Introduction to Key Performance Indicators

 

Introduction to KPIs

Whether you’re a fresh grad out of College for a junior sales role, or a senior sales professional with 10 years’ experience, you know that sales occupies a fascinating position at the intersection of communication and data. On one hand, top sales pros tap into their creativity and communication skill-sets to craft sales campaigns that capture the attention of their buyers; on the other, they constantly measure and analyze the performance of each campaign to refine their messaging and optimize their tactics. You can expect to learn everything you need to know about KPIs as a sales professional.

Introduction to Key Performance Indicators

A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the enterprise, while low-level KPIs may focus on processes in departments such as sales, marketing or a call center

Types of KPIs

Depending on your industry and the specific department you are interested in tracking, there are a number of KPI types your business will want to monitor. Each department will want to measure success based on specific goals and targets.

What makes a KPI effective?

A KPI is only as valuable as the action it inspires. Too often, organizations blindly adopt industry-recognized KPIs and then wonder why that KPI doesn't reflect their own business and fails to affect any positive change. One of the most important, but often overlooked, aspects of KPIs is that they are a form of communication. As such, they abide by the same rules and best-practices as any other form of communication. Succinct, clear and relevant information is much more likely to be absorbed and acted upon.

In terms of developing a strategy for formulating KPIs, your team should start with the basics and understand what your organizational objectives are, how you plan on achieving them, and who can act on this information. This should be an iterative process that involves feedback from analysts, department heads and managers. As this fact finding mission unfolds, you will gain a better understanding of which business processes need to be measured with KPIs and with whom that information should be shared.

Being SMART about your KPIs

One way to evaluate the relevance of a KPI is to use the SMART criteria. The letters are typically taken to stand for specific, measurable, attainable, relevant, time-bound. In other words:

• Is your objective Specific?
• Can you Measure progress towards that goal?
• Is the goal realistically Attainable?
• How Relevant is the goal to your organization?
• What is the Time-frame for achieving this goal?

KPI examples:

If you work in the highway division of a transportation authority, a key performance indicator could be to track the average driver’s speed from July to November, as many accidents happened during this time the previous year. In this case, it would be helpful to know that from July to November the average driver cruises at 60 km/h—which is 10 km/h higher than the posted speed limit of 50 km/h, and 6 km/h higher than they typically drive during all other months.

Or let’s say you are a marine biologist. Establishing average water temperature as a key performance indicator would allow you to notice trends over time, such as how the water temperature in a particular region is rising exponentially faster than all surrounding regions.

And let’s say you are the owner of a local pub. In establishing average pints per patron per visit (ppv) as a key performance indicator, you may notice that last month you averaged 1.1ppv (compared to the local pub average of 1.4ppv and last month's average of 1.3ppv).

In this sense, establishing measures, metrics and KPIs can help open the door to questions about your business performance that you may have missed otherwise. We'll talk about defining your organization's KPIs in tomorrow's lesson, see you then!

How to define your organization's KPIs

It’s a question asked by sales leaders at maturing startups and at established companies alike: “How do we define our organization’s KPIs?”

Defining your organization’s key performance indicators ultimately comes down to a two-step process:

1. Determine your organization’s most important objectives
2. Choose KPIs that are fixed, capable of forecasting, and that avoid common mistakes.

Once a few key organizational objectives are established and agreed upon by the core team, it’s time to make sure there’s general alignment around what KPIs are (and what mistakes many organizations make when both defining and adopting them).

Avoiding the most common mistakes

we’ve been thinking deeply about KPIs for over a decade. After many iterations, here’s the simple definition we’ve come to find most valuable:

A key performance indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives.

To us, a KPI must remain fixed yet be able to forecast. Let’s break each of those down:

Finding fixed

By fixed we mean there’s a continuity and reliability among the measured outcomes. This means that an outcome at one point in time can reliably be compared to an outcome at another time.

For example, if in January and February you found that 1 out of every 100 people who started a trial of your product became a customer, this would be a fixed statistic from which you might want to build a key performance indicator.

Finding what can forecast

There’s no need to go full-on artificial intelligence here, but KPIs must, at some level, help you forecast a result.

