4 tips for choosing which KPIs to measure in your business
Measuring Key Performance Indicators, or KPIs, is critical to the success of virtually any business. You need to pay attention to various areas of performance to understand where improvements need to be made.
However, monitoring KPIs won’t necessarily yield any genuine value if you’re not measuring the right KPIs. The KPIs that should be measured in one business may not apply to another.
Don’t worry if you’re not sure which KPIs you should measure and which you should ignore. The following tips will help you determine which are truly valuable.
Tie KPIs to Intent
It’s an obvious point, but it’s one that’s easy to overlook. Along with measuring KPIs, you can boost your business’ odds of success by setting measurable goals. The KPIs you choose to monitor should be directly tied to those goals.
For example, if your business is a small startup operating on a relatively tight budget, one of your goals when developing and implementing marketing campaigns may be to maximize your return on investment. You want your marketing campaigns to translate to high revenue without requiring you to spend more than you can afford. As such, marketing ROI would be a KPI worth measuring.
Consider Your Business’ Current Stage of Growth
The KPIs you should measure when your business is in its early stages of growth may not be the KPIs you need to monitor when you’ve grown slightly larger. For instance, many experts recommend monitoring KPIs that let you know whether a business model is viable when your business is still a growing startup. Once your business model has been validated, you can focus on measuring KPIs related to customer lifetime value and similar metrics.
Don’t Monitor Vanity Metrics
Avoiding the impulse to measure “vanity metrics” is one of the most effective ways to ensure the KPIs you’re measuring are valuable.
Vanity metrics are KPIs that can seem to tell you whether a product or business is succeeding, but don’t actually provide helpful information when you stop to deeply consider them.
An example would be the number of users who’ve downloaded your app. True, if a large number of users download it, you could understandably assume that means it’s a success. However, if most users don’t actually engage with the app regularly, that indicates it’s not performing as intended. Thus, instead of measuring downloads, you’d measure daily active usage or a similar KPI.
Don’t Overlook Leading Indicators
Many KPIs, such as those related to sales rates, tell you about the past. You certainly shouldn’t ignore them, but you shouldn’t necessarily focus solely on such KPIs.
It’s also important to measure leading indicators or metrics. These are KPIs which help you plan for the future. For example, if you’re beginning to add a fairly large number of new products and services to your offerings, the cost of introducing these new products and services may be too high for your business to stay within its budget. You, therefore, want to measure relevant KPIs accordingly.
Most importantly, don’t measure a KPI just for the sake of doing so. Every time you choose a KPI to measure, ask yourself what value it can offer. This will make deciding which metrics you should monitor much easier.