Companies today have data constantly coming at them from all sides, from product usage information to customer support queries to budget and revenue data. It’s impossible to take in everything at once, and if you try, important information might slip through the cracks.
By defining KPIs for your company and team, you can transform the constant stream of information into something actionable.
A key performance indicator (KPI) is a measurement of activity that reveals how a business or team is performing against its goals. KPIs are your most critical metrics. They are typically measured against a specific target or benchmark to add context to each data set.
KPIs provide focus for a business or team, but only if they’re clearly defined and easy to understand. Of course, we can’t tell you exactly which KPIs your business should track. But if you follow these steps, you'll be set to identify KPIs that will motivate your team and keep your company on track.
Define your primary objectives
The first step toward defining KPIs is identifying your company’s main objectives. What goals are you trying to achieve?
There are three primary levels for setting goals within a company, and each will have different KPIs:
- Business-wide goals, or the objectives you set for your company as a whole. If you set a goal of increasing revenue by 10% month over month (MOM), business-wide KPIs might include revenue growth rate and gross profit margin.
- Departmental or team goals, or objectives specific to a single group or department. The marketing team might set a goal to increase website traffic and focus on website traffic growth as a KPI. The customer support team could set an objective to decrease their ticket backlog.
- Individual goals: Each team member will have personal and professional goals in addition to their team’s objectives. For example, a customer support team member might want to reduce their average resolution time for support tickets.
Of course, goals vary from company to company and will evolve at a single company as it grows. Early-stage startups or small businesses will likely have very different goals, and therefore different KPIs, than an enterprise-level business.
Although KPIs differ from company to company, it’s still helpful to consider what these metrics look like at similar businesses. Looking at the goals that other companies in your field have set and achieved can help guide you toward reasonable goals for your own business. As you progress toward your objectives, research industry benchmarks for your KPIs to gauge your company’s performance.
Want to learn more about setting business goals? Check out this resource.
Determine the best indicator of success
Once you outline your objective, ask yourself how you will know whether you’ve achieved your goal. What specific, measurable outcome will determine your success? This indicator of success is the KPI for that goal.
Say your objective is to become the market leader for your product. You determine that success would mean hitting10,000 sign-ups by the end of the quarter. Your KPI for that goal, then, is the number of signups.
From there, you can define supporting metrics that add context and provide more insight into your main KPI. If your North Star metric is sign-ups, you might also track website traffic to see how it corresponds to your sign-up rate.
If you’re not sure what KPIs might be best for your goals, get inspired with our list of 90+ KPI examples.
Qualify your KPIs with the IPA rule
If you’re not sure which metrics to prioritize, narrow down your options using the IPA rule.
- Important: Ask yourself (and your team) whether this metric matters, given your goals. If the company were underperforming for this KPI, would that significantly affect the goal you’re targeting? If the answer is no, then this is not the right KPI for your objective.
- Potential improvement: The metric “website traffic” has the potential for improvement: You can change the design of your site, make it more mobile-friendly, and increase the number of backlinks to your site. But if you are tracking your CSAT and see that it’s already at 97%, it may be unrealistic to think it can go much higher. For the time being, you might want to prioritize a different metric that will reflect progress toward your goal.
- Authority: If you don’t have the power to improve a metric, it’s likely not worth prioritizing. Say the customer support team wants to set a goal to lower the number of support tickets raised, but they realize the majority of tickets are based on bugs in the product or inquiries based on marketing emails. The customer support team doesn’t have the authority to affect either of these causes. Instead, they might focus on reducing first response time.
Of course, if a metric doesn’t fit the IPA rule, it doesn’t mean you need to disregard it entirely; it just shouldn’t be a KPI. Remember, KPIs are your most important metrics — ones that directly influence your achievement of business goals.
Revisit the IPA rule for your metrics from time to time, because they may become more or less important to your business. A metric may start underperforming, in which case it might be time to prioritize it over other metrics.
Limit the quantity of your KPIs
The whole point of defining KPIs is to help organize and align your company or team around a common goal. An essential part of keeping your team focused and united is making sure they’re not overwhelmed by unnecessary data.
Limit the number of metrics you define as KPIs, ideally to just one or two for each goal. Identifying which metric is most important for each goal will help keep your team members aligned and ensure that everyone knows the KPI they should prioritize and track most closely.
Some goals, especially broad ones like “become a market leader,” may have more than one KPI. Once you and your team are comfortable with the initial KPI you set, you can work on expanding your list of key metrics.
After defining KPIs, make them accessible to your whole team
If team members don’t have visibility into what a business’s goals and performance are, they’ll likely have less motivation to complete the tasks that contribute to those goals. A recent Work Institute study even found that employees were more engaged and motivated when they could see how their work contributed to the organization’s success.
One method of keeping your team, even a remote or distributed one, on the same page is to display your KPIs on a shared dashboard. This display will help your team quickly monitor your business’s most important metrics without having to sort through spreadsheets or cluttered databases.
Want to learn more about KPIs? Check out our complete guide to key performance indicators.