How to identify your KPIs

Published 2017-07-25, updated 2024-04-02

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Summary - KPIs do not begin to impact your business until the moment you've identified which ones are most important. Here's how to do it.

The term KPI (key performance indicator) seems like a stodgy one reserved for executives and managers. This is a common misconception.

True, most KPIs are defined at an organizational level and pertain to your business’s ability to execute its game plan. You know—performance data like revenue, customer success, and financial outcomes.

These big-picture business KPIs can be awfully boring for practitioners who don’t have a seat at the management table. Finding KPIs can seem like an exercise in futility, particularly when it’s hard to see a straight line between your work, data, and business outcomes.

But does that mean determining KPIs for your team is a waste of time? Of course not!

Let’s set aside the jargon and excess baggage of KPIs for a moment and consider how we can think of our performance relative to positive outcomes.

Understanding your key performance indicators is an act of self-assessment

In the world of data measurement and analytics, there’s a tendency to try to measure everything that is measurable. All of a company’s data goes into a great repository, and maybe you’re lucky enough to have a data scientist sift through it to understand its implications. 

At a fundamental level and as it relates to KPIs, however, this data process defeats the purpose of key performance indicators.

Data-driven professionals instinctively want to track their KPIs’ performance and use that data to see if they’re improving or not. It’s quite simple, yet complexity is an art form many of us blindly practice. I’m certainly guilty of this.

I suspect that the root cause here is we feel like more is, well, more. More KPIs and data mean we add more value. Let me challenge you to think about this differently.

I’ve challenged my team to identify a single KPI that they are accountable for that is meaningful and that they can directly improve. We’re not executives, but KPIs have helped us rally around our performance in a way that produces positive outcomes for the business.

Rather than soul-searching whether a particular KPI directly impacts business performance (though it should), we challenge ourselves to see the process of choosing KPIs as an exercise in self-assessment.

How to choose your KPIs 

The first step in selecting KPIs is removing all the data noise in your team. Focus not on what you can measure but on the data you must measure.

Ask yourself: if I didn’t have this KPI, could I adequately report on my performance?

From a professional standpoint, I challenged myself to think of a single KPI I’d point to if I were renegotiating my salary. Take a look at this improvement! Not bad, huh?

Start by thinking of the process program or project you manage. While you may do a lot of work to support that activity, what’s the outcome of all that work?

Define tricky KPIs

A recent example nicely demonstrates the challenges contributors face in selecting KPIs. I work with an extraordinarily talented web design team; they challenge themselves every day to improve, iterate, and optimize. They’ve been effective at using data to affect positive outcomes for our business.

But when it comes to brass tax, I challenged the team to answer the question every child (in their infinite, innocent wisdom) asks: Why?

Why are you redesigning the homepage? Why are you testing this button? Why work on this section of the website instead of that section?

Suddenly, data or performance that wasn’t apparent came into perspective.

A bit of defensiveness can be a healthy sign, and the process of choosing KPIs tends to introduce the type of friction that can generate such defensiveness.

This is why it’s important to make sure you temper this friction by effectively communicating why this is not about shaming and is all about the growth of your colleagues. This may be a new process for your team, just as it may be new to you.

Our team did what all good marketing teams do: we researched and looked at the data from others in the industry. We also talked internally to determine how individual KPIs could serve as a lever for the entire team.

Ultimately, we decided the best KPI for our design team would be website conversions. It describes the best of their work and challenges them to think differently about design decisions.

It also directly impacts our lead generation efforts and empowers our SEO and content marketing strategies. It’s a great KPI and performance data for our team.

During this process, we identified other potential KPIs and data that may have served us equally well. Metrics such as bounce rate, time on page, and time on site were all serious contenders.

Look for KPIs that determine behaviors

Why did we choose website conversions as our primary web design KPI? Because we knew that tracking these KPIs would influence our behavior and force us to vet projects differently.

In a website as large as ours, there is no shortage of work that can be done. All of that work, by the way, is valuable. But we need to define value. That’s the power of KPIs.

Select new KPIs for new roles

Data on internal promotions and new hires provide an opportunity to get a fresh perspective on familiar processes. When we promoted Val Hamilton to Customer Marketing Manager, we took the opportunity to decide what KPI made sense for her to track, performance-wise.

