If you ever started a weight loss journey (or someone doing it), you surely remember the initial determination.
Something needed to change for your life to be better. So you would do anything to meet your new goal.
You diligently hit the gym, modify your diet, and track your progress week after week.
Each time you step on the scale, you eagerly anticipate the numbers, knowing they are key to measuring your success.
Your measurements provide motivation, guidance, and a clear picture of your progress toward your ultimate goal.
Why the weight loss analogy?
Because it’s a similar process to that of a business trying to grow.
Just as individuals rely on metrics to gauge their personal achievements, businesses harness the power of Key Performance Indicators (KPIs) to measure their performance, monitor their progress, and drive success.
This blog article delves into the realm of KPI tracking and explores how it can revolutionize business operations.
We’ll uncover the significance of KPIs, benefits of KPI tracking, their role in driving strategic decision-making, and how they can push your organization toward your goals.
What Is KPI Tracking?
Key Performance Indicators (KPIs) represent a quantifiable metric used by businesses to evaluate either the performance or the progress of the entire business or a specific unit.
Departmental Managers or even C-Level execs strategically select specific performance indicators to measure the critical factors impacting business performance.
KPI tracking, therefore, refers to the deliberate and intentional process of monitoring and evaluating said metrics to measure how the company (or the specific project or goal) progresses in time.
Usually, the KPI metric is seen as a quantifiable and objective measurement, visualized in a performance dashboard, used to follow the performance and impact of various business departments.
For example, you can track KPIs to assess the effectiveness of your sales, marketing, or customer service teams, as well as your overall operational efficiency and financial performance.
Different Types of KPIs
So, how are these different KPIs distributed in the business world?
Key Performance Indicators can be categorized into multiple broad categories depending on the purpose of your KPI monitoring.
Here’s a rundown of the most common KPI classifications:
- Financial KPIs
These KPIs are all about the money. The money you spend, the money you earn, the money you’re left with at the end of the fiscal year.
Financial KPIs examples include Revenue, Profit Margin, Net Profit Margin, or Cash Flow.
- Customer KPIs
Evidently, this category refers to your customers. How expensive they are, how satisfied they can be, and how much revenue they bring in.
Customer KPI examples can be the Customer Acquisition Cost, the Customer Lifetime Value, the Churn Rate, the Customer Satisfaction Score, or the Net Promoter Score.
- Sales and Marketing KPIs
These metrics are going more specific in measuring progress and effectiveness for certain departments.
For example, the Conversion Rate, the AOV, the Sales Growth, or the ROI are all sales & marketing KPIs.
- Operational KPIs
This category is made up of all KPIs that measure the effectiveness of your processes. Some examples of operational KPIs include Order Fulfillment Time, Inventory Turnover, or Order Accuracy.
- Employee Performance KPIs
Last but not least, we have the KPIs measuring the performance of individual employees. Such KPIs include Employee Satisfaction, Employee Turnover Rate, Productivity, and Development.
This is a broad classification, mind you. Remember that KPIs can overlap between categories; you don’t need to include them all in your KPI reports. Pick the metrics directly involved in your objectives, depending on your industry and circumstances.
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The Importance of KPIs
What happens if you choose to ignore KPI tracking?
Maybe you don’t have the time or the patience to analyze a KPI dashboard, or you don’t want your business to revolve around the numbers.
Well, neglecting KPI tracking means you’re essentially operating in the dark.
KPI tracking provides the valuable insights you need to make informed decisions. Without them, you expose your business to ineffective strategies, misallocated resources, and missed opportunities.
You know the saying – you can’t improve what you don’t measure.
Ignoring KPIs can result in stagnation, declining market share, and, ultimately, loss of relevance.
In other words…
Without KPI tracking, you find yourself in the shoes of Sisyphus; condemned to an eternal struggle of pushing a boulder uphill, only to watch it roll back down each time.
You’d be trapped in an unending cycle of wasted efforts and lack of tangible progress.
