What if your business dashboard looked like this? Would you have any idea where to look first? How one gauge affected another? Whether you were, in fact, getting to your destination?
Sadly in this day of numbers overload, we often drive our businesses based on a plethora of vanity metrics - or numbers that are either meaningless or misleading. Driving via vanity metrics means more confusion, more waste and less focus on critical areas for growth.
What we need is a clean, straightforward dashboard consisting of the few best numbers or KPIs – Key Performance Indicators. With KPIs you can take action. It is clear when you are speeding along, or need to pull off the road to check your engine and possibly chart a new route.
While every business wants to increase revenues and control costs, KPIs are specific to your business and your business goals. KPIs should:
- Be tied to specific business goals. Start with your business and marketing plans. Do you need to launch new products? Reduce cost of delivery? Achieve scale? Your KPIs need to clearly indicate whether you are making progress for each major company goal.
- Allow you to test growth ideas through experimentation. Decide what you want to learn before collecting any data. What are your hypotheses about what people will buy, where they will buy, etc? You can then conduct A/B testing --Group A gets the new version and Group B gets the version you are currently using or status quo. Rather than your hypothesis staying stuck with the guesses of your team, real customer behavior determines the winner.
- Be tied to customer groups and customer behavior. You will gain the most insights if you segment your data by customer type. You will also often want KPIs at different parts of the customer buy cycle. How many people are interested? How many prospects do you have? What is your conversion rate from prospects to customers? How long do you retain customers? How are your referrals?
- Be understandable and therefore actionable by the management team. The best run businesses have a few KPIs that the entire organization can quickly recite. It will take time and several iterations, but eventually you can get to 3-5 main numbers.
- Be easy to generate and accessible. If any metric is too complicated (and therefore too costly) to generate, it will not be tracked. Once you decide on your KPIs, invest in people, processes and technology to automate and communicate.
Here are some examples of actionable KPIs:
- Lifetime Customer Value
- Profitability by customer group
What KPIs do you track for your business? Share below.