Since you are reading this post, you probably have the same doubts that I had when I decided to write “How do I choose performance indicators (KPIs)?” After all, anything that can be measured, can be improved.

If you can quantify your current performance, then you’ll be able to measure whether things are improving, getting worse, or staying the same over time.

But how do we choose the right KPIs?

In truth, it depends. While there is no simple step-by-step process for choosing the right KPIs, there are several things you should always keep in mind.

In this post, I will guide you through a few factors that will influence which metrics you should focus on, and which metrics are most important for your goals.

Let’s have a look?

Choose indicators that are directly related to your goals

KPIs are quantifiable measurements or data used to measure performance related to a goal. For example, one indicator may be related to your goal of increasing sales, improving return on investment in marketing, decreasing desistance, as well as others.

Each KPI must be related to the core of a goal. What are your goals? Your team’s goals? The goals of your company? Have you identified any areas that can be improved or optimized? What are the top priorities of your team of managers?

Focus on a few metrics rather than get bogged down in an avalanche of metrics

When it comes to KPIs, fewer is better!

Instead of choosing dozens (or even hundreds) of metrics to measure, you should focus on key metrics. And, honestly, if you try to measure a lot of indicators, you’d be better off not measuring anything!

As you can imagine, every company, industry or business is different, so it’s hard to say exactly how many KPIs each one should use. But, from experience, in most cases, the ideal number is between 5 and 10 KPIs.

Consider the growth stage of your company

Depending on the growth stage of your company (start-up or large company), certain metrics will be more important than others.

Companies that are starting out typically focus on metrics related to the validation of their business model.

Large companies (or companies that are already well established in the market) tend to focus on metrics such as cost per acquisition and lifetime value of the customer.

Identify both lagging and leading performance indicators

The difference between a lagging KPI and a leading KPI is that one tells you “how it was” and the other tells you “what it will be like.” Leading indicators are not necessarily better than lagging indicators, or vice versa, but you should never forget the difference between the two.

Lagging indicators measure the outcome of something that has already happened. For example, total sales in the last month, number of new customers or hours of service rendered. This type of metric is great for measuring results, because it focuses exclusively on the outputs.

Leading indicators measure the inputs, progress and likelihood of achieving a goal in the future. This type of metric serves as a measurement of what is to come. For example, site traffic, conversion rates, sales opportunity time and sales representative activity.

Traditionally, most companies have focused on lagging indicators. One of the main reasons is because this type of indicator is easier to measure, since the events have already occurred. For example, it is very simple to report the number of new customers last month.

You should understand that KPIs are different for each sector and type of business

The KPIs you choose will be influenced by the type of business and sector in which you operate. For example, a SaaS (Software as a Service) B2B company is likely to focus more on customer acquisition and churn rate. A company in the retail business will probably focus on sales per square foot or average sales per customer.

It is more important that you choose the KPIs that are most relevant to your business and the goals you are striving to achieve, rather than using the standard KPIs used in the market.

Is how to choose key performance indicators (KPIs) clearer now? Then it’s time to gather and manage your performance data and use this information to make decisions that will allow you to improve your strategy and execution.

Learn more about how SoftExpert’s Indicator Management solution can help you, with its full set of features, to translate strategy into operational objectives, and define and establish indicators that will allow you to track business performance and monitor your progress.

Watch the video

Gus Oliveira

Author

Gus Oliveira

Gus Oliveira has a degree in Business Administration as well as a degree in Economics from The University of Massachusetts – Dartmouth (USA). Oliveira has experience in the software industry for Business Excellence also in the financial and business development field, working in large companies both in the United States and in Brazil as a financial analyst, business strategy consultant and a senior project consultant.

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