We've written extensively about why measuring marketing results is critical to budgeting, adjusting to changing market conditions and improving performance, among other reasons.
Tracking results is crucial. Gathering marketing metrics is essential. But what's even more important is tying these quantitative data sets to the prioritized goals and objectives of your business.
Without connecting metrics to critical business objectives tracking and measurement become ineffective because they exist in a void. Similarly, if you track everything but cannot prioritize which metrics and data are most important to your business, it becomes a moot exercise.
Enter KPIs or Key Performance Indicators.
What are KPIs?
KPIs are the bridge between metrics tracking and your organization's operational and strategic goals.
Our friends at The Balance perhaps stated it best in a recent blog: "An important point to remember is that KPIs are marketing metrics but not all marketing metrics are KPIs. A business must know how to determine which marketing metrics qualify as their key performance indicators."
Right on. That's perhaps the most critical thing to take away from this blog post.
Investopedia defines KPIs as: "...a set of quantifiable measures that a company uses to gauge its performance over time. These metrics are used to determine a company's progress in achieving its strategic and operational goals."
Think of KPIs as the most impactful and actionable metrics for your business.
A batting average in baseball is a KPI of how well a team is hitting, but not neccessarilly if they are winning games.
They are unique to your business and industry and cannot be adopted universally; you must build them thoughtfully and tailor them not only to your industry but also to your business objectives. Key performance indicators in larger organizations can also be customized for various departments and functions (marketing, sales, ops, financial) as long as they roll up and are put into the context of larger, overriding company goals.
What Makes a KPI?
So, how is a KPI different from a simple metric? Here are some common characteristics of effective KPIs:
- They're quantitative, not qualitative, meaning a number can be attributed to them
- They're pragmatic, not superfluous, meaning they are connected to company processes and standards (not metrics for metrics sake)
- They're focused, not generalized, meaning that they can help assess if performance is improving, stagnant or deteriorating
- They drive action, meaning they can propel change
KPI Examples
As stated earlier, KPIs vary by industry and company. There is not a cookie cutter appraoch to KPI development. That said, here are some basic examples of KPIs to give you a sense of what they could look like:
Property Management KPIs:
- Annual return on investment
- Cost per occupied unit
- Percentage of rent collected
Construction KPIs:
- Number of lost time accidents
- Labor downtime percentage
- Project time (estimated versus actual)
Marketing KPIs:
- Cost per lead
- Customer value
- Lead to customer ratio
Remember, KPIs aren't universal. Choose the ones that are most important to your industry, your business, and ultimately your goals.
What Are Some Best Practices for Key Performance Indicators?
- Alignment. KPIs must be aligned with the strategic goals and objectives of your business (or department, if within a large corporation). In addition, your internal teams must be in agreement on KPIs so they're "speaking the same language."
- Available. They must be based upon data that is readily accessible and obtainable.
- Focused. They must be laser focused to avoid "interpretation" or ambiguity; this will keep everyone aligned and headed in the same direction.
- Reliable. Your data must be accurate, clean and pulled at consistent intervals.
- Actionable. They must be able to drive execution and make a case for change.
- Agile. While they must be focused, they must be able to evolve and change over time; KPIs cannot be static-market changes, business changes and data set changes must have an impact.
So, remember: not all metrics are KPIs but all KPIs are metrics.
With data aggregation now mainstream, it's more important than ever to define what data matters most to your organization's success and build out a system inextricably linked to its most important strategic business objectives.
Illumine8 is here to help you out with useful content any time you need it. If you're farther along your journey, feel free to contact us any time. We'd love to learn more about your business and the challenges you face.