To define whether your business successfully reaches its goals or not, you should resort to KPIs. You'll be able to rely on solid numbers instead of your gut feeling. Such an approach has proved its efficiency for companies of all sizes and industries. In this article, we'll try to explain the KPI meaning using the simplest possible words. Plus, we'll provide real-life KPI examples and recommend the best software that enables you to measure your staff's productivity.
What Is a KPI?
This acronym stands for key performance indicator. When assessing the readiness of a certain task, you can say that it is either completed or not. In this case, you won't be using KPIs. But if you say "The task is 70% ready", that would be a KPI. KPIs always involve numbers. They set clear goals for your staff and allow your team members to impartially track their progress. Top managers love KPIs because these numbers allow them to make informed decisions.
You can set KPIs for your whole business, or each department, or each team, or each individual. Different departments of your organization should have different KPIs, relevant to the specifics of their work.
For social media, the most important KPIs are the number of views, followers, likes, comments and shares. For a company that sells digital goods, it might be the number of sales (in total and per agent), the speed of sales, the amount of income and so on.
The Importance of KPIs
KPIs are vital for the strategic development of your business. Here are the main arguments why they are so important:
-
They enable you to keep your staff accountable. You can track your team's progress down to the individual level. For instance, you can set a goal for your sales department as a whole and for each rep individually. After they meet the goal, you can see who has contributed the most to it and who needs better motivation.
-
You can make adjustments to boost your team's performance. Let's keep using the example from the previous passage. If some reps sell fewer items than their colleagues, you can fire them. Or, you can provide extra training for them. Or, you can introduce a system of benefits and compensations. When your reps receive a flat salary plus a percentage for the number of closed deals, some of them might fail to feel inspired. What if you start to distribute financial rewards for those reps who closed the most difficult deals? Or for those who use innovative selling techniques?
-
All your staff members will share an identical vision of progress. Without KPIs, some of your managers might think your business is doing great while others might disagree. Your IT department might be happy because they've integrated excellent software in their workflows. The financial department might be unhappy because they don't need this software and think it's too costly. With the help of the KPIs, you can understand what's good and what's bad for the whole organization.
-
You can compare yourself with your competitors. Some businesses openly reveal their KPIs. They might do so in their corporate blogs or when talking to journalists. You'll see whether you perform better or worse than other companies in the industry.
If your staff is not used to working with KPIs, they might dislike the idea of introducing them. The most common complaint is: "We'll only waste time and effort on these measurements but they won't help us to make more money". That's not true. You should explain the importance of KPIs to the heads of all your departments and they should explain it to their employees.
Types of KPIs
Here are the four main categories of KPIs that you might want to remember:
-
Operational. They measure processes and efficiencies within your company. They are measured on a short timeframe and reveal how things are going day to day.
-
Strategic. These are focused on long-term goals, such as revenue per year. One or two strategic KPIs are enough to assess the overall success of a business.
-
Leading or lagging. The latter enable you to measure the efficiency of actions that already took place. The former are focused on predicting your potential achievements. If you start using leading KPIs, you should also use the lagging, and vice versa. If you stick only to one type, you will fail to get the full picture.
-
Qualitative or quantitative. Most KPIs are quantitative — that is, are based on numbers. Qualitative indicators are rare but it doesn't mean you should neglect them completely. For instance, that can be employee satisfaction.
Depending on the size and specifics of your business, you can use all four types of KPIs or select only those that are the most relevant for you.
Track Your KPI's
"Bitrix24 allows you to set and track KPIs on all levels: for the whole organization, for each department, for a project or individual."
Try Now
KPIs at Different Business Levels
Now that we've explained the KPI meaning, let's have a look at the four essential levels of these indicators.
Individual Level
You can set personal KPIs for your employees. The goals should be relevant to the expertise of each staff member. For instance, when you onboard a new sales rep, you can't expect them to sell as many items during their first month of work as your top sellers. But as they make progress, you can fine-tune their KPIs.