This isn’t the destiny you dreamed of when you were a child, is it?
Benefits of Tracking Your KPIs
On a cheerier note, let’s look at the benefits of implementing a robust KPI tracking system in your organization.
Firstly, KPIs give you a vision: of your past, present, and future.
You understand your business’s strengths when you monitor sales revenue, conversion rates, AOVs, and CLV. And weaknesses, for that matter.
You can orchestrate marketing campaigns, create product categories, or address the customer segments that will drive noteworthy results for your brand.
Moreover, KPI tracking empowers you to set realistic and clear goals.
Imagine you show up to work every day without knowing what you’re working for. You don’t have goals, so you work aimlessly, wandering in a sea of ambiguity. And…there we say, apathy?
Instead, with measurable and time-bound objectives, you have clear direction and purpose.
Your teams have a shared understanding of what success looks like and can align their efforts accordingly.
In turn, you’ll foster a sense of focus, motivation, and accountability, driving you toward achieving your desired outcomes.
Finally, KPI tracking reveals potential issues or hiccups in your operations.
Closely monitoring your metrics will help you identify any deviations from expected performance levels and empower you to prevent further damage.
For example, suppose you’re tracking Conversion Rates and notice a decline. In that case, you can quickly investigate and fix the issues (such as an unpleasant and overly-complicated shopping experience.)
Overall, KPI tracking allows you to take a proactive approach and prevent seemingly small issues from snowballing into significant setbacks.
How Do You Calculate a KPI?
To calculate a KPI, you must determine the formula (or method) to quantify and measure the specific metric you want to track.
Once you establish the formula, apply it to your data to calculate the KPI value.
However, you aren’t expected to know any obscure formulas by heart or spend time resolving complex mathematical problems daily.
You can use a KPI tool such as tracking software or dashboards and reporting platfroms to streamline the calculation process and enable real-time tracking of KPIs.
How Can I Track My KPIs?
Cool, so now you’re sold and joined the metric-driven side of the eCommerce world.
What follows is this step-by-step process for tracking KPIs.
Let’s imagine you’re involved in a hypothetical retail business selling home decor products to make it easier. Let’s call it “Happy Home Goods.”
How would you start the KPI tracking process?
- Step 1 – Identify the relevant KPIs for Happy Home Goods
To get started, you should analyze your business and identify where you shine, where you need to improve, and where you’re facing serious challenges.
Let’s assume Happy Home Goods already has an established product and robust brand perception, but it’s struggling to stay profitable.
So, they could use a KPI tracker to keep tabs on relevant KPIs, such as the Sales Revenue, Conversion Rate, Average Order Value (AOV), Customer Acquisition Cost (CAC), and Customer Lifetime Value.
- Step 2: Set targets for these KPIs
Now that we picked a series of KPIs, it’s important to set growth benchmarks to keep ourselves accountable regarding their progress.
For example, Happy Home Goods may need to reach a monthly 500k in online sales, with a 2% Conversion Rate. They also want to lower the CAC to 50$ and increase the AOV to $100. All while bringing the CLV to $1,000 per customer.
- Step 3: Collect data on the current situation
Now that we have an objective in mind, we need to gather data to see where we are now. You can use data from various sources, such as their website analytics, sales reports, marketing campaigns, and customer surveys.
For example, Happy Home Goods could gather data on its total sales revenue from the website and other sales channels.
- Step 4: Analyze and interpret your data
Once you collect the data, it’s time to analyze and interpret it. For example, you could use data visualization tools to create graphs that make it easier to identify data patterns or use tools to track your relevant numbers.
At the same time, the brand could perform statistical analysis to find the connection between different KPIs and other factors (such as seasonality or marketing campaigns.)
- Step 5: Make data-driven decisions
Now that you know where you are and why you’re there, it’s time to take the necessary steps to improve your processes and achieve your targets.
