Marketing

What is a KPI?

A Key Performance Indicator (KPI) is a metric that signals how well a company is achieving important business objectives. Here’s how to set and track yours.

Kevin Kononenko on August 21, 2018 • 15 minute read

You’re a first-time CEO trying to run a company with multiple departments, like sales, marketing, customer support, engineering and finance.

There’s no way you can be aware of everything that’s going on — even if you wanted to.

But, you’re frustrated because things aren’t going to plan.

You’ve told your team over and over again that you need to “increase revenue by 20% this year” and you expected every team member to work on the projects that will help your company hit that goal.

Unfortunately, months go by, you feel like a broken record and your annual goal is looking further and further out of reach.

The problem? High-level goals are not enough. Your employees are not translating long-term, high-level goals into personal daily and weekly actions.

This is where KPIs, or Key Performance Indicators, can help.

What your employees need are feedback loops– short-term goals they can directly impact and that provide a clear indication of success or failure. KPIs create those feedback loops by helping employees focus their energy on the projects that will improve a metric.

KPIs are how you make sure each of your employees has a plan to help you reach your big goals. And, you have a way to hold those employees accountable for playing their part.

KPIs match a specific metric to a larger business objective. The metric, or indicator, will help each employee determine the weekly or monthly activities that they need to complete in order to accomplish the quarterly or annual objective.

It’s kind of like the scientific method. The KPI is the hypothesis – a metric that may or may not lead to business success. But, it provides guidance for the experiment or tasks that your team will complete in a given time period.

As your teams make progress towards hitting their KPIs, you can determine if each KPI – and the associated tasks required to achieve it – actually helped you accomplish your higher-level business objective.

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The Definition of A KPI

KPI stands for Key Performance Indicator. A Key Performance Indicator (KPI) is a metric that signals how well a company is achieving important business objectives. Notice how it uses the term “indicator”? That is because it measures progress.  “Key” means it’s important and “Performance” – well, you get the idea.

Each department likely has its own objectives, so KPIs allow your company to manage progress across all departments. High-level KPIs may measure the overall performance of a company, while low-level KPIs may focus on measuring a project’s impact or the output of recurring activities in departments such as marketing, sales, customer service or product development.

 

Key Guidelines for Defining KPIs

In order for KPIs to work, it’s important to define them properly.

There is a huge difference between saying that your goal is “growing revenue” compared to “growing revenue by 20% annually”. If you simply aim to “grow revenue”, then revenue growth of $1 is acceptable, and employees will not be inspired to change what they’re doing.

KPIs must be well-defined so that teams and individuals know what they’re trying to achieve and when they are trying to achieve it by.

To ensure they are, KPIs usually follow the SMART Goal criteria:

  • Specific – Is the objective specific enough so that everyone knows what must be done?
  • Measurable – Can the objective be measured?
  • Assignable – Is the KPI assigned to at least one individual or a team?
  • Realistic – Can the KPI be realistically achieved?
  • Time-bound – Is there a specific time frame for achieving the goal?

By defining the metric in this way, you can be sure that the outcome is binary- pass or fail.

Need some concrete examples? Here are 16 examples of marketing KPIs.

 

How To Set KPIs For Your Company

KPIs are a little different than business metrics. You might track many metrics in your business in order to have a pulse on what’s happening or to analyze cause and effect between different activities and outcomes. However, KPIs are usually a subset of those metrics — the most important ones.

If you set a KPI for every metric you’re tracking, your team will be overwhelmed and not know where to focus.  Your team only has so much time in the day. If they try to improve all of the metrics for their department, they will probably not dedicate enough time to the most critical metrics: your KPIs.

To set KPIs for each team and individual, your company should first define high-level goals, like “Grow revenue by 20% each year”. (You can have multiple but don’t get carried away setting too many.)

Then, individual departments (or teams) should create objectives that will allow your company to hit the goal. After all of that, you can finally set up your KPIs- the quantitative metrics that will prove whether you have achieved your objectives.

If we lived in a perfect world, each department would automatically know the actions needed to hit the company’s 20% revenue growth goal, as in this example. Unfortunately, running a company is not quite so straightforward and not every action correlates perfectly with a business outcome every time.

In the face of this ambiguity, KPIs empower experts from each department to choose the actions they think will maximize their impact on the Company’s targets. And over time, cause and effect becomes much clearer.

Most well-run organizations measure their KPIs on at least a monthly basis, to make sure their efforts are having the right impact. And since some activities and projects may fail, department leaders may discover that the KPIs they chose to pursue did not actually have the intended impact. Because of this, many companies choose quarterly objectives. With quarterly objectives, they can adjust their hypotheses four times throughout the year.

