Define Your Business KPIs In 4 Steps

Small and large businesses today receive large amounts of data. From their sales transactions, site traffic, call center activity, and dozens of other sources, modern businesses have more data at their disposal to make educated decisions. However, the volume of data can make it difficult for leaders to define the critically important handful of metrics, or KPIs, that truly determine success for a business.

Sure it is nice that your business blog is generating hundreds of page views or that sales are growing, but maybe your goal is to increase profits. What we want is to devise a framework that will help align KPI reporting with business objectives. Here are 4 steps to develop this framework for your business.

1. State your business goals

Every business has fundamental reasons for existing. Whether it is to increase owner/shareholder value by increasing profits, increase awareness of your brand, provide excellent service to customers, or contribute to the local community, there are a handful of overriding objectives for every business. By defining these we can build a KPI reporting framework that focuses on what is most important to the business.

2. State the strategies you will employ to achieve your business goals

Now that we know the goals, we can define the strategies that will help us achieve each goal. If we want to increase profits, then we may have a strategy that focuses on increasing sales and another that focuses on improving acquisition efficiency. In this step we are effectively documenting the strategic plan for the business.

3. Define a KPI for each strategy

For each strategy we will define a KPI with which you can use to measure success. No more getting lost in the weeds with dozens of KPIs explaining the same thing. There is one and only one that is the determinant for success or failure. Let your analysts dig into the details and explain the context and drivers of each KPI (segments, other metrics, etc.), but as a business leader keep your focus on one important metric.

4. Set your targets

Benchmarking is very important. Without clearly defined targets we lose important context on how well the business is performing. Going through the process of creating KPI targets provides context for ongoing measurement and makes business leaders answer important questions. What are your realistic expectations for improving this KPI? What are levers can be pulled to improve? This is where you can formulate your action items and tactics for each strategy.

A great thing about this process of building a KPI measurement framework is that it is scaleable for every level. While senior leaders in a business will have a business/corporate level set of goals, strategies and KPIs, each department/program/etc. will have clearly defined goals and strategies and related KPIs as well. Goals should be aligned throughout the organization, but each team and project will have different responsibilities and ways of achieving the goals, and their reporting and monitoring should reflect that. It is a consistent yet flexible approach for the entire business to overcome the problem of developing truly actionable reporting, the lack of which hampers the decision-making process of business leaders. Do not get bogged down in your data. Structure it so it is relevant and use it to make informed decisions.