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Key Performance Indicators

Key performance indicators (KPIs) are metrics used to determine how well an organization is achieving its business objectives. A KPI should directly impact revenue, costs, or conversions. Good KPIs include metrics that can be correlated with changes in revenue, costs, or conversions over time, such as average order value, revenue per click, or task completion rate. Simply impacting business performance does not make a metric a strong KPI - it must have a significant influence on the bottom line. Non-quantitative metrics like number of social media followers or clients' happiness cannot be used as KPIs since they cannot be directly measured as numbers or ratios.

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190 views

Key Performance Indicators

Key performance indicators (KPIs) are metrics used to determine how well an organization is achieving its business objectives. A KPI should directly impact revenue, costs, or conversions. Good KPIs include metrics that can be correlated with changes in revenue, costs, or conversions over time, such as average order value, revenue per click, or task completion rate. Simply impacting business performance does not make a metric a strong KPI - it must have a significant influence on the bottom line. Non-quantitative metrics like number of social media followers or clients' happiness cannot be used as KPIs since they cannot be directly measured as numbers or ratios.

Uploaded by

Joseph
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Key Performance Indicators

Understanding Key Performance


Indicators (KPIs)
• In an ideal world, understanding even a complex
topic would be so easy that you can just scan one
article on it and get all what you need. This is
what i dream of and this is what i aim for in my
posts. But we don’t live in an ideal world and we
all are not blessed with excellent teachers. We
may need to read at least dozen articles on the
same topic to get a thorough understanding of
the topic/subject.
What is a KPI?
• KPI stands for ‘Key performance Indicator’. It is a metric which is
used to determine how you are performing against your business
objectives. A metric can be a number or a ratio. So we can have
‘number metrics’ and we can have ‘ratio metrics’. For example:
Visits, Pageviews, Revenue etc are number metrics because they
are in the form of numbers. Bounce rate, Conversion rate, Average
order value etc are ratio metrics because they are in the form of
ratios.
• Since KPI is also a metric, we can have KPIs in the form of numbers
and ratios. So we can have ‘number KPIs’ and we can have ‘ratio
KPIs’. For example: Days to purchase, visits to purchase, Revenue
etc are number KPIs. Conversion rate, Average order Value, Task
completion rate etc are ratio KPIs.
Difference between a Metric and KPI
• A metric graduates to KPI. However in order to make
this happen the metric must hugely impact the
business bottomline. This is possible only when the
metric has the ability to provide recommendation(s)
for action which can a huge impact on the business
bottomline.
• For example, ‘Average Order Value’ can be used as a
KPI because it hugely impacts the business bottomline.
You can greatly increase sales at the present conversion
rate just by increasing the size of the orders. Revenue
per click, Revenue per visit, Revenue per acquisition,
Cost per acquisition, Task completion rate etc. are
other examples of metrics which can be used as KPIs.
How to find a good KPI?
• Before you start the process of finding KPIs, you must
acquire a very good understanding of your business
and its objectives. Then you need to translate your
business objectives into measurable goals. Once you
have determined your goals, you will select KPIs for
each of these goals. You will use these KPIs to measure
the performance of each goal.
• Goals are specific strategies you used to achieve your
business objectives. Your business objective can be
something like ‘increase sales’. You goal could be
something like ‘increase sales by 5% in the next 3
months by increasing the average order value from x to
2x’.
• Any metric which has the ability to directly impact the cash flow
(revenue, cost) and/or conversions (both macro and micro
conversions) in a big way can be a good KPI. For example if you sell
display banner ad space on your website and display advertising is
the main source of revenue for you then ‘pageviews’ can be used
as a KPI. The more pageviews you get, the more you can charge for
every thousand impressions (CPM) from your advertisers.
• If you are not sure whether or not a metric can be used as a KPI,
then try to correlate it with revenue, cost and/or conversions over a
period of time (3 or more months). You need to prove that there is
a linear relationship between your chosen KPI and revenue, cost
and/or conversions i.e. as the value of your KPI increases or
decrease there is a corresponding increase or decrease in revenue,
cost and/or conversions. For example:
Can you use ‘number of twitter followers’
as a KPI?
• The answer is ‘NO’, not unless you can
correlate number of twitter followers with
revenue, cost and/or conversions i.e. as the
number of twitter followers increases or
decreases there is a corresponding increase or
decrease in revenue, cost and/or conversions.
Even if somehow you are able to correlate the number of
twitter followers with revenue, cost and/or conversions you
still need to prove that the correlation has huge impact on
the business bottomline. Just because a metric impacts the
business bottomline, does not automatically make it a good
KPI.
Can you use ‘number of facebook fans
as a KPI?
• The answer is ‘NO’, not unless you can
correlate number of facebook fans with
revenue, cost and/or conversions i.e. as the
number of facebook fan increases or
decreases there is a corresponding increase or
decrease in revenue, cost and/or conversions.
• Even if somehow you are able to correlate the number of facebook
fans with revenue, cost and/or conversions you still need to prove
that the number of facebook fans has huge impact on the business
bottomline. Just because a metric impacts the business bottomline,
does not automatically make it a good KPI
Can you use ‘Phone Calls as a KPI?
• The answer is ‘yes’ provided majority of your revenue comes
through Phone calls. You can easily track phone calls through
‘phone calls tracking’ software and then import phone calls data
into Google Analytics. Once the data is imported you can tie phone
calls to revenue, cost and/or conversions to determine correlation.
• Here there is one thing to keep in mind. A KPI doesn’t need to be a
metric available in Google Analytics reports. You can use metrics
from other analytics tools too. For example ‘Phone call’ metrics is
not available in Google Analytics reports by default but this doesn’t
mean that we can’t use it as a KPI. Similarly, ‘Task completion
Rate’ metric is not available in Google Analytics reports. You can
calculate ‘Task completion Rate’ through a survey tool
like Qualaroo and use it as a KPI.
• Note: Task completion rate is the percentage of people who came
to your website and answered ‘yes’ to this survey question: “Were
you able to complete the task for which you came to the website
Can you use Clients’ Happiness as a KPI?

• The answer is ‘NO’. This is because a KPI is a


metric and metric is a number or a ratio. In
other words, metrics is something which can
be measured in the first place. How you can
possibly quantify a human emotion like
‘Happiness’?
Examples of Good KPIs

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