7 How to Choose the Right KPIs to Measure

Key performance indicators (KPIs) can help you objectively measure your performance in a variety of different areas, and they are especially helpful in business analytics. However, with the sheer volume of data available to us in the modern era, it’s hard to choose which KPIs are most important.

How do you find the signal in this noise?

The Problems With KPIs

These are some of the biggest problems associated with KPIs, failing some screening process to narrow the focus to the most valuable metrics.

• An abundance of data. First, there’s a lot of data – and no shortage of ways to measure and present that data. The average business now collects thousands of different data points with constantly circulating data streams. If you try to track too many things, or keep tabs on too many KPIs, you’re going to get lost in the noise. You’re also going to waste a lot of time and open the door to more potential mistakes, costing your business in terms of time, money, and productivity. If you’re going to fully utilize these massive quantities of data, you need to be able to reduce them in some way.
• Vanity metrics.A vanity metric is a measurement that might seem impressive or make you feel good, but that isn’t concretely tied to business value. Many companies get lost in tracking vanity metrics, while ignoring KPIs that are more relevant to business goals. For example, you might obsessively track Facebook followers, noting an increase in the total number of Facebook followers, but neglecting the fact that your Facebook followers never visit your website or buy your products. It’s a metric that seems to track progress, but it doesn’t tell you anything about increases to your profitability.
• Confusing or contradictory measurements. Some KPIs are problematic because they’re hard to understand or because they’re confusing or contradictory. One of the reasons why KPIs are so important is because they allow us to easily communicate to team leaders, decision makers, and investors. But if these people can’t understand what metrics you’re measuring or why you’re measuring them, the metrics are functionally useless.
• Lack of actionability. KPIs should also be actionable, in at least one way. In other words, after you measure them, you should have a clear direction on what needs to happen next. If your number of organic traffic visitors is declining, what are you supposed to do about it? If it’s increasing, what does that mean?

How to Choose the Right KPIs to Measure

These are some strategies that can help you choose the right KPIs to measure, avoiding some of the common problems we outlined above:

• Look to others for inspiration. Start by reviewing some of the most common KPIs and benchmarks in your industry. If you can, look at the reports generated by your competitors and by thought leaders in this space. You shouldn’t copy these directly, as each business is unique, but you can learn from them and take inspiration from them. Why are they tracking these metrics? What are they missing? Are there any metrics that seem to be a poor fit?
• Establish your actual goals. It’s much easier to determine what your KPIs should be if you know what your business goals are. Yes, every business wants to be profitable, but that path looks a little different for every business; for example, some businesses care a lot about website traffic, while for others, it’s only a secondary consideration. Once you’ve identified your primary goals, you can identify the metrics most closely associated with those goals.
• Examine the business value of each prospective KPI. For each KPI on your consideration list, examine the potential business value. In other words, if this metric goes up, what does that mean for your business and its goals? If you see an increase in the conversion rate of your website, what does that mean for the business? How valuable is that?
• Audit the clarity of each prospective KPI. You should also examine the clarity of each prospective KPI. Is this metric something the average person can understand after a single sentence of explanation? Is it clear why this metric is important and how to improve it?
• Find a way to make each KPI actionable. Every single KPI on your list should be actionable. In other words, your measurement of the KPI should indicate what your business should do in response to that measurement. If it’s too low, what do you do? If it’s not growing fast enough, what do you do? If it’s high, what do you do?
• Reduce your list. How many KPIs should you track?About 15. Obviously, the answer isn’t always this straightforward, but that’s a good ballpark to start with. You should have enough KPIs to view the company and its progress toward its goals from many different angles, but not so many that your reports are overwhelming or confusing. Experiment to find the right balance for your business.

You probably have no shortage of data, nor do you have a shortage of potential KPIs to track. What’s important is cutting the fluff and finding the right KPIs to track, given your abundance of data. Do this, and your business will be much better positioned to properly understand its situation – and move forward with the best possible plans.