 

How to Set KPIs for Each Team and Individual

Here is the general flow for setting KPIs in your business:

Set Company Goals -> Set Department Objectives -> Choose KPIs for Teams and Individuals

Here’s an example:

KPIDiagram

In this example, you can see how important it is for the company to set a concrete goal first. Everything cascades from there.

After you choose a concrete goal, each individual department leader can choose the strategy that they will use to meet the goal. Remember, no leader should be held responsible for improving every metric. Instead, the KPI system requires leaders to choose a small number of metrics that will lead to the larger goal.

As an example, imagine that you run a customer service team. In order to help the company grow by 20%, you need to reduce customer churn from 2.5% to 1% this quarter. Your team’s primary activity is to resolve support tickets in a timely manner. You believe that if you can reduce your ticket resolution time from 12 hours to 3 hours, you will accomplish this. Your KPI is your ticket resolution time.

In order to accomplish this, you might also assign KPIs to individual team members. Let’s say you’re growing your team from 4 to 8 people and there are 800 tickets received each week. In addition to assigning them a 3 hour resolution time KPI, you might also assign a KPI to each team member where they must resolve 100 tickets per week.

 

Real Examples of Companies Setting KPIs

Here are three stories of companies that use KPIs to keep their team focused on the correct activities every single day.

Rheo.tv is a web, mobile and Apple TV app that serves short, entertaining video clips based on your mood. Think of it as “Pandora for video”- you choose your mood, like Laugh, Chill or Spark, and the service will give you an interesting video based on your past history with the app.

Rather than using Rheo, users could be mindlessly flipping through YouTube or TV. So, the Rheo product team focuses on daily active users as one of their KPIs. Since they deliver video, their overall company goal is to increase the number of hours of video consumed on their platform.

In order to grow that number each month, the product team must create a “sticky” app- one that hooks new users and quickly convinces them to return again and again instead of reverting to old habits. Daily active users, or DAU, is a retention metric that measures your recurring audience.

Increase total numbers of hours watched → Improve “stickiness” of product → Increase percentage of Daily Active Users

 

Databox (that’s us) creates a free dashboard tool for salespeople, marketers and product leaders. It helps users end the vicious cycle of spreadsheets, screenshots and Powerpoints. Instead, users set up a dashboard with all of their KPIs that automatically updates every hour or every day.

We are a freemium tool, which means that we have a permanently free version that can always be upgraded to a paid version. One of our biggest KPIs is signups to our free version. Sure, that doesn’t lead directly to revenue, but a percentage of free users do end up buying every month. And, if the marketing team is generating page visits but not signups, that may be a sign that we are reaching the wrong type of user.

Increase revenue by x% → Create a strong base of free users  → Increase signups to free plan by X%

 

Zappos.com is an online store that allows you to easily order shoes and send back the ones that don’t fit. It is owned by Amazon.com. They have a big focus on customer service, since they compete with local shoe stores for any individual customer’s attention.

For that reason, the Zappos customer service team is one of the best in e-commerce. They must go above and beyond all the other e-commerce stores for shoes, as well as the in-person experience of visiting a shoe store. They measure call time rather than call volume as a KPI. The difference may seem subtle, but call time encourages representatives to spend as long as they need with each customer, while call volume incentivizes reps to take as many calls in a day as possible.

Grow revenue by x% → Keep customer satisfaction at x% → Spend an average of 6 hours/day on the phone with customers.

 

Marketing KPI Examples

As marketing has become ever-more digital, it has become increasingly measurable. In fact, marketing is the most measurable department in industries like e-commerce, software and even services and product businesses.

Here’s an example from a B2C company. A pasta brand was trying to set a marketing goal that would measure whether their brand was growing in the eyes of consumers. They chose to focus on website sessions as their KPI, since a larger number of sessions should indicate more attention from consumers.

But here was the problem- when Tom Shapiro from Stratabeat looked at their site metrics, he found that almost nobody was clicking into multiple pages on the site or watching the videos. So, the company was not really building their brand. He recommended that they change their KPI to minutes of video watched or bounce rate to measure the engagement of visitors.

On the B2B side, some common marketing KPIs for B2B companies include:

  • Cost per lead– This is your marketing spend divided by new leads acquired by the marketing team.
  • Visitor to lead ratio– this helps you understand how much traffic you need to bring in to hit your lead generation goals
  • Landing page conversion rate– this determines which content offers are most popular with your audience
  • Organic traffic– the number of visits originated from Google search. This is especially important for business blogging.

Your marketing team can use multiple KPIs from the list above, of course. But you may only have the resources to focus on a few.

