Working in marketing, there’s one word that you probably hear a lot of: KPIs. Short for Key Performance Indicators, KPIs are metrics that are used to evaluate the success of a business. In other words, KPIs are how you track your goals. You know, those SMART goals that you worked so hard to pinpoint.
So how do you determine what KPIs to set and track?
That’s what you’re about to find out.
We know the whole process of setting and tracking KPIs can be a bit overwhelming—so we’re going to walk you through exactly how to do it, step by step.
1. Define Your Goals
Before you can even think about setting KPIs, you need to have a clear understanding of what your goals are. Write these down—and make sure that they are SMART.
2. Understand Leading vs. Lagging Indicators
The KPIs that you set are either going to be leading or lagging indicators.
Lagging indicators are easy to measure (but difficult to change), since they are the outputs or results that you are getting—like the number of clients gained in one month or revenue.
Leading indicators are more difficult to measure (but easy to change) and measure the actions that lead to your results, such as the number of unique website visitors you have per month or the number of calls needed to convert a lead into a customer. In other words, leading indicators lead to lagging indicators.
You’ll want to focus mostly on lagging indicators, since those are what are driving your bottom line. But at the same time, don’t ignore your leading indicators, as they can reveal a great deal about your business success.
3. Decide What KPIs to Set
Now, take a good, hard look at the SMART goals you’ve set, and ask yourself this: How can I measure each goal and make sure that I’m achieving that goal? This is where your KPIs come into play.
The KPIs that you set are going to largely depend on two things: how established your business is and what type of business it is.
Hubspot sums it pretty well. For an early-stage start-up, for instance, you’re going to be more interested in things like awareness and qualitative feedback. If you are mid-stage, you’ll want to keep an eye on renewals and customer satisfaction. If you are an established company trying to expand, then you’ll probably be tracking things like cost per acquisition and lifetime value.
As Hubspot explains, a B2B software-as-a-service company might be interested in cost per acquisition and churn. An online media or publishing company will be probably focused on things like unique visitors and time on site. Meanwhile, a brick-and-mortar retail company might concentrate on sales per square foot or customer satisfaction. Finally, a professional service will likely want to track other metrics, like bookings and effective billable rate.
Whatever KPIs you set, keep in mind that it’s only a KPI if it can be measured and if you can somehow track conversions or revenue from the data. Facebook followers or the number of post impressions, for instance, are not KPIs because they don’t tell you anything at the end of the day. You might have 10,000 impressions of your Facebook post, but how is that impacting your bottom line? If you can prove that something is resulting in sales, however, then you can consider it to be a KPI.
4. Only Choose a Few KPIs
When it comes to KPIs, less is more. Don’t overwhelm yourself by tracking more than you really need. For each goal that you set, you should only set a few KPIs, each of which should be directly correlated with that goal.
How many exactly? Aim to set between four and ten KPIs per goal. If you focus on too many KPIs, you are going to drown yourself in unnecessary data and lower your effectiveness.
5. Put It All Together
For each goal that you have, you will probably set multiple KPIs. For instance, let’s say you’re a B2B company whose primary business goal is to increase the number of clients you have by 10% by the end of the calendar year. In that case, one of your KPIs might be the number of new clients and the number of sales-qualified leads per month (leading indicators). If you have 20 sales-qualified leads per month, but none of those leads are becoming clients, then you need to take a look at what you’re doing that might be turning people off in the sales process.
If you’re an e-commerce company whose goal is to increase conversion rate by 5% in the next year, you’ll definitely want to be tracking your conversion rate and your cart abandonment rate (lagging indicators). You might also want to keep an eye on the number of visitors to your site and your bounce rate (leading indicators). If you have a large number of website visitors and a high bounce rate, you might want to evaluate the effectiveness of your website. If, on the other hand, the cart abandonment rate is high but the bounce rate is low, then maybe the problem is that you are pricing your products or services too high.
Start by defining your goals.
Then, choose a few KPIs for each goal. The KPIs that you set will largely determine whether or not you achieve your goals. So put some real thought into this, and choose wisely.
The trick is to work your way backwards, starting with your lagging indicators (ie: sales) and slowly working your way towards your leading indicators (ie: traffic).
Once your KPIs are set, be sure that you are consistent about measuring them, whether that’s once a week or once a month.
And if you’re still confused about what KPIs are most relevant to your business goals, give us a shout, and our team of experts can help.