All businesses aim to create a successful product or service that will sell and meet customer expectations. This is possible when a company works diligently to validate a need in the market. However, many companies have difficulty making progress because they do not have well established KPIs to track.
Important decisions must be made to grow a business. Decisions around investments, finance, marketing, human resources, and business operations, among others.
Business metrics known as Key Performance Indicators (KPIs), help in the launch of new services and products, as well as marketing campaigns, sales, and can aid in future planning.
Numerous business metrics can be measured, but the indicators you choose must depend on your company’s culture, industry, and goals.
How to Use KPI Metrics
Business metrics are quantitative measures used to track, monitor, and analyze the success or failure of a business operation. It aids in the efficient decision-making process for corporate management.
Customers, managers, business owners, investors, and vendors are all business stakeholders who are impacted by business metrics.
“KPI business metrics provide you with a pulse on the health of the business.”
Each department of a company keeps track of, monitors, and analyses its performance and essential indicators.
The sales department handles metrics, such as sales volume, sales calls close ratios, lead to deal conversion ratios, and so on.
While marketing handles engagement percentages, campaign costs, website traffic to lead gen conversion ratios, among other things.
Many companies include their favorite business metrics in their mission statements, and some even include them in their day-to-day operations.
Six Steps to Increase the Value of Metrics
You can’t get any information from measurements if you don’t know what to measure. Worse, if you measure the wrong things, your conclusions could lead you down a road that hurts your company’s performance.
What’s the trick to avoiding both scenarios? Verifying that the performance measurements you are tracking are relevant.
That is, of course, easier said than done. Internally and internationally, well-designed analytics solutions can measure every facet of your organization. However, before even considering an implementation, they must be based on the correct metric.
Here are six simple steps you can take to improve the impact of your analytics.
1) Strategy First
First and foremost, it’s essential to avoid one of the most common business intelligence blunders: starting the metrics defining process from the wrong end. Everything you do and assess should ultimately be tied to a larger corporate plan.
If you start with performance measurements without considering this technique, you risk wasting time and resources on KPIs unrelated to your desired outcome.
Instead, use your strategic goals to create quantifiable targets that can be implemented across the board. Only then should you identify performance measures that will aid in achieving these goals, and by consequence, the larger strategy.
2) Interconnected KPIs
Another common blunder when setting KPIs is doing so in isolation. For example, sales, click-through rates, common trends, and conversions are all independent performance measures in social media. However, just because they’re independent shouldn’t imply they can’t be tracked without being linked.
Your KPIs should be horizontally integrated, just as they should be linked to broader strategic goals. In layman’s terms, this implies being able to see how changing one metric effect another.
The only way to ensure that measurements become meaningful in evaluating your work and making decisions is to identify metrics that create meaning together.
3) Focus On the Future
When you construct your metrics, ask yourself a fundamental question: are you only measuring past success, or are the indicators you’re focusing on also forecasting the future?
Experienced analytics professionals may recognize this query to discover both lagging and leading indications.
Simply put, trailing indicators reflect uncomplicated outcomes. They are the result, informing you what happened but not why. On the other hand, leading indicators are concerned with desired outcomes and the events that lead to them.
Lagging indicators undoubtedly make up most of the data in your business intelligence solution right now. Naturally, we’d want it to be the other way around; leading indicators are much better at predicting future performance.
You should reverse the script and focus your measurements on the future rather than just reporting on past results, this will make your metrics more useful.
4) Don’t Put Too Much Emphasis on Goals
Goals are fantastic. Leading indicators can assist you in establishing a goal for which everyone in the firm can strive.
Goals are a nightmare. They frequently generate issues because they constrain the scope of performance to the point where certain experts would go to any length (including unethical actions) to achieve them. Cooperation reduces as risks rises.
Both assertions are accurate, as any experienced manager understands.
So, where is the middle ground?
The idea is to identify a point of agreement. Set realistic expectations using your future-facing measures, but don’t become too reliant on them.
Only by striking a balance can a company achieve long-term success, with measurements that improve overall performance.
5) Identify and Track Desired Outcomes
In the end, the issue of making your measurements more meaningful boils down to one basic question: which business outcomes should you prioritize? Most businesses fail to meet their strategic objectives because the objectives are not linked to the measurements.
Just as you should begin establishing these KPIs with your overall strategy in mind, you should also ensure that your business intelligence efforts maintain a solid link to the top.
The only way to have an impact is to ensure that your business intelligence is integrated with all aspects of your business, both internal and external.
This involves deciding precisely what you want to achieve and then developing measurements to track your progress. After that, you can set benchmarks to assist you in tracking your progress toward your goal and strengthen the link between strategy, objectives, and performance indicators.
6) Give Internal Metrics External Context
Finally, it’s essential not to overlook your external surroundings. You may have observed that all the preceding processes and points were heavily reliant on internal KPIs. But do you know how they stack up against comparable data in the market?
External and internal leading indicators are the key, as Gartner’s James Laurence Richardson pointed out in a presentation on the same topic at Gartner’s 2017 Data and Analytics Summit.
“Only by connecting external market needs to internal capabilities can you build aspirational and practical measurements.”
To put it another way, these external factors can give you the context and benchmarks you need to track your progress over time. They enable responsible goal setting as well as an in-context assessment of your market position. Only an external consideration can make your business intelligence metrics genuinely meaningful.
Take Steps Towards More Meaningful Metrics
Analytics attempts are annoying at best and deceptive at worst if the correct metrics aren’t used. That’s why it’s necessary to uncover and define metrics that genuinely matter to your organization when you set up and build up your business intelligence operations.
To recap how to leverage KPIs to grow business:
- Start With Strategy
- Develop Interconnected KPIs
- Measure the Future
- Avoid over Committing to Goals
- Define and Track Your Desired End Results
- Link External Context to the Internal Metrics
Make no mistake, measurement is critical to success. Defining the right metrics to analyze and help you achieve your goals can make the difference between purposeful success or accidental failure.