Businesses need strategies in order to succeed. They need to have set goals to reach and plans in place in order to reach them. The goals can be large ones, like growing revenue, or smaller ones, like reducing defects. One way to set and reach goals like this is to set KPIs.
KPIs, or key performance indicators, are measures to help you to understand whether or not you are reaching your set strategic goals. By setting KPI targets you communicate the level of performance you are wanting to achieve.
KPIs that are set need to be realistic. Many businesses are not linear and KPI targets cannot just be something like “number of units sold” because there are too many variables to be considered, such as seasonal flux, marketing, etc. So more realistic KPI targets need to be set, and a KPI would need, in order to be statistically relevant, about 20 different measures. So setting simple KPI targets covering different measures and which you can measure daily or weekly and have a monthly running period would give you a good view of how things are going.
There are usually two main indicators that many companies tend to focus on – financial and customer success. Financial indicators usually include things like revenue growth rate, net profit, return on investment, etc. Focusing on financial indicators alone can lead to problems with innovation, causing managers to focus more on short-term profitability than creativity. They also don’t provide a true picture of how the company is doing. Customer success indicators include things like conversion rate, customer retention, and Net Promoter Score. Companies that focus on this are concerned more with creating a loyal customer base than creating quality products. While these indicators can help you grow a loyal customer base, they will not help with innovation problems.
Employee centered indicators are becoming more important to companies. These include employee satisfaction, employee engagement, and turnover. Employee engagement affects customer satisfaction. Companies with employee-centered strategies have move creative and innovative environments. This can lead to the creation of more profitable products. Also, happy employees will be more productive and will treat customers well, and that can lead to better business performance.
Whatever KPI targets you set, you can consistently outgrow them as long as you have a plan in place to meet them when you set them and that you continually keep an eye on how you are doing toward reaching those goals. Don’t set too many KPIs when you start. Too many can blind you to what’s really important and can drain you of time and energy by trying to do too much. Make sure to put every effort you can into meeting your goals. When the time comes to review your KPIs, see which ones you are reaching and which you aren’t. If you aren’t meeting them, investigate into why and see what you can do to correct that. If you have met a goal or no longer need to focus on a particular area, remove it from your list and set a new one so your list doesn’t get crowded or confusing. Don’t be afraid to change up your KPIs, either. If you follow these tips, you can outgrow your set KPIs.
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