Again, research and data gave us a real insight into industry standards for KPIs, but we wanted to know how best to distill all these KPIs into a single rallying call.

Customer marketing is awash with potentially meaningful KPIs. Imagine, for example, a customer marketing lead influencing monthly active users, feature adoption, MRR, LTV, and reducing churn.

All good things, but are they the right metrics to influence the right actions? Again, the answer here (as it was for us) is that it depends on your team and your business.

In finding our customer marketing KPI, we decided that we wanted a KPI that would influence holistic decisions. Val’s job isn’t to extract more MRR from our customers—doing so would fly in the face of our brand and voice.

No, we decided the role was about ensuring customers who had a paid subscription to Klipfolio were happy customers. That changes things from simply seeing expansion opportunities to cultivating genuine experiences with awesome customers.

The KPI and data we identified was Customer Referral Rate. We felt as though this KPI would promote positive behaviors from our team and positive outcomes for the business.

How do you get a referral? Sure, you can point to a program and some in-product logic, but that only drives success for so long. Referrals occur when someone sees so much value in your product that they feel compelled to share.

Choosing this KPI focused our efforts on outcomes and gave Val the latitude and space for creativity that she needed to be effective.

How to identify effective KPIs

I’ve discussed how we identified KPIs for our organization. Here are the ways you can determine effective KPIs for your company:

Clarify your business objectives

Let’s cut to the chase – choosing your KPIs starts with knowing what you’re playing for. What’s your endgame? This isn’t just about setting goals; it’s about defining what success looks like on your terms.

Your KPIs are your scoreboard, so make sure they’re tracking the points that actually win you the game. Every metric should map directly back to your larger strategy, giving you real-time feedback on your journey towards those business outcomes.

Evaluate your current performance

Here’s a reality check – to identify the right KPIs, you need to know where you stand today. It’s like setting up a GPS; to get to your destination, you first need to pinpoint your current location and performance.

This stage of choosing KPIs is all about leveraging your data to understand your starting point. Dive into your analytics, assess your baseline, and use this insight to determine which KPIs will best track your progress and performance toward your objectives.

Involve your team

Identifying the most impactful KPIs shouldn’t be a solo mission. Bring your team into the fold. Why? Because different perspectives can shed light on various aspects of performance that you might overlook.

Plus, when your team contributes to determining KPIs, they’re more likely to invest in the outcomes. It’s about creating a shared vision of success, where everyone understands and supports the key performance indicators that guide your collective efforts.

Prioritize your key data points

In a world awash with data, not all metrics deserve to be called KPIs. The art is in prioritizing the data points that truly matter – the ones that will genuinely inform your decisions and drive your business forward.

Ask yourself: which KPIs are most closely aligned with our strategic goals? Which data can we influence? Remember, the key in KPI is there for a reason. Focus on the data or performance indicators that are crucial for your success, not just the ones that are nice to know.

Customizing your KPIs

The most powerful key performance indicators are those that are tailor-made for your business. Here are four simple things to remember when customizing your KPIs:

Industry-specific considerations

What works for one sector might not make sense for another. Look for the KPIs that resonate most profoundly with the unique dynamics of your industry.

For instance, customer satisfaction may be an important metric for a service-based business, but inventory turnover rate may be more vital for a retail company. Tailoring your KPIs to your specific industry makes sure that you’re measuring what aligns with your strategic objectives.

Company-specific objectives

Your business won’t succeed with cookie-cutter KPI methods. It has unique needs that require a tailored approach. Your KPIs should mirror your specific goals, strategies, and operational nuances.

If you have a startup, you may want to focus on KPIs like customer acquisition cost, customer lifetime value, and monthly recurring revenue to gauge your growth and sustainability. On the other hand, a well-established company may prioritize KPIs such as market share, brand loyalty, and return on investment.

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Stakeholder expectations

Tune into the frequency of your stakeholders. Make sure your KPIs align with the outcomes that matter most to investors, customers, and employees.