Project Level
You need to analyze the project's efficiency within the following time frame:
-
Before it starts
-
When it's going on
-
Once it's finalized
You should set a KPI for each goal the project strives to achieve. You should do so at the initial stage of planning the project and not after you've already drafted the project plan. KPIs can impact your choice of resources, the budget of the project and other parameters.
Department-Level KPIs
You should never offer identical KPIs to all of your departments. Here are a few examples that should help you to understand the difference between the departments.
Your HR specialists need to keep employees happy. It's a qualitative KPI that is hard to measure. Apart from that, you might set some quantitative indicators for your HRs — for instance, how long it takes them to hire a skilled professional.
Your marketing specialists have probably the most complicated KPIs. The indicators that they need to rely on are data-driven and require specialized tools for tracking and analysis. Such instruments enable your marketing specialists to compare the conversion rates of marketing campaigns, which is a very challenging task.
Organizational-Level KPIs
Some business owners think that the two vital metrics that reflect the overall success of their organization are: how long the business has been in the game and how much revenue it has made. Yet in fact, there are other indicators that you can pay attention to — such as the lifetime value of a customer or employee retention rates.
Questions to Ask Yourself When Creating KPIs
When creating KPIs, you might want to ask yourself the following questions:
-
Which types of KPI suit you? You might want to set KPIs for individuals, or teams, or your whole business. You can choose between operational, strategic, leading, lagging, quantitative or qualitative KPIs.
-
How are you planning to use the KPIs? You might want to discuss this issue with your staff members. Ask them about the goals they might want to achieve. Get to know what these people will be doing with the KPIs that you provide them with.
-
Will your KPIs be clear enough for your staff? When explaining the essence of each indicator to your team, you should avoid mentioning too many confusing details or using jargon. Every staff member should be able to capture each separate KPI meaning and interpret it. The better they understand what the KPI shows, the smarter decisions they will make.
-
How are you planning to communicate your KPIs? It doesn't make sense to introduce a KPI without telling anyone about it. Some organizations tend to make this mistake. They don't inform, let's say, their sales departments about their goals — and then managers suddenly measure the reps' individual KPIs at the end of the year. That creates a very frustrating situation. Please mind that it's not enough to inform all your staff about the fact that now you're using KPIs. You should regularly remind your employees about your goals — especially when your objectives change, when you start a new project or at the beginning of a new year.
You should avoid creating too many KPIs. Data analysts might tell you that the more statistics you obtain, the better. They are right — but try to put yourself in the shoes of your regular employees. They will be confused if you make them track and measure too much data. Even though the process of measuring KPIs is largely automated, it still takes a certain effort. The more indicators your employees need to handle, the less time they will have left for high-priority tasks. You should select no more than 5 KPIs for each of your projects or departments.
The Goals That the KPIs Can Help You To Achieve
When used properly, KPIs should enable you to meet the following objectives:
-
Achieve the desired outcomes
-
Better understand who is responsible for these outcomes
-
Learn how to influence the outcomes
-
Measure progress
-
Find the optimal tools, methods and frequency for measuring progress
-
Select the criteria that you can use to determine that you have achieved your goals
Besides, you'll realize why exactly the desired outcomes are so important for you.
The Criteria of an Effective KPI
A KPI can be characterized as effective if it meets the following criteria:
-
Enables you to measure a certain parameter of your work efficiency
-
Encourages better decision making
-
Is aligned to strategic goals
-
Provides objective and unbiased data
-
Reveals your progress at achieving the desired goals (or lack of progress)
-
Offers a balance between lagging and leading KPI types
If your KPIs fail to meet these criteria, you should adjust them.
3 Key Factors to Keep in Mind When Creating Your KPIs
When setting KPIs for your staff, you should pay primary attention to the following three factors:
The Iterative Process
This factor will be relevant for you only if you've been using a certain KPI for a while already. Over time, you can revise and re-evaluate this indicator. The term "iteration" means that you take the outcome of the KPI and use it to improve or change the KPI for the next cycle.
