How To Choose the Right KPIs for Your Business Goals

A KPI or Key Performance Indicator is a metric that helps evaluate the progress of a business against the various goals and objectives that it has set for itself. KPIs are used not only at the highest levels measuring the overall performance of the business but also at the departmental levels such as sales, HR, finance, etc. KPIs may differ based on the nature of the business or even the function that it is assigned to. A lot of times companies seem to believe that there is a failure in the functions performed by their company because of a low KPI value however this may very well be due to the wrong choice of KPIs which are crucial in arriving at the right conclusions and improving performance.

How to identify the right KPIs

  •         Ensure that your KPIs and Business Goals work in tandem
  •         The word “Key” is Key when choosing KPIs
  •         Consider the Business Life Cycle
  •         Recognize both lagging and leading performance indicators.

Ensure that your KPIs and Business Goals work in tandem

A KPI is used to help the business quantify a particular goal and thereby measure the extent of success it was able to achieve in fulfilling that goal.  For example, there could be a Sales KPI or a Customer Service KPI wherein relevant goals are set and later measured based on performance. Therefore the goals that are set are of utmost importance because if an unrealistic or irrelevant goal is set then your KPIs are bound to produce unsatisfactory results. These goals must be set with respect to areas of improvement that the business is working towards overcoming or targets that the business aspires to achieve.

The word “Key” is Key when choosing KPIs

There are many metrics that can be used to measure performance however KPIs insist that you focus only on the most important or “key” ones. This may be anywhere between, one to four per goal although such a solid number is hard to arrive at as it may differ based on the nature of business. Too many metrics can lead to the generation of huge data sets that are hard to interpret and give rise to ambiguous results.

Consider the Business Life Cycle

Another factor to take into consideration while choosing a KPI is the stage of the business in terms of its growth. The KPIs for start-ups are likely to be very different when compared to more established businesses. Businesses that are newly entering the market naturally focus on reading into the market response to their products and therefore could use KPIs like Customer Interviews, Quality Feedback etc. while a business during its stage of expansion may want to include KPIs like Cost per Acquisition or Average Order Size.

Recognize both lagging and leading performance indicators.

A business can have both lagging and leading KPIs and one may be more appropriate than the other based on the situation or nature of performance. But most importantly these two must be distinguished from one another. Lagging KPIs focus on the past and set goals based on activities that have already been completed. These are easier to set as they are based on undisputable events and therefore more commonly used.  For example, Sales of Previous Year, Units Sold, etc. However, they fail to represent goals based on future trends and developments and that is where leading KPIs come into the picture. Leading KPIs are used to predict the future and measure the capability of your company to keep up with these targets.  

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