KPIs are the business equivalent of a compass. They show where your company is headed (orientation) and how to get there (navigation). But both tools - a compass and key performance indicators (KPIs) - are useless if you don’t understand how to use them. As we look at the guidelines for choosing metrics to orient and direct your business, it’s important to keep in line with the purpose of KPIs.
Purpose of KPIs and Guidelines
A good way to tie the purpose of KPIs to the three guidelines for choosing them is an acronym - TIE. (See what I did there?) Simple and effective KPIs are Trackable, Important, and Explainable. Let’s look at each of these in detail.
One of the primary purposes of KPIs is to track your progress as you improve and grow your company. And quite naturally, the most effective KPIs are trackable. This not only means the measuring metric itself - such as monthly recurring revenue, but also the goal or benchmark for that KPI (e.g. X% increase month over month). Setting a goal for your KPI helps orient you by demonstrating how quickly you’re progressing toward your goal. Always try to keep your KPIs in the context of either a relevant industry benchmark or the long-term vision for your company. Metrics in isolation can be easily misinterpreted or create a false reality.
When used properly, KPIs show the most important focus of the company and unite employees in pressing toward that goal. In order to achieve this singular, united focus, select one primary KPI for the entire company. At Geckoboard, this KPI is monthly recurring revenue (MRR). Two questions can help determine what your one important KPI should be.
- What main objective are you trying to achieve?
- How will you know if you’ve achieved it? (Or what’s the best indicator?)
Once you’ve identified this company-wide important metric, then outline supporting KPIs for individual teams. Using the MRR example, some supporting metrics might be average revenue per account, conversion rate from trial to paying customer, number of web sessions, etc.
Each supporting metric should directly impact the one important KPI for the company. This approach is a similar approach to a waterfall model since every subsequent metric is a more targeted version of the primary metric. All employees should know both the one important KPI and the supporting KPIs they directly impact.
If people don’t understand or even know what the business KPIs are, how can they help achieve them? Explaining KPIs is critical since it empowers employees to achieve their supporting metrics as well as the one important KPI. This means humanizing data so it’s easy for anyone in the company (i.e. not just data analysts or CEOs) to digest and take action.
One of the best ways to make your KPIs accessible is to use a TV dashboard that’s understandable at a glance. Employees who know and understand their company’s target metrics are able to generate better ideas, test possible solutions, and actively solve issues together.
Keeping Your KPIs Simple
Simplicity and clarity around KPIs come when you do the hard work of identifying the most important metric, tracking it against a goal/benchmark, and communicating it to everyone in your company.
The most effective KPIs are simple. But don’t be fooled, that often means sorting through lots of complex metrics to find the right ones. Take heart though - the effort you exert to keep your KPIs simple will unite and empower your team to achieve what really matters.
Knowing how to use KPIs will keep your company moving in the right direction, just like a compass.
Curious about visualizing your KPIs on a TV Dashboard? View our KPI dashboard examples.