What’s the difference between a good key performance indicator (KPI) and a bad one? Do you know? How can a metric be good one time and bad the next? –And what do KPIs really do, anyway? We’ll cover this and more today.
A Deeper Understanding of Known Terminology
I’m of a firm mind that, if you’re going to really understand a sentence, title or word, you have to break it down into its various parts. That philosophy has served me well enough that I’ve learned seven languages in the course of my life time.
It isn’t any different trying to understand a concept – and I’ve found that it helps to gather a deeper understanding of a concept you may have thought you already knew. A “freelancer”, for example, used to be a mercenary that used a lance. Puts a whole new spin on freelancing being a cut-throat world, doesn’t it?
At any rate, I think a good way to start today’s post is to break the term “Key Performance Indicator” into its separate parts to really understand what one is before getting into the more in depth areas.
Key = Crucial, Critical, Central, Important, Significant – If something is “key” to something else, it is a critical, important or significant part. Good tequila, for example, is key to a good margarita. Otherwise it’s just salty lime juice.
Performance = Implementation, Fulfillment, Execution, Completion – In this instance, “performance” means the implementation of something.
Indicator = Measure, Gauge, Guide, Mark, Signal – So, an “indicator” measures or signals something.
Putting them all together then, a KPI is an important signal of how well something is being implemented.
The Best KPI
There are good KPIs. There are bad KPIs. And then there is a “best” KPI. The best KPI answers the question, “What is really important to me in the long-term?” It shows the goal of whatever endeavor you’re trying to complete.
For example, if your long term goal is to double the number of reservations on your hotel site, the number of reservations had better be your main KPI. Everything else goes to support that goal. Any other KPI needs to point towards how well your implementation of that main goal is going.
Does your top KPI do that? If not, it’s time to re-evaluate your tracking metrics.
5 Questions to Ask About Your KPIs
Have you ever looked at your KPIs and wondered if maybe you were tracking the wrong thing? Do you have the right metrics? Are you looking at the right things? Here are five questions to ask yourself:
Does my KPI clearly define my goal? If you have to explain a KPI, it’s wrong. Your main KPI, the big number one, the head honcho, shouldn’t be any more difficult than: Goal = KPI
Do my supporting KPIs show what’s really important? If you’re tracking something that has no relevance to your main goal, it’s a time waster and unimportant. For example, if you’re trying to increase the number of return visitors, it’s a time waster to report on the percentage of new visitors. Why? Because you should already be tracking the percentage and number of return visitors, so you’d basically be tracking the same metric again.
Do I have too many KPIs? I love benchmarks. I love metrics. However, I also know that there can be such a thing as too much. Too many benchmarks; too much data; too much. Look at your KPIs with an unbiased eye. Do you really need all of them? Are there any that are redundant or useless for the current goal?
Are my KPIs only there to support the facts I want to see? This is harder. You have to be honest with yourself and with your data. Don’t track just the good stuff. For example, if you’re trying to increase your online sales, don’t just look at traffic or at the number of conversions. You also want to look at the value of those conversions. You want to look at revenue. Higher traffic does not necessarily mean higher revenue.
Is my KPI SMART-compliant? SMART is an acronym. It means:
- Specific as possible
- Measurable components
- Achievable goals
- Relevant performance increases
Good versus Bad Key Performance Indicators
A final thing to cover (but an important one) is, what’s the difference between a good and bad KPI? Quite simply, it’s the same answer as with optimization: relevance. This is why pageviews can be a good KPI in one instance, but a bad KPI in another. If you want to entice new visitors, knowing your new visitor count is important. If you’re trying to retain visitors, it’s much less so.
Knowing what your goal is will help you figure out what you need to track, and your KPIs are what are relevant to those goals and tracking needs. Don’t just arbitrarily dismiss a metric because it wasn’t viable the last time. Be as flexible as your goals are.
“What can be measured can be managed,” says Peter Druker. –But I’m also a fan of, “Just because it can be measured, doesn’t mean it should be.” While building your goals, deciding your metrics and setting your benchmarks, don’t get buried under useless data. KPIs only help if they are useful in the improvement of your processes, and if those implemented processes are useful to reach your goal.
PS I’ve been invited by SEMrush to speak at an Italian PRO Talk webinar about KPI’s and how to use them properly. See you there!!!