How to Choose a KPI for Your Business
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Choosing a KPI is important to evaluate success and growth for your business. Read on to learn more about KPIs and how to choose one for your business.
Key performance indicators (KPIs) are metrics that help you measure your business success and performance. They help you understand if you are achieving your business goals and objectives and if your strategy is working.
KPIs help you eliminate guesswork on your business performance. They help you understand which areas in your business are doing well and which areas need improvement. But choosing the right KPI for your business is not easy.
Below, we’ll share tips for you to know how to choose the right KPIs for your business.
Examples of KPIs
To understand KPIs better, let’s give a few examples of KPIs.
1. Quantitative KPIs
As the name suggests, quantitative KPIs measure the quantity or the numbers of your performance, such as how many deals you’ve closed, how much product you’ve sold, or how much revenue you’ve gained for a time period.
A few examples of Quantitative KPIs include:
- Sales Growth
- Customer Lifetime Value
- Customer Acquisition Cost
- Service Response Time
- Tickets Resolved per Support Representative
- Sales Revenue per Sales Agent
2. Qualitative KPIs
Qualitative KPIs help you understand non-numerical data such as customer and employee feedback, comments, and engagement. They help you understand better what’s going on and how to address critical issues in the business.
A few examples of Qualitative KPIs include:
- Product Reviews
- Customer Feedback
- Recommendations
Learn how you can gather customer or even employee feedback here.
How to Choose a KPI
Now that you know what KPIs are, how do you choose the best KPI for your business and which KPI to focus on? See our tips below:
1. Determine your business goals
This is the most important part in choosing a KPI. Your KPIs should be aligned with your business goals. Otherwise, they’re just measuring nothing. To get started with choosing the best KPI for your business, identify first your business goals and make sure they’re specific.
For example, if your business goal is to increase profits, you have to ask yourself how you’re going to do this. Narrow it further to levels that can be sustainably measured (e.g. increase sales, or cut down costs, etc.)
Make sure to also use ratios and ranges when determining goals. For example, if your goal is to boost your sales revenue, you have to ask yourself “by how much?”
“Boosting revenue by 10% next year” is a much better, more specific, clear, and attainable business goal than just “to drive sales.”
2. Use metrics that add value to your business
It’s important to avoid vanity metrics and only use metrics that add value to your business. For example, getting an X number of app downloads may sound good on paper, but it doesn’t necessarily translate into business value.
Many of those users who downloaded your app may end up not using it at all. So there’s no value in using this metric.
Instead, use metrics like daily active usage or referral rates to identify the impact of your app on users. You can also use other metrics that are aligned with your business goals.
3. Don’t limit your indicators
Many companies are tempted to use indicators that relate to profitability such as revenue or profit. While these are incredibly important metrics that relate to your financial health and sustainability, there are also indicators such as employee satisfaction or employee turnover rate that are equally important but are often underlooked.
Don’t limit your indicators. Make sure to include as well those that are essential to your business’s success.
4. Regularly analyze data for your KPIs
By regularly analyzing data you’ve gathered, you can spot trends in the market that helps you make correct and timely decisions.
Comparing your data regularly to other time periods (2020 vs 2021), user groups (millennials vs Gen Zs), or competitors allows you to better understand what’s happening and what you need to do to avert crises or leverage trends for growth.
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