WHAT KPI STANDS FOR AND ITS BEST EXAMPLES AND PRACTICES?
When leading a team, there is a good chance that you have heard of key performance indicators (in KPIs). What exactly does a key performance indicator or KPI stands for? A key performance indicator (KPI) is a measurable value that shows how effectively a company achieves its main business objectives. Key Performance Indicators (KPIs) are critical to achieving the intended results. High KPIs can focus on the overall performance of a company, while low KPIs can focus on processes in departments such as sales, marketing, personnel, support, and more. Organizations use KPIs at several levels to assess their success in achieving their goals. Whether or not you’re already aware of this, we’ll give you some additional information about the metrics before continuing.
Before presenting the examples, we will review the definition of KPIs. KPIs are simply the type of performance measurement that helps you understand how your business or organization is performing. A good KPI should point you in the right direction, helping you and your team understand if you are on the right track to achieving your strategic goals. To do this, the KPI must:
- Provide objective evidence of progress towards the desired result
- Measure what is meant to measure to help you make better decisions
- Provide comparisons that measure the degree of change in performance over time
- Be able to monitor efficiency, effectiveness, quality, timeliness, management, compliance, behavior, economics, project results, staff performance or resource utilization
- Be in balance with leading and lagging indicators
The problem is that there are many thousands of different indicators. If you choose one of them that is completely irrelevant to you, you will measure something that does not match your goals. So how do you decide which one is right for your business?
This is best achieved through a variety of research and understanding of the most important metrics or indicators.
KPI Examples & Definitions
It goes without saying, but we emphasize once again that this is one of the most important indicators you can see there. Be sure to analyze both gross and net profit margins to better understand how successful your business has been and how much revenue you are earning there.
Cost-effectiveness should also be measured and different ways to reduce and manage costs should be found.
3. LOB Revenue vs. LOB Revenue Vs. Target
This is a comparison of your actual and expected income. Marking and analyzing the differences between these two emerging numbers will help you understand how your team works.
4. Cost Of Goods Sold
By adding up the production costs of all the products you sell, you get a better idea of what the mark-up of your product looks like as well as the profit margin. This is important information in order to decide how to sell something better than your competitors.
5. “Outstanding Day Sales (DSO)”
Add up all your bills and divide them by your total credit sales. Take this number and multiply it by the number of days you completed your sales. Use this formula every month, quarter, or year to see how you gradually get better.
6. Sales by Region
By analyzing which regions meet your sales goals, you can give better feedback to less developed regions.
7. LOB Expenses Vs. Budget (“LOB Expenses Vs. Budget”)
Compare your overhead to your estimated budget. Understanding deviations from the plan will help you create a more efficient departmental budget in the future.
8. Customer Lifetime Value (CLV)
Minimizing costs is not the only way to optimize customer acquisition. CLV helps you review the values your organization derives from long-term customer relationships. Use this performance indicator to better identify which channel is helping you get the best price.
9. Customer Acquisition Cost (“CAC”)
Divide the amount of acquisition costs by the number of new customers being investigated over time. Now you have found the cost of acquiring your customer. This is considered to be one of the most important metrics for e-commerce as it helps you evaluate the cost-effectiveness of your marketing campaigns.
10. Customer Satisfaction & Retention
On the surface, it’s simple: Make your customers happy and they’ll stay with you. However, many companies argue that shareholders rather than customers find value in this. You can use several performance metrics to measure CSR, including customer satisfaction scores and the percentage of repeat customers.
11. Net Promoter Score (NPS)
Knowing your NPS is one of the best ways to celebrate a company’s long-term growth. To determine NPS results, send your customers quarterly surveys to see how likely they are to recommend your business to someone they know. With the first review, set your baseline to implement measures that will help these numbers grow each quarter.
12. Number Of Customers
Like profit, this performance indicator is quite straightforward. By determining the number of customers you have acquired and lost, you can get additional information about whether you meet the requirements of your customers.
13. Customer Support Receipts
An analysis of the number of new receipts, the number of receipts resolved, and the time it takes to resolve will help you create the best customer service department in your field.
14. Percentage Of Product Defects
Take the number of defective units and divide it by the total number of units produced during the test period. This is the percentage of defective products. And it is only natural that the lower the number, the better.
