We live in a data-driven world. And because data is so readily available, businesses have the ability to tap into key metrics to measure against set goals. Whether those goals are to reduce staff turnover or client churn, increase profits, or extend the average client life cycle…having a KPI (key performance indicator) strategy in place is essential for long-term success.
While data tracking and monitoring key metrics is critically important to business success, the abundance of data available can cause information overload. To help you navigate the world of KPIs and build a “starter plan” of sorts, this article offers three tips to creating a sound KPI strategy.
#1 – Choose the right KPIs
Not all KPIs are created equal. The first step is to understand the difference between lagging and leading indicators and why both need to be monitored.
Lagging indicators show results over a period of time (e.g., total sales in the closing quarter). These are easy to measure and provide quick answers on whether set goals have been met. For example, if you set an ambitious goal such as doubling sales by the end of Q4 (compared to Q2 sales), the ultimate lagging indicator is annual revenue or profits.
Leading indicators capture data that has an effect on an outcome. This makes leading indicators useful for predicting outcomes. For example, if an online retail store shows a sharp drop in the purchase of a popular item, the company could predict a drop in overall quarterly sales. Monitoring leading indicators helps you get ahead of predictable trends and make adjustments to influence positive outcomes.
#2 – Foster a KPI-driven culture
The goal here is to get your entire organization talking about data! When everyone speaks the data language, it better supports a company-wide KPI strategy.
To build a KPI-driven culture, be sure to offer regular staff training on the value of KPIs and the metrics each department is responsible for tracking. Also, be sure to assign the proper leads to champion KPI progress and ensure staff are kept updated as your strategy evolves. Finally, make sure you have the right technologies in place to collect and analyze data, and make KPI dashboards available to required staff.
#3 – Implement a process for KPI refinement
It’s important to understand that KPIs are subject to change. You can bet that over time customer behaviors will change and business goals will evolve in response to market trends. This calls for businesses to refine their KPI strategy on a regular basis.
Over time, you may discover that a KPI is not helping you progress toward a specific goal or that it’s driving the wrong actions. For these reasons, commit to consistent KPI evaluation and enhancement as you move forward. The formal process of refinement requires you to monitor what is working and what is not.
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