A KPI (or key performance indicator) is a metric used in analytics that indicates how your business is performing; simply put, these indicators are a set of gauges that relate back to your strategic objectives and goals. They allow you to monitor results and take action if a tactic needs to be adjusted, or take advantage if opportunity knocks. Because your business goals are the base of your business model, KPI’s can differ between industries, which is why it’s so important to know what KPIs to measure in your specific business.
When it comes to choosing the correct KPI’s for your business, there are six aspects you have to remember:
- The KPIs you choose should coincide with the strategic objectives/goals of your business;
- They should provide data that is not only easily gathered, but pertains to your business model;
- They should keep everything/everyone involved not only on the same page, but continuing to work towards your goals and objectives;
- The data provided by your KPIs should be factual, dependable and relevant;
- The insights provided by your KPIs should be able to be acted upon quickly and decisively so as to keep in line with your objectives;
- Your KPIs should evolve and change as your business does
Because there are so many specific metrics for every industry, some of the more general types of KPIs have to do with sales (such as sales growth, opportunity, and product performance), marketing (returning vs. new visits), financial (net and gross profit margins), social media (new followers, engagements on Twitter/Facebook), and SEO (keyword click through rate, search traffic reporting).
Because KPIs are indicative of an individual business model and its goals, KPIs can differ dramatically across different industries.
The KPIs you select for your business showcase specifically how you want to accomplish your goals – which means they are a direct link into how you view your business and its future endeavors and successes.
For example, a business in the clothing retail industry would be concentrating heavily on sales, inventory and consumer metrics. A sales increase KPI allows them to track and compare growth over time (such as month to month or year to year). High inventory turnover, which is extremely desirable in retail (as it shows how much and how quickly you have to restock your product to fulfill your customer’s needs) is also an important metric to track. As is the repeat customers KPI, which is a count that shows how many customers are returning to your business – this provides a good measure of success and popularity of what you’re selling.
In comparison, you might think that solely ecommerce businesses would have similar, if not almost identical KPIs to retail businesses. And while that might be true in some areas, some of the most helpful KPIs for ecommerce are completely useless in a retail business model. One of the most important KPIs in the ecommerce industry is the abandonment rate, which tracks the amount of customers who start the checkout process, but abandon it before completion. If you have customers leaving your checkout process before they actually buy, that could be a sign that something is wrong with your shopping cart. The metric that rates an ecommerce site’s CPC (cost per click), is also important, as it gives insight on how much your business is spending on simply getting a prospective customer to click on one of your products.
The objectives and goals you set up within your business model can only be successfully completed if you have ways of measuring their success. In the end, KPI’s are important because of not only what they say about your business, but how invested you are in collecting the correct information to continue growth and prosperity.