What Does KPI Mean in Business & How to Set KPI for Your Team
If you are someone who is always present in the company or employee performance meetings, then you are probably already familiar with the term KPI that stands for Key Performance Indicator. This could also mean a lot of other things in different organizations & departments. But in real terms, what does KPI mean in business? Let’s try to find out the answer to that and to some more key properties of it today.
When you are running a business that is wholly dependent on judging the key performance metrics of the company and employees then it is really essential for you to understand all the key attributes of KPI and how you should properly set the KPIs for your team. Otherwise, it will be like running a company without even knowing how it is performing and how its progress looks like.
So in easy words of key business terms, Key Performance Indicator (KPIs) are the metrics that are used to judge the performance of a company or employee tracking & analyzing the crucial factors of the organization’s success by the CEO’s or team leaders. The top management sees effective KPIs as the major focal point of the business processes & functions in order to measure the important growth and development towards achieving the company’s critical target and performance goals.
Now that we are clear about what does KPI mean in business, now let’s explore some other significant points revolving around the KPIs in today’s business world.
Types of KPIs
There are some subtypes in academic definitions for KPIs. Since it don’t really help us with understanding the important part i.e setting good KPIs, therefore we don’t really find it useful. But if you are curious about the different types of KPIs then here is what you need to know about them.
➡️ Strategic KPIs: This type measures the Monthly Active Users (MAU) which is like its progress towards the core objectives. It doesn’t get changed as regularly or checked every day as they are meaningful enough but not really fast-moving.
➡️ Operational KPIs: This type measures the things that need urgent attention on a day-to-day basis. For example the number of support tickets that are open. Depending on current priorities they seem to change fairly daily and it shows you the progress in real-time as well.
➡️ Leading KPIs: This type has the ability to indicate future results as well as show what is happening right at the moment. The sign up of subscribers can be termed as a good example of this as it shows the change in number in real-time.
➡️ Lagging KPIs: This one measure and shows how over time you have performed so far. To keep everyone focused and to show definite progress, it is the ideal form of KPIs. But they do not help you make day-to-day decisions as only after the fact, you can see your effect on them.
➡️ Tangible KPIs: Easy to measure and observe is what defines this type of KPIs. A good example of this is the Number of Clients or the Sales volume of your company.
➡️ Intangible KPIs: These are just the opposite of tangible KPIs above. Not too easy to measure nor observe. Something like trying to measure the satisfaction level of your customer.
All these different types of KPIs can be grouped together and measured in the different department of a company such as:
- Marketing KPIs
- Sales KPI’s
- Financial KPIs
- Customer Relationship Service KPIs
- Information Technology (IT) KPIs
- HR KPIs
- Manufacturing & Production KPIs
- Change Management KPIs
- Health, Safety & Service KPIs
Benefits of KPI In Business
The primary purpose of KPI is to help business executives make better data-driven decisions in order to enhance the performance of the business. And do this by utilizing its benefits like:
Motivating the Team
KPIs are able to bring out the team’s natural motivation by providing them something significant to aim for and showing their growth.
Tracking Performance & Progress
No matter whatever project you might be working on, by setting the right KPIs you will be able to track progress and improvement. This allows you to understand whether things are working for you or not, or do you need to adapt or follow a different approach. For example, you are working on a marketing campaign and suddenly there is a decline in sales conversion rate from it due to a usability problem. And so because you were able to identify the issues earlier, therefore, you are able to fix the problem quicker.
Clarification of Success
Right from the very beginning, KPIs define success and determine how you are going to measure it. This process of clarification of success is quite a well-defined method and establishes a level for evidence-based practice. Clarifying the success beforehand enables the executives to keep a track of whether they are going towards the planned direction or not.
It makes it clear to the team of your company what you are aiming for once you share the KPIs. It enables the team to focus all their attention on the things that you and your company most worry about. And if for any reason the strategy changes, KPIs are always there to drive them towards the new direction.
Benefits of KPI Dashboard
A KPI dashboard is where you get all sorts of KPIs related data and information in one place. It displays all the essential matrices that are required to track the progress and improvement towards personal KPIs as well as the team and company goals. Some of the major benefits of a KPI dashboard include:
- Measuring and evaluating business performance accurately
- Analyzing the return on investment (ROI)
- Finding issues providing easy access to performance metrics
- Optimizing opportunity of strategical identification
- Helping in data-driven decision making
Importance of Choosing the Right KPIs for Business
It is really hard to find and select the right KPIs out of the thousands of them that are present out there for the business. Instead of choosing the right one, people often end up measuring and reporting those reports and data that are quite easy to measure. This is just one of the many KPI traps on which many companies fall into. Not just that, nowadays people tend to pick the KPIs that everyone else is using. That too without even knowing whether it is the right one for that specific assignment or not.
