Examples And How To Track KPI

What Is KPI?

You must have heard this term a lot. But if you’re still wondering what is KPI, then we have got you covered. A Key Performance Indicator is a set of measurable metrics that identifies how efficiently a company is reaching overall business goals and objectives.

What KPI Stands For

Now we know a bit what is KPI. If simply put, KPI stands for Key Performace Indicator. Companies and organizations take the help of KPIs at different stages to measure the success for achieving business objectives.

There are high-level as well as low-level KPIs. High-level KPIs determine the total performance of the company operations, whereas, how-level KPIs target different mechanisms in Sales, HR, Marketing, and other departments of the business. KPIs hold a crucial value to monitor the progress for securing the desired result. These provide clarity on the strategic and business success establishes an analytical ground for decision making.

Key Performance Indicators also directs attention towards the most important matters. As a famous quote says, “What gets measured gets done.”

To help you understand better, here’s an example: A software company trying to achieve sustainable growth in its business might focus on year-over-year revenue growth as its key performance indicator. 

Whereas, a retail or ecommerce store may focus more on same-store revenue growth as the most important KPI metric to monitor its growth.

SMART KPI Examples

SMART stands for Specific, Measurable, Attainable, Realistic and Timely. It is the most important factor to gauge the success rate of your KPI and identify if the assigned KPIs will be successful or not.

A SMART KPI requires you to consider the following factors:

• Specific: If the KPI is broad or properly defined and identified.

• Measurable: If you can measure this metric easily?

• Attainable: If this metric is realistic enough to quantify? And if you can implement properly, that KPI and monitor changes?

• Timely: If you are capable to focus on data for this metric monthly or quarterly except yearly?

Key Performance Indicators (KPIs) are the constituents of your plan that show what you want to get and by what time. These measurable, result-oriented statements that you use to gauge the progress of your business goals. 

A smart plan utilizes 5 to 7 KPIs to monitor and manage the growth of your plan. We will help you learn about SMART KPI examples if you have not planned them yet.

Examples Of Good Metrics & KPIs

Now let’s move on to see some examples of good measures and SMART KPIs. All these examples are specific, measurable, attainable, realistic, and timely.

1. Worker satisfaction: Worker satisfaction is a realistic and key measure as opposed to worker evaluations which is a bad measure.

2. Gross New Revenue: Focusing on your new gross revenue subtracting costs is the key to learn financial progress. You must ensure that you are clear about the new sales, it is easily measurable, is easily attainable, and practical enough to keep a track of. Lastly, the timely factor requires that you can achieve it monthly.

3. The total number of authentic deliveries: This is the KPI that will make you gauge your internal phenomena to be effective and accurate.

Examples Of Bad Metrics & KPIs

Now let’s take a look at few examples of bad metrics and KPIs and the reason they are not SMART.

1. Cost of raw materials. It might be uncontrollable for you and making you unable to attain.

2. Share of customer’s business: Quantifying your share of the customer’s wallet is not accurate all the time. You have to deeply analyze your customer buying.  

3. Worker evaluations: They are not often realistic however it is a good metric but not measurable.

As soon as you decide a KPI, it should be based on the SMART factor. For instance, “Get new sign-ups to the e-commerce store up to 20% by the end of the year.

If you want to better understand efficient KPIs then check for yourself:

• Your company's vision. The strategy to achieve that goal.

• Metrics to identify that you are effectively carrying out your objectives and strategy.

• The number of metrics you must have.

• A benchmark to use.

• The metrics can be copied and you have to look after them.

How To Choose The Right KPI & Track Them

A frequent beginner mistake is setting too many KPIs. While your organization may require many KPIs, it’s not always efficient or possible to track everything going on internally. It’s best to only set KPIs that are extremely important/vital to the success of your organization as creating too many KPIs may lead to ‘unnecessary work’.

Make sure to only choose 1-3 metrics for each objective that are very important. The right KPIs for another organization may not be the right for you hence research as many KPIs as you can and decide which will be the best for your organization’s industry. 

Do not forget to also assign an individual to take responsibility for reporting & tracking them. This will make sure the KPIs are acted upon, rather than being forgotten. 

It’s vital to continually review the KPIs and their performance on a frequent basis (i.e: monthly, quarterly or any other appropriate predefined time) which can help in analyzing and solving underperformance if any.

Key Performance Indicators for Employees

It is a known fact that your employees are vital for the success of your organization. To establish a great business, you have to recruit authentic employees and give them the right place. Besides, you must ensure the retention and engagement of those employees to increase growth and make the most of this asset. 

The accurate scheme of quality metrics can largely influence your work management to build a highly effective team.

