The Key to Unlocking Masterful Key Performance Indicators – Part 1

As the management guru, Peter Drucker once famously said, “What gets measured gets improved.” Sounds like a great plan, but what is really the best way for companies to take this idea and incorporate metrics that actually help business operations to improve?  One way is through instituting KPIs or key performance indicators. KPIs actively track and measure the success rate of departments, projects, or the business as a whole.
It can be an overwhelming task to determine which KPIs work best for your company, so we’re here to sift through the noise with these five tips for more effective KPIs.

Balance your forward-looking and backward-looking KPIs

When it comes to KPIs and metrics in general, there are two critical types: forward-looking and backward-looking. A good general rule of thumb is to aim for five or less forward and backward-looking KPIs for your business at any given point. So what does that entail?

Forward-looking KPIs are based on what should happen in the future. Examples would be the number of prospects in the top of your sales pipeline (and the subsequent growth from month-to-month of that number). Another example is projected profit for the next 1-3 months based on current production activity. Backward-looking metrics are based on how things have gone in the past such as profitability in the last quarter or year.

If you have too many forward-looking metrics, you’re at risk of underperforming in the present, or of not learning from past mistakes (or successes!). If you’re only paying attention to your backward-looking metrics, you won’t have any idea what’s a reasonable expectation for next month’s performance.  Balancing the two is the key to making it work.

Avoid the “vanity metrics” trap

Sure, it might feel great when your business gets 100 new Facebook likes in a week, but is it actually doing anything to grow your bottom line? Unless you can prove that whatever metric you’re tracking directly corresponds with more revenue, it doesn’t need to be a KPI. Common vanity metrics include:

• Facebook likes
• Twitter followers
• Pageviews or visitors to your site

Instead, look at KPIs like:

• Percentage of projects that are profitable
• Adherence to project estimation
• Billability
• Number of active users
• Revenue and profit

Measure improvement as well as the statistic itself

Don’t just track the statistic (i.e. the number of active users) at the end of each month; see how much it improved or decreased based on the previous month or year. Comparing growth rates can give you a quick way to see if you’re still growing at the same speed as last year. For example, if you want to track percent of profitable projects, just use this equation:

# of profitable projects / # of projects.

According to eCommerce University, the best improvement metric is to focus on reducing customer service calls by half in the next six months, or to grow site traffic by 20% in the next year. In this way, you can compare the metric by its growth rate over the long-term rather than just hitting the mark in the short-term.

In the end, when it comes to KPIs, you’re aiming at a goal and attempting to improve performance, not just tracking numbers for the sake of tracking.

Make sure the KPIs make sense to everyone, not just managers

If you decide to measure a very specific indicator like social media brand identity, run it by a few people on the ground-level of the department before making it a key indicator. Oftentimes, it’s those on the lower level that are the most in-touch with day-to-day operations, and including them in the decision of what a successful metric would be not only improves the value of that metric but also the morale of that department.

Make sure you’re keeping your customers in mind

Even if your revenue is growing or staying steady, if your customers are unhappy, your strategy needs to be adjusted. Among the 3-5 KPIs you choose to keep front and center, consider including customer response rates, or another customer-focused metric. Customer satisfaction is a great metric to have, but it’s notoriously difficult to get an accurate read on. (Here’s an article that goes into some customer-service metrics to get you started.)

Another thing to consider is this: what customer-focused metric can you implement that would indicate long-term future success? If you can track that without needing input from or action taken on the customer’s part, then you’ll get a lot more data.

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