Understanding how Key Performance Indicators (KPIs) work can help your business use a wide range of metrics to set specific internal and customer experience goals and determine whether you are on track to meet them.
What Are Key Performance Indicators (KPIs)?
A Key Performance Indicator, or KPI, is a type of metric that is used to measure how well a particular aspect of your business is doing. Often referred to as health metrics, KPIs can give you an idea of whether various processes within your business are performing at the level you want them to and helping you meet your goals.
Key Performance Indicators FAQs
Here are some of the most important things to know about how KPIs work and how they can benefit your business!
What Are the Top Five Most Used KPIs?
While you have a wide range of KPIs to choose from, understanding the most common metrics is a helpful starting point for monitoring various aspects of your business.
1. Revenue Generation
First and foremost, your business needs to be bringing in an adequate amount of money each month, quarter, and year to meet your needs. Businesses that exceed profit goals can provide the resources you need to pursue loftier goals that grow your business, while frequently failing to bring in the minimum revenue you need to function can endanger the future of your business.
2. Customer Satisfaction
Satisfied customers are more likely to keep coming back than disappointed customers, which means that measuring customer satisfaction is an important step in determining whether your business is on track to create a strong percentage of repeat customers. Your customers should be happy with both the product or service they receive and the experience they have interacting with your brand.
3. Operational Efficiency
Businesses that waste time, money, and other resources operating less efficiently than they could be cannot stretch those resources as far in other areas, which can significantly limit their growth options. This KPI helps your business understand whether your internal processes are being done in ways that give you the highest capacity to get the most out of what you have.
4. Marketing Effectiveness
Marketing materials that capture your target audience’s attention and convey the right message are more likely to encourage them to begin the buyer’s journey and ultimately make a purchase than those that miss the mark, and measuring the effectiveness of your marketing materials and campaigns can help you make adjustments to better interest your current and potential customers.
5. Employee Performance
Strong employees naturally make your business more likely to meet other KPIs, and consistently evaluating the performance of your team members can help you identify each employee’s strengths and areas in which you would like to see improvement.
What Are the Four Components of a KPI?
Strong KPIs consist of four components that help you determine what you want to measure, how you plan to do it, and what you ultimately want the data you gather to indicate.
1. Measure
Identifying what specific metric you want to measure is an important first step in ensuring that the other components of your KPI help you obtain the data you want.
2. Data Source
You will then need to determine how you plan to gather the data you need, such as identifying a specific software program you want to use.
3. Target
Your target is the specific goal that you want the data you gather to meet.
4. Time Frame
Setting a specific time frame early on gives you a specific date that you ideally want to reach your target by. Although this can be somewhat flexible, you are more likely to meet your goals if you are intentional about determining when you want to reach them than you are if you simply decide that you will be happy with reaching them at any time.
How Are Key Performance Indicators Typically Used by Managers?
Key Performance Indicators play an important role in helping managers determine the productivity of their teams and the success of their businesses. They can then use this information to determine what areas are currently meeting their goals and which are most in need of improvement, such as customer satisfaction, profit, and mobile app experiences.
How to Set Up Key Performance Indicators
Strong Key Performance Indicators should follow the SMART formula, which means your KPIs should be specific, measurable, attainable, relevant, and time-bound.
How to Monitor Key Performance Indicators
You can use a wide range of tools to track your KPIs, such as Google Analytics, Google Sheets, or a variety of software programs that are created specifically for documenting and tracking KPIs.
What Are Some Examples of KPIs?
Some of the most common KPIs include:
- Customer Satisfaction Score (CSAT)
- Net Promoter Score (NPS)
- Customer Retention Rate
- Customer Complaint Resolution Time
- Average Response Time to Customer Inquiries
Contact us today to learn more about the benefits of using KPIs to learn more about your business!