Let’s say it seems the time between trial-to-customer becomes significantly shorter when you reach a certain Net Promoter Score. Seeing this correlation may allow you to forecast: increased customer success = decreased time between trial-to-customer.

Depending on what organizational objectives you’ve decided on, building a KPI around this forecast may be worth your time.

Common KPI mistakes

Even elite organizations struggle to avoid these mistakes. They can occur at various points of a company’s development—including when new team leaders are hired, when new objectives are established, and/or when old KPIs are held onto even as an industry undergoes rapid change. The most common KPI mistakes are:

• Reliance on intuition. This can arise from the overconfidence effect.
• Blindly adopting commonly-held best practices rather than creating your own.
• Bias toward the most recent information learned.
• Confusing lagging indicators (the easy-to-measure output) with leading indicators (the difficult-to-measure input).

Once you’ve defined your organization’s KPIs, you’ll then be tasked with the responsibility of determining which activities (and all departments must be included on this) will best drive towards those KPIs.

From there, you’ll need to regularly assess your objectives, KPIs and activities. They are all likely to change as you gather new insights into the market and/or your product, which means assessments can and should be done both at the company and departmental levels.

Measuring and monitoring business performance is critical, but focusing on the wrong metrics can be detrimental. In tomorrow’s lesson, we will take a stab at some of the best practices for picking the right KPIs for your business.

Best practices for picking the right KPIs for your business

Data and metrics are everywhere. Measuring and monitoring business performance is critical, but focusing on the wrong metrics can be detrimental (as time and money are spent measuring, monitoring and trying to optimize metrics that don’t matter much). The same can be said about poorly structured KPIs and KPIs that are too difficult and costly to obtain and/or monitor on a regular basis.

So what makes business performance indicators “key” and how should a business owner, executive or manager select them?

Here are six strategies to help you separate effective, value-creating KPIs from detrimental, value-diminishing KPIs:

1. Pick KPIs that are aligned with your strategic business objectives

We touched on this in the last two lessons. KPIs must be aligned with the strategic goals and objectives of your organization. Business “performance” is relative, and ultimately measured against an organization’s mission and goals. KPIs must be grounded by these goals. 

2. Make sure the KPIs you pick are attainable

There’s no point selecting a KPI for your business if the data behind the KPI can’t be obtained and surfaced to stakeholders, or if doing so would be overly costly. In assessing the cost/benefit of selecting a particular KPI, ask yourself the following "What data points do I need to measure this KPI?" and "What technologies and processes do I need to implement to access this data on a regular basis?". 

3. Be acute in your choice of KPIs

KPIs should keep everyone on the same page and moving in the same direction, and they should be specific enough to inform specific actions. If a KPI is too high level or too vague, it can be interpreted in many different ways, and actioned in many different ways. Customer Acquisition Cost to Lifetime Value (CAC/LTV) is an acute KPI, and it is useful to service businesses to the extent decision makers know and understand the data flowing into the KPI, and have some control over it. 

4. Pick accurate KPIs

Another important consideration in selecting KPIs for your business is the accuracy of the data flowing into the KPI, and the reliability of the KPI in predicting business performance. In relation, ask yourself the following "Does the KPI include all relevant information?" and "How accurate is the KPI in reflecting and predicting business performance?". 

5. Select KPIs that are actionable

One of the most important considerations that should inform your selection of a business KPI is whether or not the KPI is actionable. Consider a double litmus test: can (at least some) of the events grounding the KPI be controlled by the business? If the circumstances fuelling the KPI are all out of the firm’s control, then the KPI can’t be actioned. Second, is the KPI structured and presented in such a way, and to the right people, to incite action?

6. Pick KPIs that are alive

It’s easy to get comfortable with a group of KPIs that you’ve depended upon for an extended period of time, but your business isn’t static and your KPIs shouldn’t be either. Take the time to review your reasons for selecting specific KPIs periodically. Do these reasons still hold true? Has your business or the context within which it operates changed? Can your KPIs be refined to suit these changes?

Data, metrics and “KPIs” are everywhere and it's not hard to be disoriented, and to lose focus on the metrics that are truly mission critical to your business. Within this context, taking the time to think critically about how and why a particular KPI is “key” to your business is more important than ever. In tomorrow’s lesson, we will start diving into a list of the key metrics everyone should be tracking.

