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All About KPIs

Updated October 17, 2023
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All About KPIs

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All About KPIs

If you’re a team member, you’ve heard about KPIs, whether they’re meeting with the company in a strategy or planning session, or even an informal kitchenette chat when you’re getting your third coffee of the day.

It’s true that most employees understand KPIs are crucial, but when it comes down to knowing the meaning behind them, the reason they’re necessary, and how to make the most of them, the picture is somewhat hazy.

Let’s start with the million-dollar question.

What exactly is KPI?

The KPI acronym refers to key performance indicators. It’s a measurement that evaluates how projects, departments, or individuals perform in relation to strategic goals. KPIs can be used to allow users to assess whether they’re progressing or whether the company is in the right direction.

For example, the social media team could have KPIs related to followers and retweets gained each week. For teams working on social media, they need to consider these metrics, which determine whether they’re achieving their objectives.

Apart from keeping you in line with your objectives, KPIs offer additional benefits too.

The reason why we need to utilize KPIs?

KPIs are beneficial as they:

Reward employees: key performance indicators are able to monitor progress at an individual’s level. If the KPI of a sales team is the number of monthly sales per individual, team leaders can quickly determine how each employee contributes to the success of the department by deciding whether or not they achieve their objectives.

Allow managers to make adjustments: Once managers have KPIs established, it is easier to alter the plan in case individuals or teams fail to meet their targets. This doesn’t have to be a matter of firing the worst performers; it could be giving additional guidance and training to those who are struggling.

Be sure that everyone is on the same platform: it’s likely individuals have different views of success. For instance, if you have an IT colleague and a financial analyst collaborate on a particular project, they’ll probably evaluate success in different ways. KPIs establish a baseline and set common goals that everyone can work toward, setting goals and expectations clear from the start.

Check a company’s health: KPIs help businesses observe how their business is doing. For instance, financial KPIs demonstrate profitability, while the retention rate of employees can reveal the quality of a company’s organizational culture.

Like KPIs, which have a myriad of advantages, they also have various approaches to them. That’s why KPIs don’t have a single size that fits all however, they generally be classified into several categories.

What are the various kinds of KPIs?

Certain KPIs are considered high-level, while others are low-level within a company. Some KPIs are geared towards the short-term and are defined in days or weeks, while others are longer-term and are measured in years or months. When developing KPIs, it is sometimes beneficial to separate them into different categories. Some of the most commonly used types are:

Operational metrics that measure the efficiency of processes as well as efficiency within an organization. They show how things are running from day to day. Naturally, they’re usually evaluated on a smaller timeframe than other KPIs.

Strategic key performance indicators concentrate on longer-term and big-picture goals for a company. Strategic KPI could be something like revenue growth. When a CFO has the time to look at this KPI, they’ll have an idea of how the company is performing.

Leading or Lagging: a lagging KPI evaluates past achievements like sales from the prior year. A leading indicator provides a forecast of what is likely to happen in the near future, for example, customer satisfaction. Many companies benefit by using a combination of leading and lagging KPIs.

Quantitative or qualitative: many KPIs are quantitative and are easily tracked and assigned a number, such as the number of leads that are qualified through blogs. Qualitative KPIs are less than a number but are more like satisfaction with employees.

The above KPIs are beneficial throughout the ups and downs of the company’s structure. It’s more efficient to break them into more minor hierarchies.

In general, you can utilize KPIs for three primary levels of business

1. The executive-level

KPIs for organizations or companies typically concentrate on a company’s overall performance and health.

Although the company’s KPIs are top-of-the-line, ensure that they focus on specific areas of the business to ensure that you are able to precisely determine them.

The company’s KPIs could be based on employee retention rates or the lifetime value of a customer.

2. The departmental level

Teams and departments have distinct KPI needs. It’s only natural since they’re focusing on particular outcomes. KPIs at the departmental level can include onboarding times for human resources, or for Marketing teams as well as conversion rates for specific campaigns.

3. The project at the project level

The KPIs for projects are typically more precise than those at the departmental or organizational level. For projects, the critical performance indicators evaluate the performance of the project before, during, and even after the project is completed.

Once you’ve understood the reasons we require KPIs and some places to make use of them, you may be thinking about how to develop them.

