The trouble is, there are thousands of KPIs to choose from. If you choose the wrong one, then you are measuring something that doesn’t align with your goals. How, then, should you go about selecting the right KPIs for your organization?
If you’ve found yourself asking that very same question, you’re not alone. It’s not unusual for companies to stray off course as a result of using the wrong measures. But the sooner you uncover your mistakes, the better—and you can always get back on track by revisiting your KPIs.
In this article, we’ll shed some light on the process of choosing and tracking KPIs so you’re better positioned to select the right ones for your organization. We’ll also share 18 meaningful key performance indicators that can be applied to most companies.
Choosing & Tracking KPIs: A Step-by-step Guide
It is frequently said that “What gets measured gets done,” but how does the measuring itself get done? Below are the important steps to consider in effectively tracking KPIs as a part of your performance management framework.
Step 1: Choose one or two measures that directly contribute to each of your objectives.
While your organization has many moving parts that are integral to its operations and performance, it is not possible, or efficient, to track everything going on internally. For one thing, not all measures are important enough to track. For another, tracking too many measures creates unnecessary work that ultimately won’t be useful.
Instead, choose one or two metrics for each of your objectives that will be most helpful in achieving them. Multiple metrics could apply, but only a couple of them will be impactful enough to improve performance.
For instance, say your organization has an objective to improve your employee training and development programs. You could measure the percentage of trained employees or training time, but neither of these correlate well with the real result you’re looking for: developing peoples’ skills to handle more advanced roles. A better measure might be a reduction in errors as a result of the training, for instance.
Step 2: Make sure your measures meet the criteria for a good KPI.
In addition to making sure your chosen KPIs are true indicators of performance, they should also have some additional characteristics that will signal their effectiveness. Ask these questions about each KPI you’re considering:
- Can it be easily quantified?
- Are we able to influence/drive change using this KPI, or is it out of our control?
- Does this KPI connect to our objective as well as overall strategy?
- Is it simple to define and understand?
- Can it be measured in both a timely and accurate manner?
- Does it contribute to a broad range of perspectives – i.e. Customer, Financial, Internal Processes, Learning and Growth?
- Will it still be relevant in the future?
If you answer “no” to many of these questions, it may be a sign that the KPI either needs to be altered or replaced altogether.
Step 3: Assign responsibility for each KPI to specific individuals.
KPIs are an important tool in measuring progress, but they are more likely to be acted upon if someone is held responsible for tracking and reporting on them. An added benefit: The responsible party is also usually more inclined to want the measure to succeed, rather than accept underperformance. Even if all the person’s responsible for is reporting on their KPI, you can bet they’d rather report good news than bad news—which motivates them even more.
You may have an analyst responsible for collecting the data. This is important, but maybe more important is having a business leader who is responsible for “reporting” on the measures. The business leader should be able to analyze the results, put the data in context, and explain whether performance is good or bad and why. The individual who is responsible for the measure will be able to influence the resources dedicated to improving the measure.
Step 4: Monitor and report on the KPIs.
Finally, it’s necessary to continually review your KPIs and their performance on a monthly, quarterly, or other predefined reporting frequency. Regular monitoring makes it easy to see the time frame in which something may have underperformed or overperformed, as well as what may have happened within this period to cause the change.
To ensure the whole team is on the same page—and because many measures and goals are interconnected—it’s crucial to report these findings to all relevant parties. Making use of customizable dashboards is a great (and simple) way to report to different audiences. You can make one dashboard for departments working on KPIs, and another that gives a high-level overview to executive teams.
You can improve your KPIs just by changing the way you track them.
Many organizations use spreadsheets to track KPIs, a method that often comes with issues like version control and calculation errors. In addition, tracking KPIs in spreadsheets takes a lot of time.
Leveraging a more advanced performance management software like ClearPoint has a lot of benefits. While the time you’ll save in tracking and reporting alone is well worth the investment (some of our customers reduced the time they spent gathering and reporting data by 89%), another extremely useful—and unique—feature of our software is its ability to link KPIs to organizational objectives.