This will vary by stakeholder group, so understanding their expectations is key to selecting the right KPIs. Investors may value KPIs related to financial performance and growth, while customers may prioritize satisfaction and loyalty data performance indicators. On the other hand, employees might look to engagement and development KPIs as the most relevant data.

Company changes

The only constant in business? Change. That’s why your KPIs need to be as dynamic as the markets you operate in.

Revisiting and refining your key performance indicators regularly makes sure they stay relevant and in line with your evolving strategic goals. It’s about being proactive, not just reactive, and evolving your KPIs in tandem with your business landscape.

Common mistakes when choosing KPIs

When you find yourself going deep into selecting KPIs, it can feel like you’re in a minefield. 

Get it right, and you’re on the path to success. Misstep, and you might see yourself bogged down by data that’s as clear as mud.

Here are some common blunders businesses make when selecting their KPIs so you can avoid them:

Overcomplicating things

It’s easy to get carried away. We’ve all been there—wanting to keep track of all KPIs we can think of so that we don’t miss anything. However, a cluttered dashboard can be as useful as a screen door on a submarine. Always keep your KPIs focused and relevant.

Vanity metrics overdrive

Falling for the allure of vanity metrics is like being enchanted by your own reflection. Sure, they look good, but do they offer any real value? Prioritize KPIs that drive decision-making, not just those that make you feel good.

Ignoring the “key” in KPIs

Not all metrics are created equal. Focus on those that are truly key to your business success. If a metric doesn’t influence your business strategy, it’s probably not something you should track.

Setting and forgetting

KPIs aren’t set in stone. They’re more like living organisms that need to evolve as your business grows and changes. Regular reviews are a must. PowerMetrics provides you with data in real time to reflect the ever-changing landscape in which you operate.

The story of choosing our marketing KPIs

Marketing has no lack of potentially meaningful KPIs and metrics. Like so many other marketers, I could draw a picture of the funnel and point to a dozen critical metrics that, if improved, could have an impact on the business.

I can even riff for days on the value of tracking web visitors, leads, MQLs, keyword acquisition, blog subscribers, trials, customer referral rates, and goal conversion rates.

All of this is a tiring exercise and one that has dubious outcomes. Does it grant you greater clarity and focus on what matters? Maybe, but likely not.

So, we decided to take a different route. We viewed KPIs as performance indicators to drive focus and guide behavior. That’s it.

40+ KPI Examples and Definitions

Although finding the exact KPIs you should track depends largely on your organization’s needs, there are many commonly used KPIs across various industries.

Finance KPI Examples

  1. Net Profit Margin: The true measure of your business’s profitability; basically, how much of each dollar earned translates into profit.

  2. Gross Profit Margin: This KPI helps you understand the profitability of your goods or services before overhead costs come into play.

  3. Operating Cash Flow: One of the KPIs that keeps you in the loop on the cash your business generates from regular operational activities.

  4. Current Ratio: A liquidity ratio KPI that measures your ability to cover short-term obligations with short-term assets.

  5. Quick Ratio: Like the current ratio, it strips out inventory, giving a more stringent measure of liquidity.

  6. Debt-to-Equity Ratio: Offers insight into your company’s financial leverage and risk level, comparing what’s owed to what’s owned.

  7. Return on Equity: A profitability ratio that shows how effectively your company is using its equity to generate profit.

  8. Working Capital: This KPI highlights the difference between your current assets and liabilities, showcasing your short-term financial health.

  9. Accounts Receivable Turnover: Sheds light on how efficiently your company collects on outstanding credit.

  10. Budget Variance: This KPI tracks the difference between your budgeted and actual figures, spotlighting financial management effectiveness.

Customer KPI Examples

  1. Customer Satisfaction Score (CSAT): Direct feedback on how satisfied customers are with your products or services.

  2. Net Promoter Score (NPS): This KPI reveals how likely customers are to recommend your business, reflecting customer satisfaction and loyalty.

  3. Customer Retention Rate: Measures how well your company retains its customers over time, indicating customer loyalty and product/service satisfaction.

  4. Customer Churn Rate: The flip side of retention, showing the rate at which customers are leaving or ceasing to buy from you.