For example, suppose your conversion rates are lower than 2% (your target). In that case, you should optimize your website and fix roadblocks in the shopping process. At the same time, you could share customer success stories on your website to increase trust in the products.
Or, if your CAC is higher than the target of $50, you might need to research your target audience more and create a more compelling message to persuade prospects to buy your products.
- Step 6: Monitor your progress
Don’t forget to monitor your KPIs regularly to evaluate your progress toward your targets. You might need to adjust your processes or move on to a new approach to move the needle in the right direction.
And that’s ok.
Marketing is fluid. So should you.
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How to Create a KPI Strategy
As with all strategizing processes, creating a KPI strategy is similar to embarking on an exciting journey.
Firstly, you have to start with a clear destination in mind. In the KPI strategy, this destination is represented by your objectives and goals.
Like a traveler’s desired destination, you must also visualize what you want to achieve.
Knowing your objectives sets the stage for selecting the relevant metrics to include in your KPI tracking dashboards: increased revenue, better customer satisfaction, or earning more market share.
And the following step is creating the signposts on your path, those traffic signs guiding you toward meeting your objectives. In your business, this map is drawn by the areas you want to improve (such as sales and revenue, customer acquisition, retention, inventory management, etc.).
These areas give you a clear vision of the path you need to take.
Now that you have your map, you must pick your compass – the relevant KPIs you need to track to move along your way. Each KPI is your guiding star, giving you insights about your performance and the actions you need to take.
For example, suppose your objective is improved customer satisfaction. Let’s say you want to see a 15% increase in the CSAT scores by the end of the quarter. That’s your road. And your compass would be KPIs such as the customer satisfaction score (CSAT), Net Promoter Score (NPS), or customer retention rate.
On your journey, you need to set targets – milestones or smaller objectives that add up to creating an entire path.
Your targets need to be attainable yet ambitious. And you should base them on historical data, industry standards, or competitor analysis.
However, now we see a question rising: how are you going to walk the walk?
I.e., what tools and instruments do you need to make your life easier?
Your eComm platform, CRM system, website analytics tools, financial reports, or customer feedback surveys can become the means of transportation to meet your objectives.
So, you have your objectives, targets, milestones, and tools. How do you set the direction?
With your data.
Data collection and analysis is the next natural step in your analysis. Manual processes, spreadsheets, or automated reporting tools can aid in this endeavor, ensuring you have the necessary insights.
You can also use analytics tools, dashboards, or reporting software to monitor and communicate your KPIs effectively.
As with any journey, you also need to establish regular check-ins.
Monitor, analyze, and assess your KPIs against targets. If you realize you’re moving against the course, don’t be afraid of adjusting your strategies, processes, or resource allocation to realign with your objectives.
Finally, remember that this journey is not a one-time event.
It’s an ongoing process of continuous improvement:
- regularly evaluate the relevance and effectiveness of your chosen KPI
- review and refine your KPI strategy
- always refresh and update your data
- communicate with your teams and stakeholders and include them in your decision-making process
As you see, KPIs are not just buzzwords. Or trends. Or New-Age ideas which still need to pass the test of time.
KPIs are vital tools for measuring, evaluating, and improving business performance.
These metrics align strategies, promote accountability, facilitate decision-making, and foster a culture of continuous improvement.
KPI tracking should never miss from your business processes.
Frequently Asked Questions about KPI Tracking
The best approach to tracking KPIs is using a well-defined system that combines relevant data sources with performance metrics. Include regular monitoring and analysis into your tracking process, to ensure you’re always updated on your business evolution.
An example of a KPI could be the customer satisfaction score. This KPI measures the level of satisfaction among customers based on surveys, reviews or direct feedback.
To measure your KPIs you must first define the metrics you want to track. Then you have to set targets or benchmarks for your KPIs, collect data on them, then analyse the results against your desired outcomes.
KPI tracking isn’t a one-person job. Various stakeholders, such as managers, executives, or dedicated teams, are involved in keeping track of KPIs, depending on the organisation’s structure and objectives.