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Defining key performance indicators (KPIs) is the first essential step in tracking and evaluating your progress and thereby allowing you to focus on activities that are important to your business.
Though most business people understand the value of key performance indicators (KPIs), they often fail at the execution. In fact, 90% of business measurements collected are rarely used for decision making.
Think of KPIs as the dashboard of your car: they tell you the status of your performance quickly and easily. Here are 6 useful tips to help you select the key performance indicators (KPIs) that truly resonate with your business.
1. Identify the results that you expect.
KPIs should be directly related to your major goals. If you don’t have your goals written out, you should start there.
Don’t try to bite off more than you can chew. In other words, stay away from measuring everything that moves. The secret sauce is to focus your effort and resources on collecting and reporting the data that really moves the needle – data that leads to action and drives positive results.
2. Understand lead and lag measurement differences.
According to the book, The 4 Disciplines of Execution, the idea behind the lead measurement is that in order to get the result you want, you first have to create the measure of a strategic action that, when planned and taken, will have the most impact on your goals. In contrast, lag measurements show you the outcome of past actions.
Lag measures are metrics, while lead measures are actions. Always think in terms of actions. For example, if you want to drive overall sales, you first have to measure the number of leads generated and how well you close sales.
3. Focus on quantitative, not qualitative measurements.
Focus on quantitative measurements, or hard data that attempts to answer “how much.” Though qualitative key performance indicators (KPIs) help you understand why something has happened, the problem is they tend to be vanity metrics that are not only hard to track, but also too subjective. In fact, qualitative performance measures don’t truly exist.
4. Don’t measure more than 10 KPIs.
Key performance indicators (KPIs) are powerful, yet they come with a cost. That said, it’s critical to keep the list short and sweet so you can invest your time and resources efficiently. I recommend you start with measuring your number of leads, lead conversion rate, average sales, number of transactions, and margins. The remaining 5 should be operational measurements and tied directly to your goals.
5. Measure KPIs weekly or monthly.
Depending on the characteristics of each KPI, the measurement frequency can vary. Update and measure your KPIs on a regular basis, either weekly or monthly. Though higher consistency is better for decision-making, choose the frequency that makes senses for your business. In addition, since the ease of data collection is very important, it’s a good idea to start automating your collection process.
6. Be ready to revise your list.
After a period of experimentation, you will be able to differentiate the key performance indicators (KPIs) that are helping your business from the ones that aren’t. As your business grows and changes, so should your KPIs. Hence, be willing and open to tailor your list of measurements.
Choosing the right KPIs is not always a straightforward process. Every business is different and unique in their own way. With that said, take the time to arrive at the KPIs that are best aligned with your goals and offer valuable insights into how you can drive your business forward.
Want to know more about key performance indicators (KPIs) best practices? I offer a one-hour complimentary online coaching session, no strings attached. Simply fill out my contact form.