What are KPIs and How Should You Use Them

What are KPIs and How Should You Use Them

KPIs, or Key Performance Indicators, are measures of success in a certain activity or goal. KPIs reflect the success of the actions performed. Here is a simple example of KPIs from everyday life. You want to read more.

To do this, you decide that you will read at least 20 pages a day. This goal of "at least 20 pages" is the KPI. If you read this number of pages or more, then you've reached your goal of reading more. If fewer pages, you haven't reached your goal. 

KPIs have two main objectives:

  1. To help managers of large companies keep track of a variety of metrics that affect business.
  2. Show employees the right vector of activity.

KPI: How do you calculate this metric? - you ask. The list of KPI metrics is very diverse. In fact, each company can allocate individual indicators for itself and calculate them according to its own formula.

You can count the visitors attracted to the site, the number of details created, the speed of processing documents. In general, there are no limits here. Let's break down some types of key performance indicators, and then let's elaborate on the metrics that are used in Internet marketing.

Types of KPIs 

There are dozens of KPIs at the moment. It's not easy to find what your business needs. We will show you a few classifications that will help limit the list of possible metrics.

  1. Financial and non-financial. This classification is straightforward. Financial indicators include revenue, expenses, fund turnover, liquidity, margins, etc. These are directly business indicators. Non-financial indicators count everything but money: market share, customer satisfaction, staff turnover, and more.
  2. Individual and team. You can put individual KPIs for employees to track their productivity. These methods of evaluation are used in many stores that have consultants. Each employee has a sales plan that they strive for. Team, or group, metrics reflect the overall performance of a group or the entire organization. 
  3. Lagging and leading indicators. Lagging metrics reflect the consequences of actions already taken. They include profits and costs. 

The task of leading indicators is to affect the result, which will be reflected in the lagging indicators. Let's look at an example of an IT company. In this area they actively monitor the NPS (Consumer Loyalty Index).

The higher it is, the better. NPS - this is a lagging indicator. We can know it when the period is over, for example a month. The NPS can be influenced by the work of technical support.

The lagging indicators in this case will be the speed of the employees' response, as well as whether the specialist was able to help the user. 

Basic principles of KPI metrics

In order not to get lost in the abundance of indicators, let us highlight the principles that must be adhered to when setting goals.

  1. Controllability on the part of the performer. The indicator, set by the employee, should be completely under his control. You can't set a goal for content-makers to earn a certain amount of money. They can, of course, affect sales, but not directly.
  2. Target accuracy. A KPI cannot sound abstract. The goal itself should sound like the end result. For example: improve sales is the wrong goal, to increase sales by 10% - the right goal.
  1. Principle of accountability. The movement towards the result should be tracked not only by the performers, but also by the managers. It is better when the teams/departments present their indicators to the whole company. For the organization, the work of each team becomes transparent, and the employees themselves become motivated to go towards the goal to boast of their successes. 
  2. Principle of alignment. All team metrics must align with the company's strategic goals. 

Of the benefits: 

  • It is easy to evaluate labor productivity. Based on the indicators, you can easily and honestly assess who is not fulfilling the plan, and who, on the contrary, is exceeding it. On the basis of this you can build a system of rewarding employees or, on the contrary, punishment. Do you remember the annoying consultants that keep trying to help you? Most likely their salary depends on the number of sales.
  • Quick detection of problems. Each team and individual employees can notice where they are unproductive and do something about it before the unfulfilled indicators significantly affect the business.

 KPIs have disadvantages as well:

  • Requiring a lot of time to prepare and constant monitoring. To implement KPIs you need to think of a reporting system. Team metrics need to be constantly monitored by management. In addition, once the technology is implemented, it will be necessary to constantly communicate with employees and change something.
  • The system is not universal. There are some types of activity for which you simply cannot set up KPIs. We will tell you about such situations below.

For whom is the KPI system suitable and for whom not?

As we said, KPIs are not suitable for everyone. And most of all, it's not suitable for creative jobs. Writers, designers, and artists simply can't predict their inspiration. Even if a member of the creative profession works for a company and helps with product development, he or she cannot say exactly how quickly he or she will be able to get the job done.

Based on experience, the employee can set some kind of framework, but creative force majeure can happen in the process of completing the task.

Immediately after the creative work we would like to mention the research activity. This mainly applies to engineers, architects, and medical workers who work in laboratories. Their tasks are unique. Before them, no one has done similar things, so there is no prediction of how much time and effort it will take to solve the problem. 

There are also professions whose tasks are too diverse. It is difficult and inefficient to keep track of all the indicators. An example of such a profession is a secretary. He or she prepares documents for the boss, prepares orders for other departments, and can even put coffee in the coffee machine. It takes a long time to prepare KPIs for each type of task, and you can't really change anything.

Tasks should just be done on demand. It is possible to choose a number of main indicators, but in this case, there is a risk that the employee will focus on the tasks being monitored and will forget about the others.

KPI in Internet marketing. What to count?

How do you measure KPIs? We have said that there is no single formula for calculating KPI, because each company has its own specifics and its own indicators that need to be counted. In Internet marketing, there are several KPIs which are most commonly used by specialists:

  • CR, or conversion rate. This parameter shows how many visitors to the site made a purchase. For example, in a month, the site was visited by 5 000 people. Of these, 200 buyers made a purchase. The conversion rate is equal to 4%.
  • ROI, or return on investment. This figure is used to track the effectiveness of advertising campaigns. ROI is the ratio of revenue from sales to advertising costs, multiplied by 100%. For example, we allocated 1 000 p. for advertising. After we earned 7 000 p. 7 000 / 1 000 x 100% = 700%. That is, for each spent ruble we made 7 p. profit.
  • The average check. This is income in a given period, divided by the number of purchases. 
  • LTV or customer value. This is the profit made by the user for the whole time of working with him. The indicator helps to understand if it is profitable to invest in loyal customers.
  • Your bounce rate. It is calculated as the ratio of bounce rate to the total number of visitors to the site. That is, a person came to the site, looked at one page and left without any action.

This is just a small list of indicators that the owners of online stores keep an eye on. 

How to implement a KPI system and not disrupt your workflow

How to develop goals and KPI? You need to start setting goals from the top. That is, determine the strategic goals of the company. Do you want to focus on increasing profits or do you want to increase customer loyalty. Based on the strategic goals, it will be easier for teams and managers to choose the metrics they need to focus on. 

Implementing a new control system is always an inconvenience for the work team. If you do decide to implement KPI metrics into your workflow, you should start by familiarizing your employees with the technology. Provide examples of metrics that teams can take for themselves, and tell them about the advantages of implementing the new methodology. It is easier for the employee to get used to the changes if he understands what is required of him and how it may affect the business.

Try to automate the process of calculating metrics. The less time employees spend calculating metrics, the more time they will have to perform their immediate tasks. Use Yandex.Metric, Google Analytics and CRM-systems.

Initially, you can bring in expert analysts to help you select metrics and formulas that are right for your organization. This way, each team won't have to dive into the world of complex analytics, and top managers will be confident that all metrics are calculated correctly. 

KPIs are a useful tool for controlling a business process. It helps managers and employees alike. The difficulty with this technology is its individuality. Too many metrics can't be tracked by one team. Here it is important to focus on the main, most necessary metrics at the moment. That is why top managers should be the first to voice the direction of development and only then demand that teams select KPI metrics.