  5. Customer Lifetime Value (CLV): Predicts the total value your business can expect from a single customer account.

  6. Customer Acquisition Cost (CAC): The cost associated with convincing a customer to buy a product/service is essential for understanding your marketing ROI.

  7. Average Purchase Value: One of the KPIs for the average amount spent each time a customer makes a purchase is a direct reflection of consumer buying behavior.

  8. Customer Engagement Level: This KPI tracks the degree and depth of customer interaction with your brand’s touchpoints.

  9. Service Level: The percentage of customer service or support requests that are resolved within an agreed-upon time frame.

  10. First Response Time: How long customers wait to receive the first response to their query is a crucial part of customer satisfaction.

Operations KPI Examples

  1. Inventory Turnover: This KPI shows how many times inventory is sold or used over a period, a key indicator of efficiency and demand forecasting.

  2. Production Efficiency: Measures how efficiently production inputs are being converted into outputs, a vital sign of operational health.

  3. Order Fulfillment Cycle Time: The total time from when a customer places an order to when they receive the product is crucial for customer satisfaction.

  4. Capacity Utilization Rate: One of the KPIs for how well your business is using its total capacity, a key metric for understanding operational efficiency.

  5. Supply Chain Cycle Time: The total time required to turn raw materials into finished goods, essential for pinpointing bottlenecks.

  6. On-time Delivery Rate: This KPI measures the percentage of orders delivered on time to the customer, a crucial indicator of the efficiency of your logistics and supply chain processes.

  7. Return Rate: The percentage of products returned by customers, which can highlight issues in product quality, customer satisfaction, or the ordering process.

  8. Manufacturing Downtime: Tracks the amount of time production was halted, not including planned downtime, indicating the reliability of your manufacturing operations.

  9. Overall Equipment Effectiveness (OEE): This KPI combines availability, performance, and quality metrics to assess the overall efficiency of manufacturing equipment.

  10. Defect Rate: The percentage of products with defects found either during the manufacturing process or highlighted by customers, an indicator that points to the effectiveness of quality control.

Workforce KPI Examples

  1. Employee Turnover Rate: Tracks how often employees leave your organization, a critical metric for understanding workplace satisfaction and retention strategies.

  2. Employee Satisfaction Index: A composite KPI that provides insights into how satisfied your employees are.

  3. Absenteeism Rate: Measures the rate at which employees are absent from work, an important performance indicator of workforce engagement and operational capacity.

  4. Training Investment Per Employee: Reflects the amount your organization invests in developing each employee, an indicator of your commitment to workforce development.

  5. Overtime Hours: The amount of overtime worked can signal operational efficiency and employee workload, impacting overall productivity.

  6. Employee Productivity Rate: This KPI measures the output of employees over a defined period, providing insights into the efficiency of your workforce.

  7. Employee Engagement Score: These KPIs are derived from surveys to gauge the level of employee engagement and commitment to the organization.

  8. Time to Fill: The average time it takes to fill a vacant position, indicating the efficiency of your recruitment process and the attractiveness of your employer brand.

  9. Employee Net Promoter Score (eNPS): This KPI reflects how likely your employees are to recommend your workplace to friends or acquaintances, a key indicator of employee satisfaction and organizational health.

  10. Diversity and Inclusion Index: A composite KPI that assesses the effectiveness of your diversity and inclusion efforts, reflecting the variety and inclusivity of your workplace environment.

Choosing metrics is an exercise in behavior analysis

KPIs must drive behavior to achieve results. A KPI without action is devoid of meaning, abstract, and, ultimately, useless.

KPIs fail when they lack champions, accountability, and relevancy, and they are removed from business outcomes. In your process of selecting KPIs, tackle these problems head-on. Mastering KPIs is less about the quantity and more about the quality of what you measure. 

But here’s the catch: data overload from KPIs is real.

The skill lies in distilling vast amounts of data to uncover the KPI gems. That’s where sophisticated data analytics tools like Klipfolio PowerMetrics step in. We can help you uncover fresh insights and identify KPIs that truly impact your bottom line, allowing you to foster a culture of continuous improvement. 

The right KPIs data guides you to the most relevant key performance indicators. By thoughtfully finding key performance indicators that align closely with your business objectives, you empower your team to focus on what truly matters.

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