For companies that are serious about strategy execution, the ability to link KPIs to objectives is significant in two very important ways:
None of this is to say you can’t use spreadsheets to view your KPI data, but with ClearPoint, you save time and improve the information available for decision-making.
These aren’t the only benefits of ClearPoint. It has a number of features that make strategy execution and reporting easier, including assigning ownership of KPIs, creating dashboards for real-time reporting, and automating much of the process to save time. To learn more, visit our site!
18 Key Performance Indicator Examples & Definitions
We’ve broken down our list of KPIs into the four categories of the Balanced Scorecard: Financial, Customer, Process and People. Make sure you select a few from each category so that your strategy is well balanced across the organization.
- Profit: This goes without saying, but it is still important to note, as this is one of the most important performance indicators out there. Don’t forget to analyze both gross and net profit margin to better understand how successful your organization is at generating a high return.
- Cost: Measure cost effectiveness and find the best ways to reduce and manage your costs.
- LOB Revenue Vs. Target: This is a comparison between your actual revenue and your projected revenue. Charting and analyzing the discrepancies between these two numbers will help you identify how your department is performing.
- Cost Of Goods Sold: By tallying all production costs for the product your company is selling, you can get a better idea of both what your product markup should look like and your actual profit margin. This information is key in determining how to outsell your competition.
- Day Sales Outstanding (DSO): Take your accounts receivable and divide them by the number of total credit sales. Take that number and multiply it by the number of days in the time frame you are examining. Congratulations—you’ve just come up with your DSO number! The lower the number, the better your organization is doing at collecting accounts receivable. Run this formula every month, quarter, or year to see how you are improving.
- Sales By Region: Through analyzing which regions are meeting sales objectives, you can provide better feedback for underperforming regions.
- LOB Expenses Vs. Budget: Compare your actual overhead with your forecasted budget. Understanding where you deviated from your plan can help you create a more effective departmental budget in the future.
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68 FINANCIAL KPIS AND SCORECARD MEASURES
- Customer Lifetime Value (CLV): Minimizing cost isn’t the only (or the best) way to optimize your customer acquisition. CLV helps you look at the value your organization is getting from a long-term customer relationship. Use this performance indicator to narrow down which channel helps you gain the best customers for the best price.
- Customer Acquisition Cost (CAC): Divide your total acquisition costs by the number of new customers in the time frame you’re examining. Voila! You have found your CAC. This is considered one of the most important metrics in e-commerce because it can help you evaluate the cost effectiveness of your marketing campaigns.
- Customer Satisfaction & Retention: On the surface, this is simple: Make the customer happy and they will continue to be your customer. Many firms argue, however, that this is more for shareholder value than it is for the customers themselves. You can use multiple performance indicators to measure CSR, including customer satisfaction scores and percentage of customers repeating a purchase.
- Net Promoter Score (NPS): Finding out your NPS is one of the best ways to indicate long-term company growth. To determine your NPS score, send out quarterly surveys to your customers to see how likely it is that they’ll recommend your organization to someone they know. Establish a baseline with your first survey and put measures in place that will help those numbers grow quarter to quarter.
- Number Of Customers: Similar to profit, this performance indicator is fairly straightforward. By determining the number of customers you’ve gained and lost, you can further understand whether or not you are meeting your customers’ needs.
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53 CUSTOMER KPIS AND SCORECARD MEASURES
- Customer Support Tickets: Analysis of the number of new tickets, the number of resolved tickets, and resolution time will help you create the best customer service department in your industry.
- Percentage Of Product Defects: Take the number of defective units and divide it by the total number of units produced in the time frame you’re examining. This will give you the percentage of defective products. Clearly, the lower you can get this number, the better.
- LOB Efficiency Measure: Efficiency can be measured differently in every industry. Let’s use the manufacturing industry as an example. You can measure your organization’s efficiency by analyzing how many units you have produced every hour, and what percentage of time your plant was up and running.
