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KPIs can be viewed in terms of their scope or objectives in measurable terms and are used as the basis for assessing progress in the area. KPIs allow you to analyze and improve productivity. Measuring your daily, weekly, and monthly performance can help your company achieve its mission. Often success is simply the repeated, periodic achievement of some levels of operational goal (e.g. zero defects, 10/10 customer satisfaction), and sometimes success is defined in making progress toward strategic goals. How do we use KPIs to track performance, what are they used for, and examples of different types of KPIs?
KPIs are, in a nutshell, metrics used to measure the success of a business in achieving its goals. KPIs can be set in terms of time, quantity, or significance and include qualitative criteria. The company's success concerning its objectives is affected by many direct and indirect variables, resulting in many possible KPIs. KPIs should express the strategic objectives of your organization. Most importantly, KPIs should tell the story of your company. Whether individual or organizational, KPIs are a helpful mechanism to measure performance, which directly ties to team member engagement.
More about KPIs
A KPI is a metric used to measure the success of a business in achieving its goals. It can be set in terms of time, quantity, or significance and include qualitative criteria. The company's success concerning its objectives is affected by many direct and indirect variables, resulting in many possible KPIs. Managing KPIs often means improving leading indicators that will later drive lagging benefits. Leading indicators are precursors of future success; lagging indicators show how successfully the organization achieved past results.
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Key performance indicators
Key performance indicators (KPI) are measurable values that help you monitor your progress toward reaching your goals. It is also known as a "performance indicator" or "performance marker." If you do not have KPI, you do not know where your goals are and how well you achieve them. Therefore, they play a crucial role in data analysis. For example, net Profit Margin shows net profit as a percentage of total revenue.
Here's a list of the most popular types of KPIs
There are several kinds of KPIs, but it all comes down to whether you're measuring customer, product, or company performance. Any KPI that attempts to measure progress in a future state as predictive, diagnostic, or prescriptive is no longer an 'indicator.' It is a 'prognosticator' - at this point, it is analytics (possibly based on a KPI). Still, leading KPIs are also used to indicate the amount of front-end loading activities. Here are some common KPI examples for businesses in different industries:
One thing that should be kept in mind is that not every business needs all three sets of KPIs listed above. Choose from one batch depending on your company's specific needs and goals. If you have done the research and analysis needed to determine which type(s) of KPIs will work best for your business, you can begin setting up and implementing them in your company.
Key performance indicators
There are many different types of KPIs, depending on the industry and type of business you have. Most KPI lists include metrics like revenue per customer or ARPU (average revenue per user), but these aren't very specific to your business, so they might not help set up KPIs for your company. Here's a list of eight common KPI examples that would be more relevant to most businesses:
Revenue per customer (or ARPPU - average revenue per paying user ) is an essential metric for freemium game developers since it helps focus development efforts on acquiring new players who will pay to in the game rather than those who won't.
In this case, you'll want to focus on metrics that help give a more detailed picture of your product's present and future success. The following are some KPI examples for companies that sell physical products:
This list is by no means comprehensive, but it will give you a starting point from which you can find out what relevant KPIs might be suitable for your business. Here are eight examples of company-driven KPIs:
Acquisition Cost (AC) is the amount required to acquire one new user or customer through marketing efforts such as paid ad campaigns or affiliates. It is calculated by dividing the total cost of acquisition efforts over a given period by the number of new customers acquired during that same period.
Acquisition Conversion (ACV) is the average conversion rate of acquisition efforts. ACV can be calculated by dividing the total number of new customers by the total number of users who visit one or more pages on your site for the first time through any means (including paid ads, referrals, and organic search).
Churn Rate (CR) is a company-driven KPI that measures how many users left service in a given timeframe. This can usually be calculated as a percentage, where 100% would indicate all users stopped using your service while 0% would indicate no users left. CR can help you identify problem areas in your product development strategy and determine where changes need to be made.
Customer Life Time Value (CLTV) measures the total value of a user or customer over their lifetime with your product or service. You can either calculate CLTV using a discounted cash flow analysis, where you'd take the number of years a customer is expected to use your product and then multiply it by that user's average spending over those years. The other option is to multiply a particular user's monthly spend by the months used.
Churn Rate, also known as "customer churn," is the percentage of customers lost during a given period due to any reason such as cost-related problems/issues, competition from similar products & services, growth saturation, etc. It can be either measured monthly, quarterly or yearly. Even if the customer returns after leaving your company, they will have valuable time to understand how your business works. You can use this KPI along with Monthly Recurring Revenue (MRR) to know MRR lost due to churn during a month
Customer Acquisition Cost (CAC) is the cost required to attract one new customer. It is calculated by subtracting the value of new customers from total expenses spent on marketing and sales divided by the total number of new customers acquired through that channel over a given timeframe
Lifetime Value (LTV) is used to calculate a particular customer's actual worth in monetary terms. LTV can be calculated using various methods like discounted cash flow analysis, breakeven analysis or the customer value calculation of Robert Kiyosaki. It is used to measure the potential ROI of a particular marketing campaign
Average Revenue Per User (ARPU) is similar to ARPPU and can be defined as the average amount each user spends on your product during a given timeframe. It generally refers to revenue from all sources for a specific period divided by the number of unique customers who contributed to that revenue during that same time frame. This metric is significant for social gaming companies since these businesses rely heavily on virtual goods sales. Some argue that ARPU is simply another name for MRR because those two metrics are interchangeable in their basic definitions.
