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Defining KPIs: How to Choose Metrics That Inspire Action

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Delivering the right metrics to the right people at the right time opens infinite possibilities - one of which is empowering your team to take action. That’s the goal of collecting metrics in the first place. To take action, make decisions, grow the company, collaborate - all based on data.

So how do you transform a bunch of numbers into something actionable? By defining your key performance indicators (or KPIs).

Now, before we discuss how to define your KPIs, let’s review what KPIs are and are not.

  • A key performance indicator is: A measurement of activity (often referred to as a metric) that reveals how a business or team is performing against its goals. KPIs are the most critical metrics that measure the success of specific activities used to meet business goals - measured against a specific target or benchmark, adding context to each activity being measured.
  • What a KPI is NOT: If a measurement of activity or metric does not directly influence your achievement of business goals, then it is not a KPI, it is simply a metric. Not all measurements are equally important, therefore, not all metrics are KPIs.

KPIs are important because they provide focus for a business or team. KPIs unite your team towards achieving a common objective - but only if they’re clearly defined and easy to understand.

It’s easy to talk about the idea of KPIs, but it can be tough breaking it down for a specific company. Identifying the right KPIs for your business takes time. Don’t get down on yourself for not figuring it out in five minutes.

Defining KPIs for your business

We’ll get to more specifics below, but the oversimplified version of defining KPIs is to select the few metrics that directly impact your overall business goal(s). The easiest way to begin is by asking two questions:

  • What are you trying to achieve (your primary objective)? and
  • How will you know if you’ve achieved it? (What’s the best indicator of success?)

Four Guidelines for Defining KPIs

As you define KPIs for your business, here are four guidelines to keep in mind:

  1. KPIs vary from company to company and will evolve at a single company as it grows over time. Two factors will significantly impact which KPIs are most important for your business: 1) your business model, and 2) your stage of business growth. Although KPIs differ from company to company, you can research industry benchmarks and get inspiration for what might work for you.
  2. KPIs come in three different types: overall business KPIs, departmental/team KPIs, and individual KPIs. The other type of metric to be aware of are Supporting Metrics. These are not KPIs, but measurements that compliment your KPIs by providing helpful context. Supporting Metrics define if you’re hitting KPIs in an effective way.
  3. KPIs should be limited in quantity. Keeping your team focused and united requires having few KPIs - ideally one overall KPI that’s important for the entire business and then a few relevant KPIs for various departments and individuals that all align with the primary KPI.
  4. KPIs can be qualified using the IPA Rule. This rule stands for Important (is this KPI important? does it matter?), Potential improvement (does this KPI have potential for improvement), and Authority (do you have authority or means to improve this KPI?). By asking these questions, you’ll determine if a particular metric is eligible to be a KPI for your business.

KPIs Examples

Here are a couple example KPIs to help get you started as you define your own key metrics.

  • Business KPI: Monthly Recurring Revenue vs Goal
  • Departmental KPI: Monthly Trial Signups vs Goal
  • Individual KPI: New vs Returning Visitors (goal to increase returning visitors to X%)

Now, before you check off ‘define KPIs’ from your to-do list, take the time to communicate your key performance indicators to your entire company or team. Data collected but not communicated is useless. This is especially true for KPIs.

Make your KPIs accessible to everyone in your business

A recent report on Mushroom Management, a non-transparent management style where managers keep employees in the dark on company performance, identified that:

  • Over 80% of employees want bosses to share more info and data about the business
  • One in four employees have, or know someone who has, left a business due to a lack of transparency on business direction and performance
  • Over 50% of employees say that more company info and data being shared had a significant positive impact on their productivity and performance

The statistics speak for themselves. If team members don’t have visibility into what a business’s goals and performance are (i.e. business KPIs), how can you expect them to focus on executing the work that will achieve those goals?!

Make your KPIs easy and enjoyable to consume

No one wants to dig through a spreadsheet trying to identify and make sense of the numbers (unless you’re an analyst). Your KPIs needs to be easily understood by the people in your organization who are not data scientists or data analysts - i.e. the rest of your team. Keep your KPIs simple.

One way of humanizing data communication is to take only the most essential, actionable metrics - your KPIs - and display them on a large TV monitor in your office. Live TV dashboards are successful not only because they communicate data well, but also because they make people want to look at your KPIs.

Make it easy for your team to take action by defining and communicating the most important metrics for your business - your KPIs. ceo-dashboard

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