Looking at something like a sheet of earnings figures for the past two years can be hard to sum up. Turning that data into a graph of month-over-month earnings growth suddenly paints a picture of a company that’s on the move. Or, that same data can be cross-compared to the number of clients the company currently has, revealing that revenues-per-client have actually gone down.
We use statistics to summarize complex data sets in a way our brains can quickly and conceptually grasp. Having insight into the right metrics is critical for our decision-making. So how does a business know what numbers to pay attention to? Which key performance indicators reveal the most accurate picture for informed, data-backed decisions?
The answers to those questions will vary dramatically from industry to industry and even from company to company, since many businesses maintain a unique strategic niche. But there are still a few solid ways to determine which KPIs are important to track. Here are three tips to help you decide which ones belong on your BI dashboard.
1. Align KPIs with Business Goals
Useful KPIs have a way of both performing a health check up on your business and pointing towards ways for you to make improvements. In order to accomplish this, your KPIs must be aligned with your actual business goals.
For instance, a business trying to tighten its supply chain and raise satisfaction might want to track the rate of returns and common reasons for items being returned. Businesses more focused on monitoring their supply chain as an indicator of overall sales velocity might want to look at their rate of total inventory turnover.
Both these metrics reveal the health of the supply chain while providing critical feedback on where to improve. They also connect the bottom-up customer experience with a top-down look at overall operations and profits. Try to find KPIs that can measure both customer success and business success so you can always stay on top of operations at any scale.
2. Measure Accurately and Consistently
To be accurate, KPIs require a reliable and consistent source of data. They should also reflect changes to your business in real-time. For instance, a marketing KPI, like cost per lead, must be measured accurately in order to provide insight. It will most likely need to include data like employee overhead and costs for outside agencies in order to be accurate.
Patient satisfaction rates for a hospital will not be actionable if they’re only based on quarterly surveys that have a low response rate. However, administrators may be able to improve patient satisfaction by looking at average time to healthcare service or the rate of readmissions per department.
3. KPIs Should Be Actionable and Tell a Clear Story
The right KPI says a lot with a little. Think about how Steven Spielberg decided to show the size of the T Rex in the original Jurassic Park using a ripple in a water cup. That small effect told a big story.
Similarly, your KPIs should convey important information without requiring deep context. At a call center, for instance, tracking the average call wait time and cost per call throughout the day can reveal how to optimize staffing and overflow.
Seek KPIs that are accurate, actionable, and help reveal a unique path for a business strategy. Avoid looking at metrics just because others are. Often, the focus on the right KPI can differentiate you from your competitors and lead to growth within your industry. That’s the “performance” part of KPI in action, and it can help show you the way towards getting better performance through one simple number.