5 Steps to Key Performance Indicators

Key Performance Indicators are vital to setting a sound business strategy because they help you measure and track the performance as you reach to achieve a goal or objective. In our latest article, “Goals vs. KPIs”, we discussed the difference between SMART goals and key performance indicators. Now, we want to walk you through the 5 steps to determine your KPIs.

One note that we want to share early is that as you write your business KPIs, remember to prioritize sales conversions. Having a sales goal is important but tracking the progression to achieve these goals will help progress your business forward, and that is what KPIs are really about.

Step One – Develop Goals and Objectives

The first step to any plan is normally the most vital and this time is no different. Setting your goals and objectives first help to lay the groundwork for what your KPIs should even be. Remember to make your business goals SMART goals (Specific, Measurable, Attainable, Realistic, and Time Bound). An example of a goal would be “Boost e-mail newsletter open rates” is specific but there is no measure nor time-bound metric to it. To make this a SMART goal, try “Boost e-mail newsletter open rates to 30% by December 31, 2021”.

Step Two – Create Critical Success Factors (CSFs)

Critical success factors are factors that are based on the goals and objectives you set in step one. A critical success factor is exactly as it sounds, they are factors that are critical to your success of achieving your goal because they are directly aligned and will help you track your performance. You have to be able to measure your success or else you will be blind to whether you have achieved your goal or not. An example of critical success factors for the goal we set in step one would be “Strengthen e-mail average open rate to 30%”, e-mail click through rate of 15%, and increase overall e-mail subscribers to 40%. Each of these will help, or have a direct link, to achieving the set goal of “boosting the email newsletter open rates to 30% by year end”.

Step Three – Establish KPIs from CSF metrics

Now that you have set your critical success factors, you need to identify what your key performance indicators are. Ask yourself, “how will I measure that we have reached our goal?” or “what will indicate to me that our performance this week, month, quarter, or year has pushed us closer to our business objective?” Examples of KPIs for the goals and critical success factors set in steps one and two are “the percentage of email registrations month over month, the number of emails sent monthly, the percentage of emails opened month over month, the percentage of emails not opened month over month, the monthly email bounce rate, the monthly email unsubscribe rate, etc. Each of these will help you determine what is working and what is not. Keep track of what IS working and double down on this. Also, keep track of what IS NOT working so you can quickly pivot without letting your goal pass you by.

Step Four – Collect Measures that will help you inform

Since KPIs are all about performance measurement, step four is important because you want to know what you need to track so you can set up a system early to ensure that you are capturing all of the relevant and necessary data from day one. By identifying which metrics and measures you should pay attention to, you will be able to have a clear view into how close or far away you are from your overall goal. Sticking with the same example of email open rates, some metrics that would be beneficial to track would be: email subscribers, emails sent, emails opened, bounced emails, unsubscribes categorized by reason, email clicks, email click to website or product page, and converted sales from email. You’ll see how they somewhat mimic prior steps, but again, if you don’t have them listed so you can track each individual metric, you are not setting yourself up for success.

Step Five – Calculate metrics from measures

The last and final step is to actually do the math so you can compare them against each other. For example, we have stuck with the example of email open rates across each of the steps throughout this article. We also gave a vital tip to ensure that you prioritize sales conversions in everything you do, because you want to ensure that you are increasing sales in everything you do for the business. Step five is where we get to bring everything together. As you calculate the email open rates every month, you may notice that the percentage may go up or down based on the number of new subscribers versus the number of those who have unsubscribed. Compare the number of emails opened from the prior month and see how well you have done. Now, you have a business decision to make. If in month 2, your email open rates dropped drastically to 5%, you can quickly identify why. Were there external reasons such as a natural disaster or consistent power outages in the area of your subscribers? Was there a massive amount of people who unsubscribed? Or maybe you had a winning month in month 2 and increased email open rates to 20%. Could this have been caused because you ran a contest for a free product or service? The calculations in step five will help you add context to your KPIs and determine the true strength of your progress.