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The Ultimate Guide to KPIs

We've pulled together everything you need to know about KPIs... 📊

  • Lucidity
  • 6 min read

One of the most important aspects to driving success is maintaining a strong awareness of how every area of your business is performing. Staying on top of progress will ensure you know what is working and what is not, which means you will spot issues quickly and be able to capitalise on successful initiatives.

Having this level of visibility of performance requires some organisation and process around your reporting. You need to know what you should be measuring and monitoring and how often. You need to decide on your important metrics and set up a process and a dashboard to track them. This is where KPIs come in.

So read our Ultimate Guide to KPIs and make sure you know what metrics are the most important for your business.

What is a KPI?

A KPI (Key Performance Indicator) is a metric used to measure the performance of a company, department, or particular activity.

Revenue, Web Site Traffic, Customer Satisfaction – these are all examples of KPIs. In fact, a KPI can be anything you decide to measure that is important to you to understand progress.

What are KPIs used for?

KPIs are used to monitor the progress of an activity or group of activities. They’re common in business and are often the basis for the important dashboards or reporting within a business. KPIs can be grouped into categories such as:

  • Financial KPIs
  • Marketing KPIs
  • Customer KPIs
  • HR KPIs

Niche industries will have their own set of defined KPIs. For example, in the hospitality industry the KPI of AOR (Average Occupancy Rate) is used.

How are KPIs reported on?

KPIs will often be used in conjunction with some concept of a target or goal. Taking our hospitality example above, you may have a KPI of Average Occupancy Rate that has a target associated to it of 90%.

KPIs can be grouped together to form snapshot reports or KPI Dashboards, both of which are key to understanding the health and progress of a company or department.

How do KPIs relate to a strategy?

It is not uncommon for business leaders to spend a lot of money on an off-site strategic planning process to formulate a strategy plan, but then find that the momentum becomes completely lost when they all come back to the office and attempt the execution phase. This is often referred to as the 'execution gap'.

KPIs, however, can play a key (no pun intended!) role in solving this problem, by ensuring high-level information is easily accessible to everyone in the business in order to make decisions and see how the strategy is performing.

Remember, good strategy evolves and adapts, and KPIs can give you an indication of when that is needed.

What are the characteristics of a good KPI?

As a KPI is ultimately some sort of metric, every business has hundreds or thousands of potential KPIs. That’s not ideal. You don’t want to be drowning in KPIs.

So, how do you decide what are good KPIs for your business? Well, here’s five characteristics of good KPIs to get you started.

KPIs should be simple

If you can’t look at a KPI and instantly understand the meaning, then it’s unlikely to be the one for you. A good KPI is simple in it’s nature, providing a clear snapshot of one piece of data and insight.

KPIs need to be meaningful

It’s no good having hundreds of KPIs, instead opt for a handful of really important ones that make a difference to your company day-to-day. Remember the K in KPI means Key!

KPIs should be related to some sort of goal

If you’re measuring different KPIs but there’s no goal or threshold behind them, why are you measuring them? Sanity check the information on your KPI report. Do you need to know the data?

KPIs should relate to your strategy

It’s easy to get carried away with hundreds of KPIs so it's important to test if the KPIs you’re creating actually impact your strategic planning and decision making. If they don’t, do they really need to be surfaced to the wider team?

KPIs should be actionable

KPIs are ultimately focused on performance, hence the name - they indicate performance direction. Therefore your behaviour should change based on the movement of your KPIs and aligned Goals. If your KPI doesn’t influence your behaviour, it’s not the right one to have on your reports.

What are the characteristics of a bad KPI?

You can spot bad KPIs or use of KPIs by the following traits:

  • An overwhelming amount of KPIs
  • KPIs that have no goals or targets
  • KPIs that don’t relate to the strategy
  • Nobody has ownership of the KPIs
  • They don’t drive behavioural changes
  • They don’t impact day-to-day
  • They aren’t interesting
  • They’re too confusing

What are the alternatives to KPIs?

There are two alternatives to KPIs:

Objective Key Results (OKRs)

OKR is a framework used to set and track goals within a plan. They normally are set throughout an organisation in order to establish the key results you wish to achieve within the next period of time, often 3 months.

For example, if you’re a software company then you may have an objective of getting an accreditation such as Investors In People, and the Key Results may include things like Employee Satisfaction.

KPIs and OKRs can work well together – they aren’t mutually exclusive.

Key Result Areas (KRAs)

Introduced in 2010, Key Result Areas are often identified areas of business outcome that need to be a success in order for the strategy to go well. They can be seen as employee based goals, for example a Business Development Manager may have a sales target KRA that feeds up into the overall performance of the company.

Like OKRs, KRAs can work well with KPIs.

What are some example Marketing KPIs?

In terms of departments, Marketing has a lot of potential KPIs that can be used:

  • Number of Leads
  • Conversion Rate
  • Cost Per Click

You can find a lot more in our Complete List of Marketing KPIs.

What are some example Financial KPIs?

The Financial industry has many metrics and ratios to evaluate the health and performance of companies including:

  • Gross Profit
  • EBITDA
  • Cash Ratio

You can find a lot more in our Complete List of Financial KPIs.

What are some example People or HR KPIs?

Increasingly People & HR is becoming key to strategic plans, with KPIs including:

  • Time to Hire
  • Employee Satisfaction
  • Pay Gap Ratio

You can find a lot more in our Complete List of HR & People KPIs.

What are some example Customer KPIs?

KPIs can play a key role in understanding your success with your customer base, with KPIs including:

  • NPS or CSAT
  • Retention Rate
  • Customer Lifetime Value

You can find a lot more in our Complete List of Customer KPIs.

What are some example Product KPIs?

Product KPIs often overlap with marketing, customer and financial, as in many cases a product is heavily tied to these departments. That said, there are some unique product based KPIs including:

  • Team Velocity
  • User Actions
  • Release Rates

You can find a lot more in our Complete List of Product KPIs.

How can you track KPIs with software?

So now you have selected which KPIs are the most important to your business, how should you monitor them?

As we’ve said, staying on top of your performance is what will give you a strategic, and competitive advantage. In order to really maximise that advantage, you want your KPI monitoring to be as dynamic as possible – so, at any one time, you can get fast and up-to-date visibility of your performance. That way, you can be confident that all decision-making is being based on reliable and accurate data and insight.

The right software will allow you run this up-to-date tracking of your key metrics, and, most importantly, have this operate automatically to save you time and resource.

Setting up a KPI Dashboard will enable you to automate your reporting for always-on monitoring, but it will also allow you to make your KPI tracking visual. There is a lot of data involved in a company’s KPI tracking, with lots of different data points. Without well laid-out visualisation this could become extremely hard to grasp and will complicate your decision making. So, using a KPI Dashboard software will mean easy and effective visualisation of your key performance indicators, making the information easily digestible.

The right software will also enable you to have customisable views so you can set up different dashboards for different departments, different meetings, different stakeholders. So, make sure, whatever software you chose, it’s KPI Dashboard facility is flexible, interactive and customisable.

In order to ensure your software driven KPI tracking is dynamic you’ll need to use a system that allows integrations with the other important data systems in the business. You don’t want to have to add in all your financial information from your finance system, or your customer numbers from your CRM, or your Cost Per Click from your advertising platform, every time you want to report on KPIs. You want to set it all up once and then have it dynamically update automatically. So chose a KPI Dashboard system that can automatically pull in data from across the business and the systems you already use.

So, knowing your KPIs is one thing, but using the right, smart tools to track them and give you clearly understandable progress tracking is what will ensure you can extract the most strategic value out of tracking your key performance indicators.

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