In order to understand how to create and implement better KPIs, we must first understand what a KPI is. KPI stands for key performance indicator and is defined as a quantifiable measure used to evaluate the success of an organization in meeting objectives for performance. It is the metric (or metrics) that you will use in achieving key goals.
Now that we have a bit more understanding of what a KPI is, how do we go about creating them? There are hundreds of different methods for doing this, but one of the easiest is asking yourself these two questions:
- What is the goal we are trying to achieve?
- How will we know if we’re doing that?
While the second question will provide you with the actual KPIs, it’s crucial to first understand what the goal is that we’re trying to achieve. The goal is the specific outcome or result, whereas the KPI is the metric that will tell you if you’re on track. For example, if your goal is to pass your next math test, some potential KPIs could include amount of time spent studying or previous quiz and test grades. Similarly, if you’re a retailer who is interested in digital advertising to promote product sales online – your KPIs might include total sales volume, ROI, revenue growth, or sales lift – all of which are metrics that would indicate if you’re on track to meeting your goal.
This may seem easy at first glance, but here are some common pitfalls and misconceptions to keep in mind when running through this exercise:
- Just because it can be measured doesn’t mean it should be measured. Remember, the ‘K’ in KPI stands for key, not 1000. Try to limit it to two to five indicators at any given time and make sure they are the relevant to business goals and outcomes.
- KPIs need a target to be impactful. A KPI without a target doesn’t show any indication of performance. Suppose we used total sales volume as one of our KPIs, and we sold 1000 widgets. Is that good? Bad? What if we knew the target was to sell 750 widgets? Much more impactful now, right?
- This leads to an often overlooked point – it’s important to challenge and update your KPIs. All too often, a KPI is just another box on the checklist rather than a tool that leads to better outcomes and performance.
There is a lot to consider when creating and setting KPIs, but it’s worth it to spend time planning and making sure you are tracking relevant and insightful metrics that will lead to better performance and business outcomes.
Dan Earley, As a data insights analyst at Goodway Group, Dan applies strategic problem-solving skills to identify trends, manage data, interpret findings, and produce results which contribute to improved business operations and client relations. Born and raised in the Midwest, Dan attended Purdue University, where he received his Master of Business Administration. In his free time, he can usually be found on a volleyball court, playing board games, or with a camera-in-hand on an outdoor adventure.