- Employee Turnover Rate (ETR): To determine your ETR, take the number of employees who have departed the company and divide it by the average number of employees. If you have a high ETR, spend some time examining your workplace culture, employment packages, and work environment.
- Percentage Of Response To Open Positions: When you have a high percentage of qualified applicants apply for your open job positions, you know you are doing a good job maximizing exposure to the right job seekers. This will lead to an increase in interviewees, as well.
- Employee Satisfaction: Happy employees are going to work harder—it’s as simple as that. Measuring your employee satisfaction through surveys and other metrics is vital to your departmental and organizational health.
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33 HR KPIS & SCORECARD MEASURES
13 Bonus Key Performance Indicator Examples & DefinitionsPeople Metrics
- Retirement Rate: This metric is particularly important for any organization developing a strategic workforce plan. It can be calculated by looking at the number of employees who retired as a percentage of the total headcount. If you do not have an aging workforce, turnover is a good measure as well.
- Knowledge Achieved With Training: Helps the company see the effectiveness of employee training. It can be determined by creating an exam and monitoring exam pass rate percent, average score percent. If you are a larger organization, you may conduct a pre-test before training and then a post-test after training to see specifically what was learned.
- Internal Promotions Vs. External Hires: This ratio measures how many people working at a company are considered for internal promotions versus the number of external hires. It can be particularly effective when looking at organizational succession planning.
- Salary Competitiveness Ratio (SCR): Used to evaluate the competitiveness of compensation options. This ratio is determined by dividing the average company salary by the average salary offered by competitors or by the rest of your industry.
- Customer Churn Rate: This metric indicates the percentage of customers that either fail to make a repeat purchase or discontinue their service during a given period. Formula: (Number of Customers Lost in a Given Period) / (Number of Customers at the Start of the Period) = (Customer Churn Rate). Make sure you look at the number of customers that should have renewed during that period.
- Contact Volume By Channel: Keeping track of the number of support requests by phone and email allows you to see which method customers prefer, as well as the number of support requests month-to-month.
- Percentage Of Customers Who Are “Very” Or “Extremely” Satisfied: Determining this metric opens up an opportunity for further surveying what makes happy customers so satisfied. This is also a good measure to look at over time, so keep your questions consistent on your surveys. Formula: (Customers Who Consider Themselves “Very” or “Extremely” Satisfied) / (Total Survey Respondents) = (Percentage of Customers Who Are “Very” or “Extremely” Satisfied).
- Number Of New Vs. Repeat Site Visits: Allows companies to differentiate their website traffic and generate insights on prospective customers. Formula: (Website Visits by New Visitors) / (Total Website Visits) = percent of new visitors.
- Cash Flow From Financing Activities: This metric demonstrates an organization’s financial strength. Formula: (Cash Received from Issuing Stock or Debt) – (Cash Paid as Dividends and Reacquisition of Debt/Stock) = (Cash Flow from Financing Activities).
- Average Annual Expenses To Serve One Customer: This is the average amount needed to serve one customer. Formula: (Total Expenses) / (Total Customers) = (Average Annual Expenses to Serve One Customer).
- EBITDA (Earnings Before Interest, Taxes, Depreciation, & Amortization): Measures revenue after expenses are considered and interest, taxes, depreciation, and amortization are excluded. Formula: (Revenue) – (Expenses Excluding Interest, Tax, Depreciation & Amortization) = (EBITDA).
- Innovation Spending: This metric shows the amount of money that an organization spends on innovation. Some organizations have this budgeted as research and development, and others have different accounting terms. Ultimately, if you use this measure, you are valuing innovation as a key strategic thrust.
- (Customer Lifetime Value) / (Customer Acquisition Cost): The ratio of customer lifetime value to customer acquisition cost should ideally be greater than one, as a customer is not profitable if the cost to acquire is greater than the profit they will bring to a company. Formula: (Net Expected Lifetime Profit from Customer) / (Cost to Acquire Customer).