Acquisition Conversion Rate (ACR) is the average percentage of users who take a specific action, such as completing a purchase or downloading an app. You can calculate ACR by dividing the total number of conversions attributed to marketing efforts over a given period by the total number of marketing-driven sessions during that same timeframe
Customer Lifetime Value (CLTV) measures the actual worth of a particular customer in monetary terms. It is calculated using various methods like discounted cash flow analysis, breakeven analysis, or Robert Kiyosaki's customer value calculation method. This metric helps you to find out how much return on investment you're getting from your customers and which segment/segments are bringing in the most revenue
Gross Merchandise Volume (GMV) is the total sales volume of goods sold through a marketplace over a specific time frame. GMV can help you determine your business's e-commerce potential as it allows you to track your revenue, inventory and other expenses
Sales Conversion Rate (SCR) is the percentage of customers who purchase those exposed to some form of marketing during a given timeframe. It is calculated by dividing the number of conversions attributed to a specific marketing channel over a given timeframe by the total number of sessions during that same period that was driven by that particular channel
Customer Acquisition Cost (CAC) measures how much money you're spending on average to acquire new customers. To find CAC, you need to know the total acquisition cost and the number of new customers who signed up during a specific timeframe
Revenue Per User (RPU) is an indicator that shows how much revenue you're generating from each user. RPU can be calculated using your subscription revenue, fee-based revenue, or e-commerce revenue divided by the number of active users over a given time frame
MRR is the revenue, or subscription-type businesses bring in each month. It can be calculated by multiplying the number of customers at the beginning of a particular month with their monthly plan/usage fee and then subtracting that same amount from the customers' monthly plan/usage fees for that same timeframe. If you have 10,000 users who pay $100 per month, your Monthly Recurring Revenue would be 1 million dollars
CLTV: Customer Lifetime Value shows how much return on investment you're getting from your customers and which segment/segments are bringing in the most revenue
ACV: Annual Contract Value is used to calculate up-sells and cross-sell opportunities. For example, if you have an average monthly contract value (ACV) of $100, after 12 months, you would have generated $1,200 in revenue for your business
A: Average Order Value is the average amount spent by each customer on a specific product. For instance, if the average order value for a subscription-type company is roughly around $50, it means that customers are purchasing more than one item at checkout
ARPU: Average Revenue Per User is similar to ARPPU and can be defined as the average amount each user spends on your product during a given timeframe. It generally refers to revenue from all sources for a specific period divided by the number of unique customers who contributed to that revenue during that same time frame
Business operations-driven KPIs
Run Rate is a forecasted amount for a given month or year based on current metrics
First Time Adoption (FTA) represents the percentage of first-time buyers who have been exposed to a marketing campaign
Churn Rate is also known as attrition rate and calculates the percentage of lost customers over a particular period
Annual Fundraising Goal
Total Dollars Raised for a given period (annually, monthly, etc.)
Several Active Supporters is the number of unique donors who have contributed to your cause during a given timeframe. It can be found by dividing total donations received during a specific time frame by the number of individual donors and multiplying that value by 100
Money Raised per Donor calculates the average donation amount and includes how many times users were able to donate
Lifetime Value is used for calculating the actual worth of a particular supporter in monetary terms. It is measured using various methods like discounted cash flow analysis, breakeven analysis, or Robert Kiyosaki's customer value calculation method. This metric helps you determine how much ROI you get from your supporters and which segment generates the most revenue.
Things that make KPI effective
A KPI is considered a valuable management tool to monitor the success of your business identify trends and opportunities for improvement/growth. A key performance indicator should have three actionable, understandable, and measurable characteristics.
Actionable - A metric is only effective if it tells you what precisely needs to be done next
Understandable - Keep your KPIs simple so that everyone from executives to managers can quickly identify them at a glance
Measurable - An ideal KPI has a numerical value or can be expressed as a percentage
Since there are hundreds of metrics that can provide helpful information about the overall health of your business, use this chart to find out which type of KPI meets your company's unique requirements:
The most critical performance indicator
The most important KPI for any company is revenue. Although not every organization reports its income on public websites, it's still the primary indicator of business success. One of its subcategories - Customer Lifetime Value (CLTV), shows how much return on investment you're getting from your customers and which segment brings in the most revenue.
Another great resource is Google Analytics, where you can find helpful information about your users' interactions with your website. Here are just a few key performance indicators that show what KPIs to use for different types of businesses: ○ e-commerce companies should pay attention to average order value (AOV), number of repeat buyers, conversion rates, etc. As for nonprofits/NGOs, you might want to focus on the number of unique donors, money raised per donor, and lifetime value
E-commerce companies - Number of repeat buyers, average order value (AOV), conversion rates
Nonprofits/NGOs - Number of unique donors, money raised per donor, lifetime value
When using Google Analytics KPI examples, it's important to remember that KPIs are different for each industry. For instance, while some e-commerce businesses might measure their success with the number of new customers acquired during a given time frame, nonprofits can use an average donation amount or total funds donated
Find out which key performance indicators are right for me
To identify your key performance indicators, you need to consider your company's goals and budget limitations. There are four key questions you need to answer:
What do I hope to accomplish? (increase sales, improve customer loyalty, etc.)
How much money am I willing to spend?
How much time do I have before my business plan needs to be implemented?
Responsibility for implementing the plan
Once you've answered these questions, speak with your manager about which KPIs would be most beneficial for your business. Look at what competitors are doing and determine if they see any measurable results from their metrics. Lastly, compare the number of users on your site now with previous months - this will help you determine if changes are needed to reach your desired outcome
There's no one best KPI for every company. The key is to identify which factors are most important for your organization and align them with positive results.
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