Everything you do in business is based on setting goals and getting results.
You fill your coffee mug, your goal is to make it through the day without turning your keyboard into a pillow. When you post on social media, your goal is audience engagement. And when you produce a product, your goal is to make money.
But it’s not enough to have a goal if you don’t measure how effectively you reach that goal. It would be like sighting in a bow and arrow without checking each shot if you hit the bullseye.
For the sake of growth, the attempt doesn’t matter if you don’t track or measure your progress. Key Performance Indicators, however, are tiny little guides that keep you on the path to success.
WHAT ARE KEY PERFORMANCE INDICATORS?
Key Performance Indicators (KPI) are goals that help you measure your business’s progress. Usually, that sounds incredibly vague and unhelpful toward a “how the heck do I do this?”
So, let’s say there are two entrepreneurial buddies, Petunia and Clyde.
Petunia runs a dog apparel business and is about to launch a new line of sweaters during the first quarter of the year. Before Petunia launches this line, she wants to set KPIs that will later inform her how successful the launch was. While Petunia should discuss business goals with her team, some major goals to consider after a launch would be the number of sales made, overall profit percentage increase, and ad engagement.
These KPIs will look something like this:
5,000 sweater sales in the first 3 months of launch
50% profit margin in Q1
12,000 clicks on the Facebook ad 1-month post upload
Petunia’s friend Clyde runs a bakery and decided he wanted to grow his reach and increase brand awareness. Clyde started an Instagram profile, a YouTube channel, and started a bimonthly newsletter. Since this is a hefty marketing plan, he wanted to make sure the time and effort spent would be worth it for his business. To find that out, some major goals to consider would be social media following increase, subscriber engagement, and referral traffic.
These KPIs would look something like this:
20% customers referred from social media by June
4 videos uploaded per month in Q1 with a 20% increase in subscribers
800 email subscribers in 6 months
These Key Performance Indicators give Petunia and Clyde tangible goals that let them know if their business and marketing goals are working toward business success.
WHY ARE KPIS IMPORTANT?
You don’t make goals solely for the gold stars and the pats on the back. You make them to focus your efforts. Meeting or falling short of your KPIs gives you a map to guide you on what you’re good at and what you need to improve.
If Petunia’s ad for her new dog sweater line encourages people to purchase a sweater through her website, then her KPIs might be:
KPI 1: 12,000 ad clicks in 1 month
KPI 2: 1,200 sweaters purchased in 1 month
If you not only reach that first KPI but exceed it, that shows you have an engaging ad. However, if the second KPI falls short, then you’ll want to find out where the customer is dropping out in the sales funnel by analyzing your website’s security/ safety, advertisements, design/copy, and price/product description. KPI’s give you perspective on whether your tried-and-true business methods are actually helping or hindering you.
COMPONENTS OF A GOOD KPI
A good KPI is like a well-crafted sentence. While you can add a handful of components to make it more complex and descriptive, it really comes down to doing a few specific things well. A KPI needs a metric (with a frequency), and a target.
The metric would be the subject of your KPI, and the frequency would be the time frame. A few examples would be X number of sweaters bought in January, X% increase in sales in Q1, or X number of social media followers in 2021.
The target is where you fill in the X. Talk with your team or department and assess what numeric value you can reasonably achieve in a certain time frame. Of course, in a perfect world, Petunia would want 1,000 sweaters sold in the first quarter with a 1,000% increase in sales. But setting a KPI that’s reasonable yet challenging will set your business up for success.
Marketing KPIs, such as your business growth, leads, cost of the customer, and engagement can give you a great starting point on setting goals for your business and team. Let’s go over what kind of KPIs you can set for these categories.
Your business survives by selling your products or service. An increase or decrease in sales growth is a quick way to determine whether your marketing efforts are working. Some businesses set these KPIs based on formulas: [(Sales for the current period – Sales for the previous period) / Sales for the previous period] x 100]
Focusing on and setting goals for your social media following increases brand awareness and audience engagement. There are many techniques that can boost your social media following, so keeping track of what works and what doesn’t is crucial to a long-term social media presence. Focus on your audience and what they prefer.
Website Visitor Growth
The number of customers who visit your website can prove or disprove how successful your ads are, or how much brand penetration you are achieving in the marketplace. Setting goals based on website traffic can be critical to your success.
Marketing Qualified Leads (MQL)
At this point in the conversion process, your customer is engaging with you, but they’re still hesitant to make a commitment and still need love, care, and enticing incentives. This would be someone who signs up for your newsletter or interacts with you on social media, without making a purchase.
Measures how many newcomers to your brand became an email subscriber, Facebook follower, or a paying customer.
Website Traffic to Website Lead Ratio
This KPI tells you how many website visitors become leads. Similar to Website Visitor Growth, this can provide feedback for how you guide your customer through your sales funnel.
COST OF CUSTOMER
Cost Per Acquisition (CPA)
Measures how much money it cost you to convert a potential lead into a customer. This could be the cost of an ad, free swag, or time given to interact and encourage that lead to make a commitment.
Return on Investment (ROI)
This metric compares the money you gain with the money you lost. Ideally, the former is a bigger amount. This formula would look like this:
(Sales Growth-Marketing Expenses) / Marketing Costs = ROI
Social Media Engagement
Track your follower growth, your likes, your comments, your tags, etc, to measure how you interact with your audience and improve brand awareness. An example would be a Cost Per Mille (CPM), which is actually cost per 1,000 impressions.
Email is another way to engage with your audience without depending on social media. Track and set goals for how your subscriber list grows and how much content you send to your subscribers.
Key Performance Indicators (KPI) are a critical part of setting and obtaining business goals. If you need to market a product or service your KPIs will tell you how well your strategies are working. They give your business and your team direction and focus. With a KPI, you’ll know when you hit your bullseye. And if you don’t hit it, at least you’ll know how to adjust your sights.