By Erin Feldman
Key Performance Indicators (KPIs) are very effective tools in measuring the performance of a business unit, or the business as a whole. KPIs that are rooted into organizational goals and objectives will be able to give you a better picture on how near or how far you are from where you envision yourself to be. Some companies set the wrong KPIs as they are not related to their organizational objectives. Be smart, be effective, set the right KPIs and measure the right performance!
How to Choose the Best KPIs for Your Business
Choosing the wrong KPI is like being on the wrong road – no matter how much you travel along that path, you won’t get where you want to be. So when you come up with KPIs, make sure that performing well on that aspect will take you a step closer to your desired future. As a starting point, it might be helpful to use a sample KPI library to get an idea of all the metrics available by department and industry. The following tips can help you establish the right KPIs that will help you to intelligently evaluate your performance. The following tips can help you establish the right KPIs that will help you to intelligently evaluate your performance.
1. Set Clear Goals
Having KPIs would mean nothing if there is no future that you envision yourself to be in. May it be in improving sales, or in increasing customer satisfaction, having clear goals is your first step into directing your efforts into a brighter future.
2. Know Your Industry
Metrics vary very widely for different industries. You may find industry-specific KPIs from a number of online libraries like KPI Library and KPI Mega Library so that you can have a guide.
3. Remain Focused
Having too much KPIs will distract you. Concentrate only on KPIs that are relevant to your objectives.
4. Quantity and Quality
Quantitative KPIs are easy to measure but qualitative KPIs can give a more vivid picture of how you are doing so don’t settle for purely quantitative KPIs and give qualitative KPIs a chance to aid you.
5. Prepare to Adapt
As you achieve your current goals, you will have to climb higher mountains. The KPIs you will set now may not be appropriate in the near future and when that time comes, learn to adapt to the changes that are needed to take you to greater heights.
7 Important Small Business KPIs You Should Watch
Established businesses might would already opt for sustainability over growth so their KPIs are a bit different. But for small businesses, growth is the priority. Here are 7 KPIs that growing businesses should keep in mind.
1. Customer Acquisition Costs (CAC)
Marketing is essential to all businesses. CAC refers to marketing expenses. Evaluate how much you spend for each customer by dividing your total marketing expenses by the number of customers you were able to pick up. If the result is unreasonable, better reassess your marketing plan.
2. Customer Retention
Once you acquire customers, how do you fair in keeping them? Your obligation with your customers do not end when they make a purchase. You should do your best so that they will keep on coming back.
3. Attrition
Losing customers is natural but what do you to keep it under control? What steps do you take to identify reasons for leaving and how do you correct them?
4. Lifetime Value
While CAC refers to the cost of attracting customers, Lifetime Value of LTV refers to how much a customer is worth. LTV gives weight to how long a customer stays with you. If you are spending so much for customers who don’t stay long enough to recover the CAC, you might want to take action,
5. Revenue
One of the most basic KPI is your revenue. Unless you are a non-profit company, revenue is why you set up your business in the first place. Make sure that you are making money because if you are not, something’s wrong with how you are handling your business.
6. Conversion Rate
Conversion rate refers to how much your visitors are converted to actual customers. When conversion rate is high, you are doing a great job. When conversion is low, you’ll need to work harder.
7. Referral Rate
Referral rate refers to how much your users are pulling others to have transactions with you. Referrals are helpful in keeping your CAC low as your own customers are bringing in potential customers for you!
Start Measuring the Best Business KPIs
These tips can help you come up with KPIs that will ensure that you realize your organizational objectives. Always remember, it is with right KPI that will direct you to the right path. If you follow the tips above, you are one step closer to your desired future so set the right KPIs and measure the right performance now!