You should review your KPIs regularly, such as once per three months or half a year. The market that you cater to and the industry that you belong to are constantly evolving. The tastes and needs of your customers aren't stable either.
There is nothing wrong with abandoning the KPIs that you used to rely on for years. Some business owners and managers might panic: "Did I make a mistake when I chose this indicator long ago?". No, it's just a matter of time. Any business should keep refining its KPIs systematically.
Learning From Your Previous Failures
It's impossible to always meet all the KPIs. But each time you fail, you should strive to understand the reason for it. You might have appointed the wrong professionals responsible for the task. You might have used inappropriate tools. Or, you might have set unrealistic KPIs. You should analyze your experiences and continuously improve.
Employing the SMART Structure
Here is what this acronym stands for:
-
Specific — your KPIs should pursue clear goals and avoid being vague
-
Measurable — the main goal of each KPI is to measure progress
-
Attainable — before setting a KPI, you need to make sure it's realistic
-
Relevant — your business should benefit from this KPI
-
Time-bound — your staff should be able to achieve the KPI within a reasonable time frame
If you ask your staff to increase sales, such a KPI won't follow the SMART formula. It lacks a time frame and is too vague. Instead, you might ask your employees to boost sales by 5% in 3 months. That would be a very clear and easily measurable goal.
KPI Examples
Now, we'd like to share the most common KPI examples for different departments of your company. Millions of businesses from various industries use them:
Sales:
Marketing:
Finance:
-
Gross profit margin
-
Net profit margin
-
Operating expense ratio
-
Working capital ratio
IT:
Customer Service:
-
Number of calls handled per hour
-
Client satisfaction
-
Average call wait time and handle time
-
Cost per a dialog with a client
-
Support agent who made most sales per month
This list is by no means exhaustive. You can find more examples on the Internet. Plus, you can invent your own KPIs that reflect the specifics of your work.
The Best Software for Tracking Your KPIs
Dozens of solutions are available on the market that enable businesses to set KPIs for their staffers and analyze their performance. Bitrix24 is probably the most-known brand among them. Over 10 million companies from all over the world rely on it and it's an absolute leader in its sphere.
Bitrix24 is available in the cloud or on-premise versions. Plus, it has a mobile app for iOS and Android. You can try its functionality for free and then upgrade to one of three paid plans. The cheapest plan costs $39 per month — but please make sure to double-check it before the purchase because Bitrix24 offers frequent discounts and prices might fluctuate. The free plan accommodates an unlimited number of users but features only 5 GB of online storage space.
Bitrix24 allows you to set KPIs on all levels: for the whole organization, for each department, for a project or individual. You can fine-tune access rights for all users so that they can open only that information that is relevant to them. You can distribute tasks among your employees and track their progress. When Bitrix24 detects a potential for a bottleneck, it will warn you so that you'll be able to allocate the resources more rationally. To automate repetitive tasks, you can create templates for them. For each task, you can create subtasks, checklists and dependencies. This software has all the necessary functions to facilitate and accelerate your workflows.
The CRM of Bitrix24 is an indispensable tool for sales departments. Its cells are customizable and it can store an unlimited number of records.
You can visualize the information with the help of Gantt charts and Kanban boards. Whenever you need to discuss something with your team, you can use the in-built contact center that allows you to make audio and video calls as well as host video conferences and exchange text messages. You can share links and files with your colleagues and edit documents collaboratively in real-time.
Final Thoughts
Hopefully, this article was informative and now you better understand the KPI meaning. You need key performance indicators to measure the success of your business. You can set KPIs for the whole organization, or departments, or individuals. Ideally, you should choose around 5 KPIs for each team or project. Most indicators involve numbers but there is also a handful of qualitative ones. Once your KPIs are set, you should inform all your staff about it. It would be wise to regularly review the indicators that remain relevant to your current workflows. When choosing the best software to work with KPIs, you might want to opt for Bitrix24. Its basic functionality is available for free for an unlimited number of users.