Sales KPI Examples

Sales KPIs have become common in business, especially since most companies now use a customer relationship management (CRM) system to track contact engagement and deal stages. It’s also relatively easy to work backwards from sales targets to activity targets.

Based on your revenue goal, you should be able to calculate the number of deals that you need to close in a given quarter. And based on the number of deals you need to close, you should be able to determine the number of opportunities that your sales team needs to create.

Unfortunately, most companies stop there and fail to really build a predictable funnel. Have you ever sat down to review the quarterly numbers, only to find out your team did not close enough opportunities?  Unfortunately, by that time it was too late to course correct.

Your team blames their lack of performance on things outside of their control.

To avoid this fate, create a series of KPIs around sales activity, so you can track progress on a weekly or monthly basis.

For example, you might set a prospecting call quota for each sales rep on a weekly basis. You should also track the call to meeting conversion rate to ensure that your salespeople are getting meetings, not just making dials.

Here are a few other ideas for sales KPIs:

  • Total Emails Sent: The total number of outreach emails from each rep
  • Meeting to opportunity conversion rate: The frequency that salespeople convert meetings to opportunities
  • Number of qualified opportunities: the number of deals that meet certain qualification criteria.
  • Total Pipeline Created: The total potential revenue that a salesperson has added to the pipeline

These KPIs form the basis of weekly or monthly meetings with reps. If a rep is not hitting their weekly activity goals, they are less likely to hit their monthly quota.

Here’s an example of a dashboard (using data from HubSpot CRM) that allows you to track the activity of all your reps in one place.

Setup this dashboard in your Databox account in minutes by connecting your HubSpot CRM.

 

Track Your Progress With KPI Templates

Now that we have covered the process of setting KPIs for each of your teams, you need a way to track all of your KPIs so that you and your team members can check them anytime.

This is where KPI templates help. KPI templates ensure that the latest data will be communicated on a regular cadence in a consistent format. There are three common ways to do that:

  1. Dashboards that can be accessed at any time via a browser, mobile device or TV.
  2. Spreadsheets that are updated on weekly intervals
  3. Presentations that follow a similar format each month

No matter which method you choose, you must put some thought into what KPIs you will include. If you change the metrics that you are tracking or present KPIs in different formats every month, employees will be unclear on how their efforts make progress towards the company goal.

Here’s an example of each type of KPI template.

Anytime, Anywhere-Accessible Dashboards

An automated dashboard tool will allow you to share KPIs across any interface in the office:

Obviously, at Databox, we’re very biased about this method. We’ve put a lot of effort into creating 100s of KPI templates that allow you to quickly visualize any thousands from 65+ data sources, like HubSpot, Google Analytics, Facebook Ads, AdWords, Salesforce and many more. Here are a few examples:

Google Website Traffic Dashboard

HubSpot CRM Dashboard

Facebook Ads Dashboard

These dashboards will automatically update every hour (on our paid plans) or every day (on our free plans), so you do not need to manually update any data.

Spreadsheets

Every employee probably deals with spreadsheets in their daily work. Many companies create a big KPI spreadsheet with a cloud service like Google Sheets.

To populate the spreadsheet, they usually either assign a single person to log in to different software tools and update it. Or, they ask each team member to personally update their numbers on a weekly basis. Some companies use this daily or weekly data-entry ritual as a way to keep KPIs top of mind with their employees. After all, if they have to report a number, they are going to be focused on making sure that number is where it needs to be.

Here’s an excellent template that can be customized and used by any department.

Screen Shot 2018 08 09 at 3.16.48 PM

Presentations

While presentations require more formatting, they are great for storytelling. When presenting to a boss or client, a presentation is often very helpful.

To construct these decks, employees usually take screenshots from analytics tools and add a few notes to detail the lessons learned over the course of the month.

Here’s an example of an SEO report template using data from Ahrefs.

Screen Shot 2018 08 09 at 3.22.54 PM

On the right side of the screen, the employee took a screenshot from a relevant service, perhaps Google Search Console. On the left side of the screen, this person shared the actions taken this month and what he/she will do differently during the following month.

Many Databox users use the Scheduled Snapshot feature – a tool that allows a user to send a snapshot of a Databoard on a daily, weekly or monthly basis – to create month-end decks. This way, they can have the best of both worlds: dashboards as well as a presentation deck when it’s needed.

Get Started Tracking KPIs Today

If you’d like to set KPIs for multiple teams today, you can use the SMART Goals feature in your Databox account. On our free plan, you can set up an unlimited number of KPIs from up to 3 of our 65+ integrations, and assign them to up to 3 members of your team.

About the author
Kevin Kononenko Growth Marketer @ Databox. Making it easy for marketers to tell the story of their success. Everton FC supporter. Startup guy.
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