15. LOB Efficiency Measure
Efficiency is measured differently in different industries. Take, for example, the manufacturing industry. You can measure the efficiency of your business by analyzing the number of units produced per hour and what percentage of the time your plant was up and running.
16. Employee Turnover Rate (ETR) measure of LOB
To determine your ETR, take the number of employees who left the company and divide it by the average number of employees. If you have a high ETR, spend time researching your workplace culture, work packages, and work environment.
17. Percentage Of Response To Open Positions
If a high percentage of qualified candidates apply for your vacancies, you know you are doing a good job, maximizing exposure to suitable job seekers. It will also increase the number of respondents.
18. Employee Satisfaction
Cheerful employees always work better. Measuring employee satisfaction through surveys and other metrics is critical to the performance of your team and business.
In addition, there are some KPI indicators you may be aware of
- Retirement pension rate
- This data is especially important for any organization that develops strategic workforce plans.
- Knowledge gained through training
- Helps the company see the effectiveness of employee training.
- Indoor ads vs. External rentals
This ratio measures how many people working in the company are taken into account in the company’s internal promotions compared to the number of external employers.
- Wage Competitiveness Ratio (SCR)
Used to assess the competitiveness of compensation options.
- Customer turnover rate
This metric shows the percentage of customers who either do not make repeat purchases or stop using the service for a certain period of time.
- Contact volume by channels
Tracking the number of support requests by phone and email allows you to see which methods customers prefer.
- Percentage of customers who are extremely satisfied
Determining this data provides an opportunity for further research, which makes happy customers so satisfied.
- The number of new or recurring site visits
Allows companies to differentiate their website traffic and generate knowledge about potential customers.
- Cash flow from financing activities
This indicator shows the financial strength of the organization. The average annual cost per customer service.
- Average annual cost per customer service
This is the average amount needed to serve one customer.
- EBITDA (earnings before interest, taxes, depreciation and amortization)
Revenue is measured after expenses and interest, taxes and deductible depreciation.
- Spending on innovation
This indicator shows the amounts that companies spend on innovation.
- (Customer’s lifetime value) / (customer’s acquisition cost)
The ratio of the value of the customer’s life to the customer’s acquisition cost should ideally be greater than one, as the customer is not profitable if the acquisition costs are higher than the profit they earn for the company.
Which KPI indicators should still be used?
Again, the right performance metrics (KPIs) for you may not be right for another business. To do this, do a number of different surveys so that you are aware of which ones work best for your particular industry. Then identify which KPI goals will help you best understand and accomplish your goals, and then coordinate this with your company. In addition, KPIs should fit your strategy, not just your industry.
What makes your key performance indicators (KPIs) effective for you?
Now that we know what KPI means, it has exactly as much value as the activities it inspires. Quite often, companies blindly trust industry-recognized KPIs and wonder why this and other KPIs do not bring them positive change. One of the most important, but often overlooked, aspects of KPIs is that they are forms of communication. That’s why they follow exactly the same rules and practices as any other form of communication. Clear and relevant information is much more likely to be responded to than something that people may not understand.
When developing KPI strategies, you should start with the basics and understand what your company wants to achieve and who can do something with that information. It should be an iterative process that involves feedback from analysts and managers. By finding these facts, you can better understand what you should monitor and measure on your KPI desktop and with whom to share this information.
Do KPIs still matter?
KPIs are often associated with negative effects. Unfortunately, many users have begun to see KPIs as an irrelevant aging strategy. This is mainly due to the lack of necessary communication between people. The fact is that KPIs are just as valuable as you make them. Key performance indicators require time, effort and recruitment to meet their high expectations.
But why are key performance indicators so important to you?
Determining a company’s key performance indicators usually takes place at the strategic planning stage, whether you do it every year, quarterly or even more often, with the aim of ensuring that the whole organization is aiming for the same goals.
All in all
KPIs are a vital tool for measuring the success of your business and making the changes needed to make it a success.
Individual KPIs and their usefulness limits.
The most important part of a good KPI is its practicality. Lastly, if it’s exhausting for you to work with, don’t hesitate to set it aside to start with new ones that are more in line with your business goals.