Want to Grow Your Company? Learn How to Choose and Track the Right KPIs

Does this sound familiar? Your team is working hard and generating a ton of data, but you‘re not sure if all that effort is actually moving the needle for the business. Quarterly planning sessions revolve around scrutinizing dozens of different metrics, but there‘s little consensus on which ones truly matter. You have a nagging feeling your KPIs aren‘t quite right, but you‘re not sure how to fix them.

If you can relate, you‘re not alone. According to research by Geckoboard, 40% of marketers say their KPIs are unclear and 45% don‘t have direct access to their KPI data.

Defining and measuring the right key performance indicators is critical for every growth-oriented business. KPIs serve as an early warning system when you veer off course and an accelerant for positive momentum. They cut through the noise of vanity metrics so you can focus on the measures that matter.

But as important as KPIs are, many organizations struggle to get them right. They track too many metrics, measure the wrong things, or set unrealistic targets. As a result, KPIs fail to drive action and end up as an afterthought.

So what separates a good KPI from a bad one? How do you select the best KPIs for your unique business at this particular stage of growth? What are the top KPI pitfalls to avoid?

In this comprehensive guide, we‘ll break down everything you need to know about KPIs heading into 2024. Learn what KPIs are (and aren‘t), how to choose metrics that align with your core business goals, and best practices for tracking and reporting over time. Tap into expert insights and examples to inspire your own KPI journey.

By the end of this article, you‘ll be equipped to focus on the right KPIs for your business with total clarity and confidence. Let‘s dive in.

KPIs Defined: More Than Just Another Metric

A key performance indicator (KPI) is a quantifiable measure used to evaluate the success of an organization, team, or individual in meeting objectives for performance. In simple terms, KPIs show whether you‘re on track to hit the milestones that matter most to your business.

It‘s important to note that KPIs are not synonymous with metrics; all KPIs are metrics, but not all metrics are KPIs. A metric is any quantifiable measure that helps you understand business performance. Think of metrics as puzzle pieces that give you an overall picture of health and progress.

KPIs are a curated subset of metrics. They‘re the select few measures that are most critical to achieving your strategic goals. If metrics are puzzle pieces, KPIs are the corner and edge pieces you need to complete the puzzle. They keep everyone focused on the big picture.

Let‘s break this down with an example. An ecommerce company likely tracks dozens of metrics: website traffic, conversion rates, average order values, email sign-ups, social media engagement, and more. All these data points help gauge the performance and trajectory of the business.

But which metrics are absolutely essential to the company hitting its growth targets this year? Those are the KPIs. Maybe average order value is a KPI because the company needs to increase AOV by 15% to hit its revenue goal. Or product page views could be a KPI if data shows a correlation between page views and conversions. The key is to isolate the metrics that have an outsized impact on moving the needle.

As venture capitalist Ben Yoskovitz put it: "A KPI is to a metric what a 1st string quarterback is to the 3rd string. They‘re both quarterbacks, but you‘d better believe the coach cares a whole lot more about how #1 is performing."

Effective KPIs have a few distinguishing qualities:

  • Aligned: KPIs mirror your top strategic priorities and cascade down from the executive level to each department and team.
  • Measurable: KPIs are always quantifiable so you can benchmark current performance and track progress over time.
  • Actionable: The best KPIs are tied to specific initiatives and tactics you can directly influence and improve.
  • Timely: KPIs evolve as an organization matures. What you measure at 50 employees is very different from 500 or 5000.
  • Simple: If you need an advanced mathematics degree to calculate a KPI, it‘s probably not the right one. Aim for KPIs that are easy to understand and evaluate.

The Business Case for KPIs

Carefully selecting and consistently measuring KPIs requires time and effort. Is it really worth the investment? Unequivocally, yes. From providing focus and alignment to enabling agility, the business benefits of KPIs are manifold.

KPIs Help Operationalize Goals
Lofty goals are great for inspiration, but difficult to act on. KPIs bridge the gap between vision and execution. They translate abstract ambitions like "provide amazing customer service" or "dominate the market" into concrete guideposts. By setting measurable targets for improvement, KPIs help you operationalize goals into specific behaviors and programs.

KPIs Provide Leading Indicators of Success (or Failure)
Trailing indicators like revenue and profit show how your business performed in the past, but they don‘t help you proactively drive growth. KPIs, on the other hand, often serve as leading indicators of future outcomes. Measures like sales pipeline, customer satisfaction, and employee engagement help you spot opportunities and troubleshoot issues before they manifest on the P&L statement. KPIs enable you to manage more proactively.

KPIs Create Focus and Alignment
In the absence of clear KPIs, individuals and teams are left to define success for themselves. The result is a scattering of disconnected initiatives and competing priorities. KPIs align everyone around what matters most. They provide a common definition of success and a shared language for performance discussions. With clear KPIs, the full organization is rowing in the same direction.

KPIs Enable Agility
Business conditions change rapidly. The assumptions that guide your growth plans in Q1 may be obsolete by Q3. Tracking a balanced set of KPIs helps you spot inflection points sooner so you can adapt. If you see concerning softness in a leading indicator, you can course correct proactively. Conversely, if you identify a surprising strength, you can double down on what‘s working. KPIs help you stay nimble.

The proof of KPIs‘ impact is in the data. The Aberdeen Group found that companies using KPIs are 15% more likely to hit their revenue goals than non-KPI users. Likewise, research by Deloitte shows data-driven companies are 3X more likely to report significant improvement in decision-making compared to those who rely less on data.

Simply put, KPIs are a powerful tool for cutting through the clutter and directing focus, resources, and effort toward what matters most. Get them right and every facet of your business will benefit.

