Updated: Dec 15, 2020
Written by: Kiesha King-Brown, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
KPIs, key performance indicators, define the scorecard for your business. They don’t just help you understand the points you’ve scored or the goals made, but also the metrics that contributed to achieving the goals. In basketball, those may be assists, rebounds, turnovers —the behaviors that demonstrate how well a team is converting possessions into points.
Without a tangible way of understanding the “how” and “why” of your business as it impacts your top line and bottom line, your leadership and strategies will be less than effective. Wins and losses will be assumptive. The ability to drive the top line in a way that trickles down all the way to the bottom line consistently will be complicated at best.
I mean, imagine a coach and its players trying to improve the score of the game in the second half without any indication of what’s holding them back…no score, no idea if the strategy should be focused on the offense or defense, the rebounds or assists, the shots inside the paint or the long-range attempts.
Execution in business has no relevance if it is not dictated by factual information.
In business, a KPI is a measurable value that demonstrates how effectively a team is achieving its business goals or objectives. KPIs are literally an indication of performance. They must be based on facts or legitimate data that provide context that is relevant to business objections.
KPIs allow you to monitor your business's health, measure progress, identify the need to make adjustments and get back on track with urgency, problem-solve, and analyze trends and patterns to apply to decision making and strategy.
Knowing and tracking KPIs will accelerate the success of your business. To maximize success, a business should start with company goals tied to vision and work its way down. Next would be a focus on team goals that may include department collaboration. Lastly, there might be individual goals tied to roles and responsibilities.
Key KPIs for every business may include:
1. Cost Per Acquisition - Average amount of money you spend to acquire a new customer
Cost/# of Acquisitions
2. Lifetime Value - The average amount of money a single customer will spend with you over their lifetime
Average Value of Sale x Number of Transactions x Retention Time Period x Profit Margin
3. Cart Abandonment Rate - Percent of people that leave their cart on your store/website
Total purchases/# of shopping carts created
4. Average Order Value (AOV) - Total revenue/# of orders you have
5. Customer Retention Rate - The number of repeat customers the business has
# of customers at the end of the period-# of customers acquired during the period)/# of customers at the start of the period) x 100
6. Conversion Rate - Visitors vs. buyers
Total # of sales/Total #of unique customers X 100
Depending on industry and goals, businesses may have KPIs specific to their organization.
KPIs must be defined with such clarity that factors external to the business and beyond the control of the business cannot impact them. And they must be leveraged effectively to the benefit of the business.
While KPIs are necessary and value-added, businesses need to be careful not to make these mistakes:
Not linking KPIs to the company strategy.
Measuring everything just because it’s easy to measure
Not involving Executives in KPI selection.
Not analyzing KPIs to gain insight.
Not challenging and updating KPIs
Not allowing KPIs to influence strategy and behavior
Assuming the win if the KPI is simply higher at the end of a period vs. the beginning without checking for a consistent vs. inconsistent increase in trend in between
Remember that KPIs reflect short-term goals and allow for connection from the impact of team behaviors and processes directly to the big picture. They help clarify what was achieved, learnings, strengths and opportunities, and level of effectiveness in team collaboration. Like with anything else, winners keep score…and they utilize what the score is telling them to adjust strategy and execution.
Kiesha partners with businesses to implement data-driven assessment and customized strategy at an objective level they could not achieve independently. This ensures maximized clarity, alignment, and execution to achieve accelerated results.
Kiesha King-Brown, Executive Contributor Brainz Magazine
Kiesha King-Brown is an experienced Business Executive that partners to help small business owners accelerate growth with strategic, AI-enhanced consulting to spend more time working on the business than in the business and spend more time doing the things they enjoy. She has an MBA in Management, BSBA in Marketing and holds certifications in Consulting and Executive Coaching. She draws her inspiration from 20 years of experience at Fortune 200 companies in Executive Leadership and HR positions helping leaders build strategies, enhance development, and grow their business. Kiesha is the author of "Differentiated Leadership," an Advisory Board Member for a Talent Management SaaS company, and Chief Relationship Development Officer for a Business Development SaaS company.