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What is a KPI?
A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives.
- Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs – Focus on the overall performance of the enterprise
- Low-level KPIs – Focus on processes in departments such as sales, marketing or a call center.
What makes a KPI effective?
KPIs give executives the chance to communicate the mission and focus of the organization to investors, team members, and other stakeholders. As KPIs filter through the organization, they must grab employees’ attention to make sure that everyone is moving together in the right direction and delivering value to the business.
KPIs vary depending on your business and industry
Depending on the type of business and industry, some of the KPIS are as listed:
- Net profit
- Net promoter score
- Customer engagement
- Customer complaints
- Market share
- Share of voice
- Carbon footprint
- Supply chain miles
- Waste recycling rate
- Employee satisfaction
- Staff churn
- Return on investment (ROI)
Always use the SMART criteria.
Specific – Measurable – Attainable – Relevant – Time-bound.
Defining Your KPIs
Here are a few examples:
- Finance – Working capital, Operating cash flow, Return on equity, Quick ratio, Debt to equity ratio, Inventory turnover, Accounts receivable turnover, Gross profit margin.
- Marketing – Customer acquisition cost, Conversion rate of a particular channel, Percentage of leads generated from a particular channel, Customer Churn, Dormant customers, Average spend per customer.
- Healthcare – Inpatient mortality rate, Bed turnover, Readmission rate, Average length of stay, Patient satisfaction, Total operating margin, Average cost per discharge, Cash receipt to bad debt, Claims denial rate.
- Retail – Gross margin (as a percentage of selling price), Inventory turnover, Sell-through percentage, Average sales per transaction, Percentage of total stock not displayed.
Business goals can be measured :
- Identify the problem area by Product, R&D related KPI metrics.
- Drill Down that by breaking down your core business goals into a much more specific metric.
- Make a Data model for Your Data.
Current Decision Making
Where the company is currently not making its decisions based on data, or not collecting the right data.
- What are the data sources?
- Predict the complexity of your data model
- Tools to prepare, manage and analyze data (BI solution)
Do this by breaking each KPI into its data components, asking questions like: what do I need to count, what do I need to aggregate, which filters need to apply? For each of these questions you have to know which the data sources are being used and where the tables coming from.
Make sure you are using the right tools, such as a BI tool that has built-in data connectors, to prepare and join data accurately easily.
- Make Simple Dashboards that are Accurate and interactive.
Always look for insights you can achieve with the data that the business never thought of asking.
Examples of common departmental KPIs
These examples illustrate KPIs for several different departments.
Analyze the pace at which your organization’s sales revenue is growing and use that information in strategic decision-making.
Measures how effective your marketing campaigns are at generating increased revenue and sales. This marketing KPI highlights the importance of the relationship between marketing and sales for your organization.
Measures your organization’s financial health by analyzing readily available resources that could be used to meet any short-term obligations.
Benefits of using Key Performance Indicators:
Track and analyze asset information for smart decision making.
- Increase in profit,
- Measuring Popularity,
- Identifying trends,
- Customer Response,
- To assess performance of current state,
- To determine whether future state has been achieved or whether further action required,
- To identify whether business objectives have been achieved,
- To judge the quality of the requirements gathered.
Abhishek is working as a Web Graphics Designer at EzDataMunch.
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