Best Practices for Determining Your KPIs (And Why They Matter)

Great business owners are separated from good ones by the decisions they make. Tony Robbins says it well, “One reason so few of us achieve what we truly want is that we never direct our focus; we never concentrate our power. Most people dabble their way through life, never deciding to master anything in particular.” If we want to make decisions that grow our businesses and help us achieve our goals, then we need to have focus and concentration on what really matters. This is where KPI’s come in.

So What is a KPI?

KPI stands for Key Performance Indicators. They are the key metrics or data points that a business or organization uses to determine whether or not they are headed in the right direction.

Now, not all metrics are KPIs. While you may track a number of performance indicators, only those that are key to the goals of the organization should be considered key performance indicators.

The goal of KPIs is to help you focus on what matters. There is so much data out there it’s easy to be overwhelmed by it all. Most business owners or entrepreneurs I speak with collect data like website visits or email metrics, but very few do anything with the information. The main reason for their lack of action is not knowing where to start.

I want to share some best practices to help you determine what your KPIs should be and how you can use this information to make better decisions for your business.

KPIs are Not Universal

One important thing to remember is that KPIs are not universal. What may be a key performance indicator for one business, may matter very little to another.

For example, if you are blogging to drive more visitors to your website and that traffic has a direct impact on your business, then blog traffic is probably a KPI.

If you are using your blog to educate your current base, it’s still important to track engagement, but it’s probably not a KPI.

It can be tempting to Google “Best KPIs for a Business,” but the answers you get won’t necessarily be right for you. Remember, a KPI is a metric that is key in helping you determine if your business is headed in the right direction. As the business owner or department lead, that is not something you can delegate. You have to set the direction yourself.

Best Practices: Determining Your KPIs

While copying someone else’s KPIs is a bad idea, there are a few best practices that will help make sure the metrics you choose are best for your business. Here are a few best practices when determining your KPIs

Define Your Business’s Core Objectives

This first best practice is absolutely crucial. Before you can begin to think about metrics and dimensions, you need to know what you want to accomplish. Defining your business’s core objects will act as a compass for the rest of the process.

Most businesses large and small have a number of objectives and are typically broken down by department. While not all companies have defined departments, they still have to deal with “departmental issues.” Here is a list of common departments.

• Production
• Research and Development (often abbreviated to R&D)
• Purchasing
• Marketing (including the selling function)
• Human Resource Management
• Accounting and Finance.

I recommend that you go through each one of these and define the core objective(s) related to that part of your business. This will help you see where to focus and determine if there is any overlap in your objectives.

2. Define What Needs to be Measured

After you’ve written out what your objectives are, it’s time to break down what needs to be measured. These are all the metrics and dimensions that you will need to track. Just so we are speaking the same language, I want to give you a quick reminder on what metrics and dimensions are.

• Metric: Measurable values of that attribute.
• Dimension: A descriptive attribute that can be ascribed values.

So let’s say that you run an e-commerce business and user behavior is important to increasing sales. You’ve decided that you need to track user engagement on your website. Here are some potential dimension and metrics you’ll need.

The reason you want to define metric and dimension now is that it keeps you focused on your goals. It’s easy to start adding more and more data points because they “feel good” but that only leads to data overload.

Now, if you don’t know your metric and dimensions, it’s all good. Write down what you think you need to measure. For instance, let’s say you’re that same e-commerce entrepreneur and you are not analytics savvy. Your metrics and dimensions may look more like this.

Defining what you want to track using everyday language is totally fine. After this process, you can team up with someone who is more knowledgeable in analytics to help you set up your tracking. The goal at this point is to start defining what you think you need.

3. Narrow Your List

At this point, you have a list of departments, goals or objectives and some dimensions and metrics. Depending on how detailed you got, you probably have a long list. Now it’s time to start focusing on your list.

You should only have 5 to 7 KPIs. Remember, these are key performance indicators. This doesn’t mean you can’t track all the areas you wrote down; they just can’t all be key.

Go over the list and look at the ones that impact your business as a whole. Which ones will make or break you? Which ones impact your bottom line. These are the ones that you want to focus on the most and make sure that you are regularly monitoring.

Using KPIs to Track Progress

Data visualization is a very hot business right now because we have a ton of data and need a quick way to process everything. Since we can process images way faster than text, data visualization has become extremely popular.

While there are many tools that can help you visualize your data, not all businesses need to spend 20k a year on BI software. Thankfully, Google has created a great free tool call Data Studio that can help you visualize your data for free.

While I won’t go into detail about Data Studio, I do want to show how a KPI dashboard can help you make better decisions.

Again, so we are on the same page, a data dashboard is an information management tool that visually tracks, analyzes and displays key performance indicators (KPI), metrics and key data points to monitor the health of a business, department or specific process. (source)

We use dashboards to track the KPIs on each campaign which we work. Using Google Data Studio, we’ve created dashboards that allow us to see if we are on track without having to do a ton of digging. Dashboards are not supposed to be a comprehension analysis tool. They are meant to deliver important information fast. Here is an example of our digital marketing dashboard.

Using this dashboard our team can quickly see if we are hitting our goals for our clients. You’ll notice that we have some trend data and arrows that show our progress. On this example, they are “green” and pointing up. Again, the goal here is to be able to assess progress quickly. If we were not doing well, they would be “red” and be pointing down.

After reviewing our dashboard, we then can spend time later digging deeper and find out if what we are doing is working (or not working). This helps us focus on the main objectives and deliver business results.

Data analysis is no longer just for the big enterprise businesses. Today anyone can track their progress and create KPI dashboards to help them stir their business in the right direction. While this is available to nearly all companies, very few take advantage of it. If you want to see your business grow, defining your KPIs is an essential first step. Using them to make better decisions is what separates the good from the great!