The Power of KPIs: Measuring Success in Business

How KPIs (Key Performance Indicators) can give your company measurable goals to improve performance.

The term "KPI" is commonly used in business meetings, but what does it mean? KPI stands for Key Performance Indicator. Your KPI is a way to measure success or failure.

You can use your KPI to identify areas of strength and weakness in your company and then use that data to determine the necessary course of action. In this article, we’ll show you why you need KPIs and how to start designing your own.

TLDR:

• Use KPIs to measure progress and discover if your company’s goals are achievable.
• As you get closer to your goals, adjust your KPIs so you get a more precise measurement.

Why you need KPIs as part of your sales and business practice.

Your company cannot depend only on hard work to be successful. You need to be able to measure the results of your goals, campaigns, and efforts. That’s why your Key Performance Indicators matter. A properly set up KPI will allow you to understand what is working and what needs to be improved.

Key Performance Indicators are measurable assessments that help you understand how effectively your employees and teams are achieving the goals set by your company.

By breaking down goals into measurable and regular referenceable data points, you’ll be better able to discover strengths and weaknesses, identify areas that need improvement, and show quantifiable and verifiable information to management and decision-makers.

If your company doesn’t establish your KPIs, you’ll find it challenging to track progress, and you will not be able to make data-driven decisions.

Why do small and medium-sized businesses need KPIs?

Let’s examine some common problems that your company might be experiencing. Businesses like yours need to measure their challenges and day-to-day operations. Here’s how using KPIs can solve common challenges for your business.

• Failure to keep clients: It costs far more to find a new client than to keep one. A KPI for your Customer Retention Rate will help you understand the ratio of retained customers to lost ones. Use this measurement to increase your client return ratio.
• Low Customer Satisfaction: When you have low customer satisfaction, you’ll lose experienced customers and possible staff who can quickly become disillusioned. A KPI called a Customer Satisfaction Score can measure how satisfied your clients are with your services or goods. Be sure to include customers in this KPI and hear their voices and frustrations.
• Lead Burn and churn: Every lead deserves a chance and costs your company money and time. If your sales team is burning leads, you must immediately know and improve the situation. A KPI called a Lead Conversion Rate will let you understand how good (or bad) your sales team can convert leads into customers.
• High Cost per Customer: Converting leads into customers is great until it becomes cost-prohibitive. Using a KPI called a Customer Acquisition Cost can let you know how much your company spends to find new customers and leads and show areas where you can reduce costs.
• Low-Value Customers: Converting leads to customers is the goal of every business, but if your customers aren’t spending enough, it’s a losing proposition. A KPI called Average Revenue Per Customer can guide your company on which customer sets are the most revenue-generating and which can be guided to spend more. Maximize your revenue.

How you can make up your first KPI

If you don’t already use KPIs in your organization, you can follow these easy steps to make your first one:

1. Get SMART: Your KPIs must be Specific, Measurable, Achievable, Relevant, and Time-bound.
2. Assign it: Have a senior team leader take charge of the project.
3. Research it: Find out what others are doing in your industry so you have a baseline to go from, but find your own unique needs and goals.
4. Define It: Define your company’s long and short-term goals.
5. Select it: Select what you want to occur. More sales, higher value sales, less sales staff turnover, increased customer satisfaction?
6. Match it: Make sure your KPIs align with goals at the organizational and departmental levels.
7. Move it: Data doesn’t do any good if you don’t know where it will go. Ensure your information is correct, works in your plan, and gets to the correct source.
8. Track it: Keep detailed records and track changes over time; establish weekly, if not daily, reports.
9. Keep it: All your data should be kept in your CRM.

With these steps, your organization can begin to use KPIs.

How KPIs work with your CRM

After formulating your KPIs, you can use the data from your CRM to track the performance of your marketing campaigns and customer interactions, identify areas of improvement, discover weaknesses, and more. A KPI is a standard measurement that is a “same-truth” company-wide, allowing all team members to get the same unbiased view.

What is a KPI in business?

A business's KPI (Key Performance Indicator) is simply a measurement of a single or multiple performance of financial, strategic, or operational goals. You’ll use this measurement to gauge your business objectives' success over time.

KPIs can be about customer performance, lead usage, profitability, revenue, or other essential measurements that business leaders need to understand.

Some more good KPI examples

Here are a few examples of common KPIs that your company should consider.

Sales KPIs

• Sales Growth: Sales growth is defined as the percentage of increased sales during a particular period. Your company will not clearly understand patterns and trends without measuring sales growth. Having a consistent rise in sales means your business is doing everything right. Other versions of this KPI include “Year-To-Date” sales growth and “Lead Conversion Ratio.”
• Closing Ratio: In addition to overall sales growth, you’ll need to track how many leads you close compared to how many you can create or purchase. This is called a “Closing Ratio.”
• Year-to-date: This KPI measures the rate of increase for the year, or it can be adjusted for smaller amounts of time.
• Sales Per Rep: This KPI answers how many sales each representative generates per month or year, which can also be used for entire divisions or departments. This can help sales trainers or your sales enablement manager give attention to reps. Who aren't performing as well as their peers, and learn from reps who exceed averages.
• Win Rate: Understanding how many deals close out of all the deals pursued is a critical measure that this KPI can show.

Marketing KPIs

• Customer Acquisition Cost (CAC): This KPI shows the average cost of getting a new customer. If your CAC is too high, this can lead to negative profitability and cash flow problems.
• Customer Lifetime Value (CLV): The total amount, on average, that a customer will spend with your company is measured by the CLV. A low value for this shows poor alignment with goals, a failure to upsell or cross-sell products, or low customer retention rates.
• Website Traffic: Your website traffic should increase, primarily if you practice content marketing. This KPI can show you how well or poorly your online marketing strategies are doing.
• Social Media Engagement: This KPI measures how much engagement your social media is getting and whether your campaigns have succeeded.

Customer KPIs

• Customer Churn: When customers stop doing business with you, this is called “Churn,” this KPI measures the number of customers who stop doing business with you. A lower rate means clients are happy with your company.
• Customer satisfaction score (CSAT): Unhappy clients mean you’ll have to spend a lot more to get new clients, and you may get negative word-of-mouth reviews. A higher score means you are doing well.
• Net promoter score (NPS): You can measure how likely your customers are to recommend your business to their friends or associates. In a survey, your clients are asked just one question, “How likely are you to recommend our company on a scale of 1-10?” Those with the highest scores are promoters, while those with lower scores are detractors. The NPS is derived from the percentage of detractors from those of the promoters.

Profit KPIs

• Gross Profit Margin: Low gross profit margins indicate that your product or service is priced incorrectly or that it is costing your company too much to produce or provide. This KPI measures the percentage of revenue after deducting the costs to produce goods or services.
• Return on Investment (ROI): This KPI measures how much you spend compared to how much you make from those investments. This should be front and center for every company.

The takeaway

Key Performance Indicators (KPIs) are essential in measuring business objectives, discovering strong points and areas that need improvement, evaluating overall company health, and communicating performance to management and decision-makers. Small and medium-sized businesses (SMBs) can avoid poor decision-making, misused resources, lack of direction, and focus by establishing their KPIs.