How to know if your business is moving in the right direction? Use KPIs.
When we start our business we tend to jump into measuring money in the bank,… but we forget to measure, if we are doing a good job . The jobs we are making money with. Are we solving the problem for the user? (either by offering a service or selling a product that will solve that problem)
Here is a short guide on setting performance indicators for your business that will help you make better descisions.
KPI (key performance indicator) is a measurable value that indicates how effective a company is at achieving it’s strategic business objectives.
Strategic business objectives are tangible, quantifiable goals that companies create to reach the next level of their growth.
Process of defining KPIs:
- Define your target audience (persona)
- Set up a grand vision
- What are we helping our customers achieve?
- How are we helping them at the moment?
- How could we help them in the future?*
- What are our current strategic objectives?
- What can we measure?
- What measurement represents both our objectives and clients benefits?
“What gets measured gets managed. If we measure user’s satisfaction we will try to make users more satisfied.”
1. Define your target audience (persona)
In order to start defining our KPIs we need to know who our product is for. Who is the target audience we will be setting KPIs against?
Some of the questions to ask yourself are:
- How old is your ideal target audience?
- Where do they live?
- Are they male or female?
- What does their free time look like?
Don’t be afraid of being too specific. If you are targeting enough people to fill up a small conference, you are fine.
2. Set up a grand vision
Establishing a vision is same as giving your coworkers and employees a compas. They will know what direction to go and it will be easier for them to navigate the path.
The vision needs to be clear and tangible and needs to make sense to the people working on it. Besides that people are excited by the potential ahead and are inspired to go towards it.
What is the vision for the product looking from the perspective of your target audience? Pitch it in one sentence that captures the essence.
3. Write down “What are we helping our customers achieve?” (now or in the future)
What are some of the things you are helping your customers with? What do they want to achieve? Become relaxed? Pay their bills faster? Save time by delegating a task of cleaning your laundry?
Make a list of these items and prioritise it based on impact.
4. How could we help them with these things in the future?
This gets the creative juices flowing. It’s almost inevitable that you will have some ideas for the future once you define what are users trying to achieve. Write them down and save them for later. You can do this in parallel with the next question and get new ideas.
5. How are we helping them at the moment?
This is mostly just listing out all the features/services/products we are offering that are useful and in contact with selected persona. Good approach is also to mark all of the items with benefits they are providing:
- G — Growth
- R — Revenue
- L — Customer Loyalty
Each feature can have multiple.
6. What are our strategic objectives we are working on?
KPIs are always used to focus your efforts. What is your next big task to move your product into the next phase of growth? What will you be doing? What are the common themes of your tasks?
Do you need to build your product? Devise a sales strategy? Get your users to think differently about your company? Lower the costs?
Define one or two big objectives and use that to guide you while shaping KPIs.
7. Start defining KPIs
Read up on KPIs
There is no other way except educating yourself. Here are some links:
- 42 Analytics Experts Share Their Best Strategy to Define Actionable KPIs by Paul Koks, Online Metrics
- 5 Steps to Actionable Key Performance Indicators by Peder Enhorning, Unilytics
- What Are KPIs and How to Use Them in Your Small Business? by Andrew Blackman, Business Tuts+
- Don’t Be Fooled By Vanity Metrics by Erick Schonfeld, TechCrunch
What should KPIs look like?
KPI is a measure showing positive or negative trend based on the measures taken in two past time periods. It tells you how were your past actions and decisions impacting this metric.
Eg. Number of items sold per number of store visitors from month to month — provides information on how good your salespeople are at selling or how well your store is set up,…
Beware of vanity metrics!
These are nice to look at but don’t tell you anything useful. Good example of vanity metric is “Number of users”. It tells you just that the number of your users is rising and that they are signing up to your website but nothing about their usage. You are interested in “Active users”. How many are actually using your website at this moment and a month ago? Is the trend downward or upward? This way you know if there is more of them and if they are continuing to use your website.
Start listing things you could measure
Start writing down things that pop into your mind even if you know they are not what you are looking for. By taking them out you are making room for new ideas. Maybe combining two will make a good one.
You can also google examples to get more ideas but at the end of the day you know your product best.
What measurement represents both our objectives and clients benefits?
This is a question I use to filter and prioritise my KPIs. Best KPIs capture both client’s benefits as well as benefits for my company or company of a founder I’m working with.
What do you want your KPIs to tell you?
This is another question for prioritisation and checking if the KPIs are useful. Try to get to the core and limit yourself to 4 KPIs max.
How to use these KPIs?
For each KPI, there should be a specific minimum number that you’re aiming for. To set that we need to look at existing data and future activities. Based on that we can set goals.
If you’re not meeting targets, the most important thing is to identify the underlying cause why you are not meeting them.
Over time, you will need to refine your KPIs. You can do this as part of your regular changes to your business plan. If your strategic objectives change, your KPIs should change too.
Of course, setting KPIs is a pointless activity unless you actively monitor them on a regular basis and take action to improve them. KPIs should be tracked/checked regularly.
Easiest way to monitor KPIs is by setting up some kind of dashboard that collects all of your data in one place and is easy to update or prepare a simple spreadsheet containing numbers and graphs.
I also suggest setting a monthly retrospective meeting (internally in the company) where you:
- check how KPIs changed since the last month,
- do a retrospective on the progress of activities performed in order to improve KPI score,
- review future activities performed in the upcoming month,
- review what other activities could help you get to the benchmark.
This framework should get you pretty close to KPIs if not to them directly. In the worst case scenario you will get more familiar with your customer which is a benefit on its own. Let me know if this was useful to you using comments or by giving a clap. If you want to know more or need some guidance in setting this for your own company let me know as well.