Realizing that you can only improve what you measure is a good way to think about KPIs. Often companies want to improve different aspects of their business all at once, but can’t put a finger on what will measure their progress towards overarching company goals. Does it come down to comparing the growth of last year to this year? Or, is it just about the cost of acquiring new customers?
If you’re nervously wondering now, “wait, what is my cost per deal?”, don’t sweat it. Another growing pain of deciding on KPIs is discovering that there is a lot of missing information.
Defining Your KPIs
Choosing the right KPI is crucial to make effective, data-driven decisions. If you choose the right KPI, it will help to concentrate the efforts of employees towards a meaningful goal, however, choose incorrectly and you could waste significant resources chasing after vanity metrics.
In order to rally the efforts of your team and achieve your long-term objectives, you have to measure the right things. For example, if the goal is to increase revenue at a SaaS company by 25% over the next two quarters, you couldn’t determine success by focusing on the number of likes your Facebook page got. Instead, we could ask questions like: Are we protecting our ARR by retaining our existing customers? Do we want to look at the outreach efforts of our sales development representatives, and whether that results in increased demos and signups? Should we look at the impact of increased training for the sales team on closed deals?
Similarly, if we wanted to evaluate the effectiveness of various marketing channels, we need to determine more than an end goal of increasing sales or brand awareness. Instead, we’ll need a more precise definition of success. This might include ad impressions, click through rates, conversion numbers, new email list subscribers, page visits, bounce rates, and much more.
Looking at all these factors will allow us to determine which channels are driving the most traffic and revenue. If we dig a bit deeper, there will be even more insights to discover. In addition to discovering which channels produce traffic most likely to translate into a conversion, we can also learn if other factors such as timing make a difference to reach our target audience.
Of course, every industry and business are different. To establish meaningful KPIs, you’ll need to determine what most clearly correlates with your company’s goals. Here are a few examples:
- Finance – Working capital, Operating cash flow, Return on equity, Quick ratio, Debt to equity ratio, Inventory turnover, Accounts receivable turnover, Gross profit margin
- Marketing – Customer acquisition cost, Conversion rate of a particular channel, Percentage of leads generated from a particular channel, Customer Churn, Dormant customers, Average spend per customer
- Healthcare – Inpatient mortality rate, Bed turnover, Readmission rate, Average length of stay, Patient satisfaction, Total operating margin, Average cost per discharge, Cash receipt to bad debt, Claims denial rate
- Retail – Gross margin (as a percentage of selling price), Inventory turnover, Sell-through percentage, Average sales per transaction, Percentage of total stock not displayed
If your business is committed to data-driven decision making, establishing the right KPIs is crucial. Although the process of building a performance-driven culture is iterative, clearly defining the desired end result will go a long way towards help you establish effective KPIs that will help focus the efforts of your team towards that goal, whether it’s to move product off shelves faster, create better patient outcomes, or increase your revenue per customer.
The good news is that in the business intelligence world, measuring performance can be especially precise, quick and easy. Yet, the first hurdle every data analyst faces is the initial struggle to choose and agree on company KPIs & KPI tracking. If you are about to embark on a BI project, here’s a useful guide on how to decide what it is that you want to measure:
Step 1: Isolate Pain Points, Identify Core Business Goals
A lot of companies start by trying to quantify their current performance. But again, as a data analyst, the beauty of your job and the power of business intelligence is that you can drill into an endless amount of very detailed metrics. From clicks, site traffic, and conversion rates, to service call satisfaction and renewals, the list goes on. So ask yourself: What makes the company better at what they do?
You can approach this question by focusing on stage growth, where a startup would focus most on metrics that validate business models, whereas an enterprise company would focus on metrics like customer lifetime value analysis. Or, you can examine this question by industry: a services company (consultancies) would focus more on quality of services rendered, whereas a company that develops products would focus on product usage.
Ready to dive in? Start by going from top-down through each department to elicit requirements and isolate the pain points and health factors for every department. Here are some examples of KPI metrics you may want to look at:
- Product related tickets
- Customer satisfaction
- Usage statistics (SaaS products)
- Brand awareness
- Conversion rate
- Site traffic
- Social shares
- Number of bugs
- Length of development cycle
- App usage
Step 2: Break It Down to A Few KPIs
Once you choose a few important KPIs, then try to break it down even further. Remember, while there’s no magic number, less is almost always more when it comes to KPIs. That’s because if you track too many KPIs, as a data analyst you may start to lose your audience and the focus of the common business user. Choosing the top 7-10 KPIs is a great number to aim for and you can do that by breaking down your core business goals into a much more specific metric.
Remember, the point of a KPI is to gain focus and align goals for measurable improvement. Spend more time choosing the KPIs than simply throwing too many into the mix, which will just push the question of focus further down the road (and require more work!).
Step 3: Carefully Assess Your Data
After you have your main 7-10 elements – you can start digging into the data and start some data modeling. A good question to ask at this point is: How does the business currently make decisions? Counterintuitively, in order to answer that question you may want to look at where the company is currently not making its decisions based on data, or not collecting the right data.
This is where you get to flex your muscles as a “data hero” or a good analyst! Take every KPI and present it as a business question. Then break the business questions into facts, dimensions, filters, and order (example).
Not every business questions contain all of these elements – but there will always be a fact because you have to measure something. You’ll need to answer the following before moving on:
- What are the data sources
- Predict the complexity of your data model
- Tools to prepare, manage and analyze data (BI solution)
Do this by breaking each KPI into its data components, asking questions like: what do I need to count, what do I need to aggregate, which filters need to apply? For each of these questions, you have to know which the data sources are being used and where the tables coming from.
Consider that data will often come from multiple, disparate data sources. For example, for information on a marketing or sales pipeline, you’ll probably need Google Analytics/Adwords data combined your CRM data. As a data analyst, it’s important to recognize that the most powerful KPIs often comes from a combination of multiple data sources. Make sure you are using the right tools, such as a BI tool that has built-in data connectors, to prepare and join data accurately easily.
Step 4: Represent KPIs in an Accurate and Effective Fashion
Congrats! You’ve connected your KPI data to your business. Now you’ll need to find a way to represent the metrics in the most effective way. Check out some of these different BI dashboard examples for some inspiration.
One tip to keep mind is that the goal of your dashboard is to put everyone on the same page. Still, users will each have their own questions and areas where they want to explore, which is why building an interactive, highly visual BI dashboards are important. Your BI solution should offer interactive dashboards that allow its users to perform basic analytical tasks, such as filtering the views, drilling down, and examining underlying data – all with little training.
See an example:
As a data analyst you should always look for what other insights you can achieve with the data that the business never thought of asking. People are often entrenched in their own processes and as an analyst, you offer an “outsider’s perspective” of sorts, since you only see the data, while others are clouded by their day-to-day business tasks. Don’t be afraid to ask the hard questions. Start with the most basic and you’ll be surprised how big companies don’t know the answers–and you’ll be a data hero just for asking.