Making Successful KPIs Starts by Making Plans

Before you decide on the KPI ensure that it is linked to a strategic goal. It’s crucial to understand what needs to be measured and how to determine it.

Choose which KPIs to utilize

In the previous section, we have discussed a range of KPI kinds, from the operational level to quantitative, from company-level to project-level. It is here that you will be able to determine the levels of your organization you want to track. Does the KPI relate to the whole company, a particular group, or even a specific project? Are they strategic or operational in the sense that it is strategic? What are you hoping to accomplish?

Here are some other questions you can ask

  • What is the significance of this result?
  • Who is accountable for the result?
  • What can be the outcome controlled?
  • How do you gauge progress?
  • How often do you assess your progress?
  • What will you know when you reach your objectives?

Set your KPIs clearly

Once you have a clear idea of your objective is, write it down and keep it super simple. Ideally–and this is especially true for transparent organizations–everybody should be able to understand what your KPIs measure and how to interpret them. The team members will be better able to make decisions and accomplish more by understanding the goals they’re doing to reach.

Inform your KPIs about the results

A KPI doesn’t really add value to the company if it’s never communicated. Consider how well sales teams work; generally, there’s a certain KPI that keeps them engaged and on the right path. Consider if the same team did not have goals or targets. How would they decide to allocate their time? Do they have the drive to exceed and meet prior achievements? How will they perceive their role in the company?

The communication of the key performance indicators makes it easy to understand not just the goals you’re trying to reach but also how this will influence the company’s performance. Tips: Instead of notifying team members of KPIs prior to when it’s the beginning of an exciting fresh project or at the beginning of a quarter, keep reminding them of the objectives.

Continue Refining KPIs as Time Passes

The process of creating and monitoring KPIs isn’t a one-time thing to do. To maximize the value of this information, it’s essential to maintain the process and adjust it as needed. For instance, a retailer business could measure the amount of inventory lost in case it’s damaged or taken, or the result of a clerical mistake.

When establishing the KPI, the company can determine the average value of inventory lost however, they won’t be able to stack the numbers against their own business until they have more information to use. This is why it’s crucial to check and refine your KPIs as time goes by to be able to better understand what you’re doing and where you could improve.

Be Smart in the Creation of Solid KPIs

A common and effective method to establish KPIs is to use the structure of SMART.

What exactly is the SMART structure?

The SMART acronym applies to setting goals. Teams frequently utilize it to measure goals that are related to personal development, employee performance, and management of projects. The acronym SMART means:

  • Specific: Does the KPI contain enough information to evaluate progress accurately?
  • Measurable: Which method will be used to evaluate your progress?
  • Attained: What is the KPI? Is it real?
  • Relevant: Is this KPI helpful to your organization?
  • Time-bound: What is the time frame for achieving this KPI?

SMART is usually a successful formula for developing effective KPIs. As you can see from the above bullet points “increase sales”  doesn’t satisfy the SMART KPI standards, but “increase revenues by 10 percent before the close of the calendar year’ is a tangible target that can provide enough context to be able to assess the performance and improvement.

SMART KPIs of Departments

Sales

  • The average order value will increase by X% over the timeframe
  • Find X qualified opportunities in the timeframe Y
  • Capture leads inbound to X by using Y timeframes and the Z method

Marketing

  • Improve conversion rates by X% in the timeframe Z
  • Earn X sales qualified leads by Y timeframe, per person
  • The value of the lifetime of a customer by X months by using Z strategies

Finance

  • Increase your gross margin of profit by increasing it Y timeframe
  • Make it to Net Profit Margin of X by the at the end of the quarter
  • Reduce the operating cost ratio to X% or less throughout the year.

IT

  • Resolution time for lower tickets to X in the Y timeframe for customers A
  • Support tickets are open for X amount of tickets in Y number of hours
  • Reduce the time spent on downtime by X over the next Y weeks

Customer Service

  • Increase the number of phone calls handled per hour, from B
  • Improve the customer’s satisfaction within a timeframe of Y.
  • Lower average wait time for calls and average handling time of X minutes, to B by the end of Q1

Perhaps you have a few KPIs you’ve been thinking of to keep track of. While you could do this on your own, we’ve got better options to gauge your performance.

 

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