Choosing the Right KPIs for Growth

Not all KPIs are created equal. Choose the wrong ones and you risk wasted effort and misaligned incentives. So how do you identify the critical few measures that will galvanize growth? Follow these four steps:

1. Start with your north star

The first step to selecting meaningful KPIs is getting crystal clear on your high-level business goals. What are the most important things your company needs to accomplish this year? What strategic shifts are underway? Where are you investing for growth?

Resist the urge to measure everything that‘s measurable. KPIs are the needles in the proverbial haystack – the "critical few" measures that reflect your company‘s most pressing priorities. Limiting your focus is hard but essential.

As a starting point, consider tracking one key KPI for each of these five categories:

  1. Financial: How will you grow revenue and profit?
  2. Customer: How will you attract and retain customers?
  3. Process: How will you boost operational efficiency?
  4. People: How will you engage and develop employees?
  5. Service: How will you measure quality?

2. Cascade goals to departments and teams

Armed with a set of company-level goals and KPIs, the next step is translating them for each department and team. Marketing, sales, customer service, product, finance, and HR will all have unique mandates to support the overarching strategy.

Work with department leaders to set 3-5 specific goals and corresponding KPIs for their teams. The key is to focus on metrics they can directly influence. For example:

Department Goal KPI
Marketing Increase inbound leads by 25% in Q3 # of MQLs
Sales Improve average win rate from 20% to 30% Win rate %
Customer Service Maintain customer satisfaction above 95% CSAT score
Product Launch 2 major new features this year On-time feature delivery %
Finance Reduce costs as a percent of revenue by 10% Operating expense ratio
HR Improve employee engagement scores by 5 points eNPS score

The better you align team KPIs with company goals, the more naturally their efforts will support growth.

3. Identify leading and lagging indicators

For maximum impact, aim for a mix of leading and lagging indicators. Lagging indicators are output-oriented; they measure the end result of your work, like revenue or profit. Leading indicators are input-oriented; they measure the activities you believe will drive the end result, like sales calls or website traffic.

Industry benchmarks can help you determine which leading indicators map to ultimate outcomes. For example, HubSpot research shows companies that publish 16+ blog posts per month generate 3.5X more traffic and 4.5X more leads than those that publish 0-4 monthly posts. In this case, blogging frequency could be a leading KPI that supports a lagging goal of lead generation.

Tracking leading and lagging KPIs in tandem helps you connect cause and effect. You can see if your assumptions about which inputs drive desired outputs are correct and adjust your tactics accordingly.

4. Define your targets

Once you‘ve selected your core KPIs, you need to set reasonable targets for them. Many companies fall into the trap of aiming too high or low based on gut feel or past figures. The most effective KPI targets are:

  • Rooted in data: Use historical performance, industry benchmarks, and growth modeling to inform realistic targets.
  • Aligned with strategy: Each KPI target should tie back clearly to a departmental and company goal. Be able to articulate why you chose that particular target.
  • Understandable to stakeholders: Anyone should be able to look at your KPI dashboard or report and quickly comprehend how you‘re tracking toward your target. Avoid targets that are overly complex or subject to interpretation.
  • Assigned to an owner: Every KPI needs an accountable executive or team who is responsible for monitoring progress and initiating action.
  • Frequently revisited: Review KPI targets at least quarterly. Adjust them up or down based on data and strategic shifts.

Remember, KPIs are designed to drive progress and motivate performance. Targets should be aggressive but achievable. If you‘re consistently missing a KPI target or blowing past it, revisit your assumptions.

KPI Best Practices to Drive Business Results

Make KPIs highly visible

Transparency is key to making KPIs actionable. Every team member should know which KPIs their department and the company are tracking toward – and where they stand currently. Build live dashboards that put KPI progress front and center. Include KPI recaps in company all-hands meetings, leadership updates, and board decks. Celebrate when you hit a KPI and rally together when you miss.

Review KPIs frequently and cross-functionally

KPIs shouldn‘t be a "set it and forget it" exercise. Regularly review progress in team meetings, one-on-ones, quarterly business reviews and annual planning sessions. Proactively identify and break down barriers to achieving KPI targets.

It‘s equally important to monitor KPIs cross-functionally. Share marketing KPIs with the sales team. Review customer success KPIs with product leaders. Tightly linking KPIs across departments fosters collaboration and shared accountability.

Evolve your KPIs as you grow

The KPIs that propel a $5M company to $25M won‘t be the same ones that get you from $25M to $100M and beyond. As your business scales and your goals shift, your KPIs need to evolve in lockstep. Retire KPIs you‘ve consistently achieved and replace them with more ambitious ones. Be ruthless about cutting KPIs that no longer serve their purpose.

Adding new KPIs should be a collaborative effort. Sit down with department heads at least annually to pressure test existing KPIs and source ideas for new ones. Ask questions like:

  • Are we measuring the right things? What are we missing?
  • Which KPIs do we look at daily/weekly? Which never get airtime?
  • What KPIs are redundant or no longer relevant?
  • Where are we seeing success that isn‘t reflected in our current KPIs?
  • How might our KPIs need to change in the next 6-12 months?

As you grow, you may need more granular KPIs for each business unit or geographic region. Track these sub-KPIs but roll them up clearly to a core set of company-level measures. You want to preserve simplicity even as scale introduces complexity.

Bringing It All Together

KPIs are a deceptively simple concept that require careful forethought and consistency to get right. Too many organizations take a haphazard approach – tracking dozens of disconnected metrics, setting arbitrary targets, and failing to act on the data.

The key is to view KPIs not as an administrative burden but as a strategic lever for growth. Curate a focused set of KPIs that map clearly to your priorities. Make them visible and talk about them often. Use them as guideposts for decisions and catalysts for action.

By zeroing in on the critical few measures, you can unleash the true power of data-driven performance management. Get intentional about your KPI practice and watch your business soar to new heights.