Have you ever felt like your key performance indicators don't provide a solid foundation to make decisions?
That you don't have all the information to make the right move for tomorrow? Managers and business leaders always want to know how their decisons will impact tomorrow.
The mistake we see companies and teams run into with key performance indicators is using them as a tool for measurement out of context. There are two problems with this.
First: KPI's are not a measurement tool, they are indicators of future performance based off of what activity you are doing.
Second: You become fixated on everything but the long-term objective leading to short term wins that don't support or build on each other.
The most common case is only using financial indicators to drive growth. Buy default, financial indicators keep you focused on short term wins to see immediate results. Things like sales quotas, revenues and margins.
You're not alone, most business leaders view big data as frustrating because of the sheer volume - making it exhausting to define accurate indicators. Certain functions using isolated information to make decisions from will result in perfromance indicators that are put in place without any real purpose. Liz Ryan, a forbes contributor, was told in an interview, “The correlation between hitting KPI targets and actually getting my work done is a very weak correlation”.
As you can see from that statement, her tasks and projects don't have any context. Your team wants to know the impact they are having on growth. Organize your KPIs to close that gap so that the only work being done is work focused on your objectives.
How important is it for me to organize my KPIs? According to a report by DOMO, only 1 in every 4 CEOs say that their reports contain the information they need and want and 50% of business leaders want to get data via a dashboard because it's the easiest way for them to quickly view and analyze data the way they want to.
Good KPI management will make it easier to create dashboards so you can digest important information at-a-glance. Otherwise you end up with disparate data sources and disconnected decisions. When data is all over the place like this you jeopardize the foundation that allows you to make the best possilble decision.
You can’t create accurate and actionable performance dashboards with unconnected data sources. When data isn't pulled into a single hub to organize it wil leave room for error because the sheer volume being manipulated manually. It's time-consuming, and inefficent. This seems to be common because a big frustration among business leaders is scattered data sources.
How to Organize Your Key Performance Indicators
Business intelligence software such as GoodData, RJMetrics (based out of philadelphia) and Geckoboard are a few examples of companies built around solving this problem. Dashboards do a great job of simplifying complex data sets through visualizations. This makes it possible for more people in the company or on the team to use dashboards to make decisions.
Here is an example of a KPI dashboard from GoodData:
Here is an example of one from Microsoft's Power BI:
As you can see they do a great job at managing data for analysis. They also have great data visualizations for reporting use. To make the right decisions, your KPIs still need to fit into the overall objective. So whether or not you are using data analysis software, organizing, sorting through and modeling all the possible relationships between the data still comes first.
For marketers, knowing what KPIs your activity directly contributes to and therefore effects is the easiest way to prove their ROI.
This is why defining the right KPIs is a critical task but also a difficult one. It's important that you are tracking the right metrics, but how will you know? And what is the right amount of data to include?
These are important questions that are only going to get answered through your own implementation.
Can you believe that 92% of companies do a bad job with KPI's, and 73% of executives beleive marketers are not focused enough on driving revenue.
Ownership is important
Marketing is all about activity. The business landscape requires companies to be consistent in delivering quality communication that educates and entertains.
Key performance indicators are meant to be individual, goal and objectives broken down and spread across all the player.
It's important for marketing managers to keep a close eye on the contribution of individual activity. This will allow you iterate at a faster speed while increasing quality at the same time.
It's best to start by breaking down your indicators by function. Such as management, marketing, sales, operations, and so on.
Here is a quick list of some of the top KPIs broken down by function (marketing and sales)
- Customer acquisition cost (CAC)
- Marketing percentage of customer acquisition cost (M% CAC)
- Ratio of customer acquisition cost to customer lifetime value (CAC:LTV)
- Cost per lead
- Marketing qualified leads by lead source
- Marketing originated customer %
- MQL event value
- New customers
- Sales qualified leads to customer conversion rate (SQL to Customer %)
- Average deal amount
- Sales pipline
- Sales productivity
After you have you KPIs sorted out it's time to build some context around them. This is done through SMART goal setting. Indicators are measuring your prgoress towards a goal and predict future performance.
It's time to map it
You're looking to organize your KPIs by function and set goals around their perfromance. This is important to define to keep the data structure that feeds the right information to the right people actionable and accurate Read more about how to design a good dashboard here.
Lucky there is an extremely popular framework for organizing your KPIs that I am going to walk you through now. This framework is built to provide insight into the business from 4 different perspectives. The customer perspective, financial perspective, operations perspective and people perspective. It's called the Balanced Scorecard.
You can download it right here and follow along. I'm going to walk you through it and show you how it provides the organization needed for accurate and actionable infromation.
1. Create a Strategy Map and define objectives
Your strategy map should be a one page document that describes what is most important to the business. It shows how the objectives from one prespective feed into the objectives of another. Each perspective should only focus on a few objectives and each objective should only focus on a few indicators. We'll get into that in a moment.
You can organize the perspectives in a way that makes sense for your business. Most for profit businesses are going to have financial objectives at the top but you may decide that your customers or employees are the number one focus for your company.
Either way, you want plan from the top down but execute from the bottom up. This way you always look at your overall objective from the learning and growth perspective, reminding you to remain creative and embrace change.
This shows you a financial strategic objective:
2. Develop indicators and set targets
Determine what metrics are going to be important for tracking each of your objectives. Remember you want to break each objective into a few managable metrics.
To determine the correct KPIs to track begin asking yourself questions about the data. This will give you a deeper understanding of what the KPI's are telling you to do. For example, If we are looking to increase our bottom line results we may want to ask: "Are we generating healthy enough profits to sustain future growth"? By asking this question we will determine that Net Profit and Net Profit Margin are two major metrics.
Using historical data, you want to then set your target. In other words, what are your monthly, or quarterly goals? Use the S.M.A.R.T framework to set your benchmarks.
You can see below the indicators defined under the objective:
Next is the customer perspective:
3. Prioritize focus and build action plan
What needs to be worked on or optimized to achieve the financial and customer objectives. The process perspective seeks to tell you how the processes in place are performing and the learning and growth perspective seeks to tell you how well your team is "innovating" - consistent iteration is the best way to continually improve/innovate - and if your team is creating enough value.
The process and growth perspectives look at the customer experience as a whole. The marketing experience, sales experience, product development, customer support, employee value, contribution and customer service experience.
Build an action plan from the relationship between these two perspectives. Think of it like this: If the learning and growth phases is in the form of a lean methodology, iteration is the driving force behind growth. As you iterate quickly you learn what works and what doesnt work at a quick pace while also reducing wasted time and money.
Apply this methodology to any performance you are internally ramping up (from the process perspective). Campaign production, blog output, social engagement, live customer chat, whatever the objective may be. Stay on schedule by focusing on running the different experiments (small tweaks) versus a big project launch.
I hope you can take this process, adapt it to your needs and use it to organize some of your data into key performance indicators. Information that you know will move the needle forward. Organizing your key indicators using the balanced scorecard allows you to keep that 30,000 ft view in perspective for every activity and process.
Remeber, the scorecard takes two kind of performance metrics into consideration. There is strategic key perfromance indicators that provide information about how you're progressing towards what you want to accomplish and operational indicators that tell you if your activities are getting the job done and what else you may need to do. Be sure to download our strategy map framework to utilize the balanced scorecard.
How do you currently think about KPIs? Any other thoughts? Let me know in the comments? Or reach out to me on twitter @davidalberico