The Most Important Sales KPIs

You know this already: sales teams and marketing teams use a number of tools to promote their services and products, and tracking the results can often be time consuming and difficult. By creating specific sales KPIs, it’s easy to determine targets and goals and measure performance based on those values. In today’s lesson we will dive into some the most important KPIs for sales professionals.

Incremental Sales

The Incremental Sales KPI measures the contribution of your sales and marketing efforts to increasing sales revenue. This KPI emphasizes the close relationship between sales and marketing, and how that relationship benefits your organization.

Rather than showing how many products your target audience bought, the incremental sales metric shows how many more products they bought because of the particular change in the media spend that you’re testing.

Sales Growth

Sales Growth metric measures the pace at which your organization's sales revenue is increasing or decreasing. This is a key metric for any organization to monitor since it’s an essential part of growth projections and is instrumental in strategic decision-making. Monitor this metric over multiple time periods to gain a clear indication of growth trends and normalize your values. This will help you account for monthly or quarterly spikes in revenue.

At the highest level, the sales growth metric is used to provide executives and sales directors with an assessment of the sales organization's performance. However, this metric can also be broken down to show how each sales team or sales representative can contribute to achieving organizational goals. Rather than providing each sales team with a broad objective of increasing total sales by 20% this year, provide attainable (yet challenging) objectives that will help them effectively contribute to achieving your business objective.

Sales Target

The Sales Target KPI measures current sales (either dollar value or number of wins) and compares that value to a target or past performance. This simple sales KPI taps into the competitive nature of sales teams by visualizing their performance in a tangible way.

The key to this KPI is setting an appropriate sales target. This requires a deft touch, as a goal that is set too high will be viewed as unachievable and will drain morale; on the other hand, a goal that is set too low will fail to motivate your team to go that extra mile. One of the most common ways to develop this KPI is to compare current performance to the previous period, for example, showing new wins this month compared to wins last month.

Conversation to Appointment Rate

Measure the total amount of conversations that convert into an appointment, call, or consult for sales. Conversations that convert to an appointment is considered to be a sales opportunity. Tracking the number of initial conversations that turn into potential opportunities gives your team an idea of how effective their conversations are at bringing in sales leads for the company.

Sales Cycle Duration

Measure the length of time between the initiations of the sales process to the final sale is completed. The Sales Cycle Duration metric tracks the total time it takes for a sale to be completed, from initiation of sale to the final sale, to gain insight on the efficiency of processing sales.

Leads Generated by Agents

Measure the number of leads generated by agent efforts. A sales lead refers to an individual that you have some information on that may be interested in your product.

Cost per Lead

Measure how much it costs to acquire a new lead. Life would be great if you didn’t have to put any spend towards gaining leads. Sadly, that’s just not possible. It is possible to monitor how much it costs you to acquire a new lead, though, and it’s even possible to drive down costs by optimizing your lead generation process.

 

So now what?

We filled your inbox with a ton of information on KPIs over the past 5 days, hopefully you were able to digest some of it. Now you know what a KPI is and the difference between metrics and measures. You know how to define your organisation’s KPIs and best practices for picking the right KPIs and how to avoid the common mistakes. You also know what the most important KPIs are, so what now?

Once you have established benchmarks and targets for measuring KPIs, you’ll want to establish processes for monitoring this and other KPIs. Dashboards can be critical in this regard. KPI tracking can be done using dashboard software, giving your entire organization insights into your current performance.

What is KPI software

KPI software enables businesses to create, manage and analyze data from KPIs. The software allows organizations to enter their data into one specially designed system, or connect external services for faster and more accurate data collection. This type of software allows businesses to visualize and comprehend data from a number of KPIs that represent different areas of a business, all in one place.

Companies benefit from KPI software through faster and more accurate data collection, instant reports on performance, and alerts when a KPI is over or under achieving. KPI Software centralizes businesses data, while simplifying real-time reporting to always give them a competitive edge. KPI Software increases data visibility as when it is in the cloud it is mobile.

KPI Reports and Dashboards

To be useful, KPIs need to be monitored and reported on; if they change in real-time, they should be monitored in real-time. Dashboards are the perfect tool for your KPI reports as they can be used to visually depict the performance of an enterprise, a specific department, or a key business operation.