How to Determine the Right KPI (for Beginners)
What KPI Stands for is Key Performance Indicator
Key performance indicators are excellent tools to get a snapshot of how well your business is performing. KPIs aren’t just all the numbers available, though. You have to determine the right KPI based on your goals and objectives. Here I’ll talk about things like which KPI is used to reduce cost, which KPI executives will be more responsive to, and if KPIs are still relevant.
The examples used will be tailored towards social media and marketing because that’s my area of expertise, but they can apply everywhere.
Are KPIs Still Relevant?
Almost everyone you speak to will not be a fan of KPIs. It seems like everything a business does is just to get numbers (KPIs) up, and they don’t seem to care about the unquantifiable things.
While this is true, it’s also very difficult to assess and evaluate progress without a mode of comparison. KPIs are a simple tool to use to judge growth because the numbers are defined and easy to calculate. Attempting to quantify and analyze the emotions of customers, for example, is much more difficult and resource intensive.
KPIs are still relevant because they are simple — that’s all. Picking the right ones can give you a snapshot of where you stand when aiming for your goals.
KPIs should be used as a tool instead of a measure of growth. They can guide ideas and strategy but solely relying on them to assess performance can destroy the emotion and values behind your business.
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How to Choose a KPI
Once you establish your goals and find the metrics that mean something to you, you can pick a KPI to track. Different goals require different KPIs, here are a few objectives you might be interested in.
Which KPI is Used to Reduce Cost?
The most commonly used KPI to reduce cost is ROI (Return on Investment). This metric tracks how much money you make relative to the money spent. For example, you could calculate the ROI of an advertisement by dividing direct sales through the advertisement by the amount spent on the ad.
Observing this number throughout multiple campaigns can give you perspective on your expenditures throughout your marketing. If one campaign has an ROI significantly lower than the others, it may be time to reassess whether that campaign needs to be reworked or completely scrapped.
Using this KPI as a tool for reducing cost is only beneficial as a tool. You should still observe beyond the number and attempt to understand why it’s low. The KPI should be exactly what it is, an indicator.
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Which KPI Will Executives be More Responsive To?
Executives love numbers. If you need KPIs to keep an executive happy, you should approach your search no differently than when choosing one for your own reference.
Overall, executives and managers are looking to make money through their businesses. So indicators like ROI are an excellent metric to report to your executives to show growth and progress.
Some other measurements of growth through KPIs could be metrics like:
Revenue
Retention Rate
Customer Acquisition Cost
These are all general data points for growth, but the ultimate decision should be based on your individual goals. If you think the weakness of your business is retention, then you should focus on a metric like retention rate.
KPI for Brand Awareness
If you believe your business needs to build its brand awareness, you’re going to need a different metric to measure that than your sales metrics. Some great KPIs for measuring brand awareness are:
CTR (Click Through Rate)
Impressions
Reach
Engagement
Specifically measured through social media, these KPIs can show you how engaged your target audience is. You want to use these measures at different parts of the purchase funnel: awareness, consideration, and conversion.
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How to Determine the Right KPI
These are just a few examples of many key performance indicators. You should explore what data you have available to you to assess your possibilities. The next step is determining how to choose the right KPI for your goals.
The following steps should guide you to an effective selection of 2–3 KPIs that you can use to measure your growth:
#1. Determine Your Business Goals
#2. Identify The Area of Improvement
#3. Find Measurements that Relate to Your Goals
#4. Consistently Track Your KPIs
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