress?
Failing to reach a goal doesn’t mean that selecting that KPI was a bad decision. On the contrary, you can use the data you collected and the information you learned to improve performance in the future. By identifying your shortcomings, you can make adjustments accordingly.
For example, using the example above, you might consider the obstacles team encountered that prevented the company from hitting its 15 percent sales revenue increase. Remember that KPIs are designed to help companies and individuals make sound business decisions and to continually improve.
##How KPIs apply to employee goals
You can apply the above strategies to achieve your own goals as an employee. Setting a goal for yourself and measuring it with relevant KPIs can help you stay on track and achieve it.
Consider beginning by aligning your goal and your KPI with that of your department or organization. This means your success is also your company’s success.
Here’s an example, if a company’s vision is to create high customer satisfaction:
Company goal: to lower the percentage of unsatisfied customers by 30 percent
Employee goal: boost settled complaints by 15 percent during a specified period
Company KPI: unsettled customer grievances each week
Employee KPI: of the issues you deal with personally, measure the percentage of satisfied complaint resolutions vs. unsatisfied complain resolutions
Your success should contribute directly to company goals. Using KPIs, you and your manager can track whether you’re hitting your target goal and take the appropriate steps to get there.
You can also use KPIs to track your professional growth and success within a company. For example, you might compare data over time using metrics such as your speed of work, accuracy, level of responsibility or quality work to determine whether you’re improving. If so, you know that you’re adding value to the company. If you’re not meeting your goals, you might consider adjusting your focus and resources accordingly.
KPIs can help you plot career objectives by setting short and long-term development goals, too. Short-term KPIs might be daily or even hourly, such as how long it took you to complete a particular task. These are real-time indicators of your performance and ability to meet deadlines. Long-term KPIs track career goals over months or a year and help guide your progress.
Be sure to record and keep the KPI data you collect so you can use it as an example of your career growth when seeking promotions or interviewing with other employers. If you’re starting in an entry-level position, set KPIs that reflect your core responsibilities as well as your potential. Choose performance indicators that will benefit your employer while supporting your professional goals. Present these metrics in future interviews as you progress to higher positions.
Using key performance indicators, companies and individuals can gauge their success and progress. These metrics can help you and your company make well-informed business decisions, boost performance and understanding your standing in the industry. With a thoughtful KPIs you can track your professional progress to make smart decisions, meet goals and improve performance.