KPIs for Employees:

• Turnover Rate

• Number of Crucial Hires

• Keep Learning

• Gallup Worker Engagement Survey

• Worker Net Promoter Score (NPS)

• The ratio of “A Players” (Total)

• The ratio of “A Players” (Managers)

• Customer Retention

• Total # of Customer Engagement

• Client Support Quality

• Client Convenience

• Number of Workers

Work Quality Employee Performance Metrics

Work quality metrics measure the quality of an employee’s performance. Objective appraisal by their direct manager, is one of most commonly used metric.

1. Management by Objectives

An option to strategize the manager’s subjective evaluation is by using management by objectives. Management by objectives is a management structure that helps to enhance the progress of a company by reflecting business goals into certain individual objectives.

These objectives usually turn into goals assigned by the worker and the manager. The worker strives towards these objectives and informs the manager about the growth scale. Once you fulfill these objectives, the worker receives the award points. In exchange, managers have the authority to turn goals into tangible form and create data-driven progress reviews.

2. Manager’s Subjective Evaluation

Worker performance evaluation occurs twice a year in most organizations. Their performance is judged on several factors including their performance quality.

This approach is called the 9-box grid. This assessment scheme depends on a 3x3 table using which the worker’s ability and work quality is analyzed. 

An adaption of this is the 9-box grid, which is based on a 3×3 table in which the employee is assessed on performance and potential. 

Employees with low potential but high performance are perfect for their current function.

Employees who score high on both performance and potential or are on the top right corner, are often equipped to quickly advance through the organizational ranks as they’re considered to be able to add more value higher up the ladder.

3. Product Flaws

It is critical to analyse production quality. Conventional manufacturing businesses measure the product flaws per worker per team. Flaws, or inaccurate manufactured products show poor quality work and must have a minimal approach.

Although this metric has become less useful due to the increase in standardized production mechanism, the thought to quantify worker performance can be used on other departments.

4. Number of Flaws

The number of flaws (input errors) can act as an alternative to the previously mentioned product defects. E.g: A team of programmers can measure errors per thousand lines of code.

The same goes for the number of corrections in hardcopy work such as books or the manuals etc. However, in computer programming, a single error can stop an entire program from working or cause malfunctions known as ‘bugs’. This can no doubt cause major issues, especially for multinational companies that release monthly or quartely new software versions.

The quality of piece of code is another important factor. E.g: If 1000 LOC (lines of code) can produce the same computational result as 10000 LOC, the former is an indication of better quality.

5. Net Promoter Score

Net promoter score (NPS) works to determine the worker's progress. It is a digit ranging from 1 to 10 that shows the interest of a customer to review an organization’s service to other prospective customers. Customers who have a higher score are said to be more satisfied and can work as the organization’s promoters. That score can also be used to measure sales workers. The NPS benchmark is crucial in comparing these scores across different industries to evaluate relative performance.

Customer Metrics

1. CLV (Customer Lifetime Value): 

Usually minimizing cost isn’t the only way to improve acquisition of customers. With the help of CLV, you can understand the value your organization is getting from customer in it for the long haul (long-term relationship).

2. CAC (Customer Acquisition Cost):

This is considered to be one of the most important metric in e-commerce stores, since it’s very efficient in analyzing the cost effectiveness of marketing campaigns. To get the CAC, just divide your total acquisition costs by the number of new customers within a specific time period.

3. CSR (Customer Satisfaction and Retention):

Although this may sound very simple – customer satisfaction = retention. However, that may not always be true at all times. You can use multiple performance indicators such as percentage of customers repeating a purchase, customer satisfaction scores etc. to measure CSR. 

4. NPS (Net Promoter Score):

Analyzing this is one of the most efficient ways to analyze long-term organizational growth. You can achieve this simply by sending out surveys (preferably quarterly) to your customers, to analyze how likely they’ll promote your organization to someone else. Word of mouth is the best marketing and this metric should never be poorly executed.

5. NC (Number of Clients):

No explaining is needed for this as it’s exactly what the name suggests. This is similar to the profit metric, where all you’ve to do is determine the number of clients or customers your organization has gained or lost. This should be enough to help you analyze & make better organizational decisions in order to meet customer needs.

Financial Metrics

1. Cash Flow From Financial Activities:

This metric is used to analyze your organization’s financial strength. The formula is simple. (Money Received from Stock or Debt) - (Reacquisition of Debt/Stock & Cash Paid as Dividends) = Cash Flow From Financial Activities.

2. Avg. Annual Expense to Serve One Customer:

This is the avg. amount of cash needed to serve just one customer. The formula is: (Total Expense Spent) / (Total Number of Customers) = (Avg. Annual Expenses To Serve One Customer).

Conclusion

It is important to keep your projects and goals well-thought-out to attain strategic objectives. The most effective KPIs are those that help you decide which measures to take and how to influence.

Starting business during Covid-19 pandemic can be tough, especially in growth and attracting a talented workforce to join and stay committed. Hopefully, the KPIs mentioned above should help you out in your journey to building a successful business.

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