Essentially enough the key performance indicators lay a ray of light on how business is doing. It would be impossible to comprehend and evaluate the performance of a company in a meaningful way without the KPIs. Choosing the right form KPIs help organizations to address the performance problem better than anything else. Without the right and designated KPIs to augment the importance and value, keeping the employees focused on business actions and tasks that are key to organizational success could very well be quite challenging.
In accession, KPIs are able to point out the future outcomes highlighting the issues based on measuring recent and past performance or business successes. This provides the executives of the company with a warning in advance and early direction on possibilities to boost the ROI. Having competitive advantages over the less data-driven rivals, the company is able to manage business operations quite proactively with such loaded information of KPIs, therefore it is imperative to choose the right KPIs for your business.
Right Approach to Setting KPIs for Your Team
We know that KPIs should always be well-defined so that for the teams and individuals, it is clear what they are really trying to achieve when they have proceeded to achieve it. Due to this reason, there is a SMART goal criterion that KPIs normally follow.
- S=Specific: Whether the objective is specific enough for everyone to understand what must be done?
- M=Measurable: Is the objective set can be measured?
- A=Assignable: Can the KPI be assigned to a team or individual?
- R=Realistic: Is the KPI realistically achievable?
- T=Time-bound: Any specific time frame for attaining the goal?
By setting the KPIs in this way, one can determine the outcome of it in two ways, i.e either pass or fail.
Now in order to determine the approach to setting the right KPIs, as a first step you should have a definite plan for the establishment of your business goals and objectives that you propose to track. Then the next step would be to determine the precise circumstances that will expedite the meetings of the set goals within a definite time-set.
The two major factors to establishing these steps are locating a calculable action and a certain timeframe. For example: Increase the sales rate by 15% over the next quarter. The details of it are crucial success determinants that will assist you to realize whether you are on the route to meeting the goals that you have set.
The last and final step is about setting the actual KPI. Now in this case of the example used above, your set KPI could be termed as ‘Percentage of new sales this quarter vs. sales compared with the previous quarter.
The Right Way of Measuring the KPIs
The metric that you are going to use to determine or measure the performance and progress should define as part of your KPI if you have taken the SMART KPIs definition into account discussed above.
Now here is how KPIs are measured in the right way versus its metrics.
|Publish ten new blog content each month of Q1||# of blogs published|
|Increase the number of organic traffic to sites by 10% each month||# of visitors/sessions from organic search each month|
|Make twenty sales each in each month of Q1||# of sales made each month|
|In Q1 update and republish five blogs each month||# of updated blog posts|
|Improve site ranking by 10% each month||# of % improved each month|
|Improve Domain Authority of the site by 1 point in each month of Q1||# of point of Domain Authority improved each month|
There are specific tools that each team of a company would utilize to measure the KPIs in the right way. So it will basically depend on the systems and department that they are on that will determine the tool that they will need to use.
Like the marketing team may use Google Analytics to measure their KPIs, the team leader of a sales team can rely on a CRM solution, whereas to judge the KPIs set for the employees, an HR manager can depend on a solid HRM solution that will tell them all the key matrices to measure their KPIs. However, the customer support team may use various desk reports to determine their full and final KPIs as well.
Whether each KPI and its associated tasks required have actually helped you achieve your higher-level business goals or not can get determined once your team makes headway towards fulfilling their KPIs.
More importantly, determining & tracking the key performance indicators that make sense for your business is the right way to measure it. And the one’s that you should monitor to measure it rightly include:
- Traffic of Site
- Rates of Conversion
- Time on site & Average Page Views
- Site’s Bounce Rate
- Number of Pages Per Visit
- Cart Abandonment Rate
- Retention Rate
- Source of Referral
- Source of Traffic
- Return Rate
- Value of Order (Average)
- Highest Traffic Content & Pages
- Conversions from Associates
- Sales Rate (Daily, Weekly, Monthly & Yearly)
Make the Best Use of KPIs & Determine Your Businesses’ True Progress
Nowadays, for almost all businesses and teams around the world, everything is about sales and performance. So this is why setting KPIs in the right way and then making the best use of it by assessing it would enable you to make better-informed decisions. Not just that it would also allow you to improve performance giving you enough ways to stay ahead of your competitors.
Moreover, using KPIs, one can measure the high-level strategic purposes of business like revenue. Having a team specific KPIs is also possible to measure. Like for example, Customer Satisfaction or response time is something that a customer support team lead would like to measure. The marketing team would want to measure the cost per acquisition, cost per ads as well as the retention rate. And a content team would get to measure the views of blog content, average time on site, bounce rate, etc.
So whatever may the reason be to use the KPIs, the key idea of it is to determine the true progress of the business or individuals. So that it can help the business owner make better decisions in order to improve the strategy of overall businesses’ performance in the future. And so in today’s competitive business landscape, it is highly essential to properly understand & set the KPIs in order to use it effectively. Once it is used adequately, it would right away provide you a powerful tool to accomplish all your primary business objectives.