Creating and adding smart KPIs to measure business performance makes the results more progressive and accurate (something extraordinary).
You may have heard marketers and analysts quote the term 'SMART KPIs' very often, yet you couldn't research it well because it's a mess out there on the web.
In this article, we'll walk you through the fundamental concept of smart KPIs, how they differ from smart goals and ordinary KPIs, and how to use smart KPIs for performance measurement and more.
Let's get started!
Before we get to smart KPIs, let’s briefly remember the role of KPIs.
Key Performance Indicators (KPIs) evaluate the success of an organization or a particular activity. These indicators are commonly used in every business or organization to measure the overall business performance over time.
Generally, these KPIs are aligned to short or long-term business goals and objectives; hence, businesses always try to choose the most important ones for accurate and reliable outcomes.
A smart KPI is a refined version that has been through a process or a series of questions before making it to your dashboard.
Smart is an acronym for five different traits a KPI should have:
The needs, wants, and desires of every business differ based on the industry, vision, goals, and other predetermined business objectives. Therefore, a copy-paste formula isn't a good idea when defining effective KPIs.
For example, an advertising agency would measure revenue per click, while a SaaS-based company would measure revenue per customer or customer lifetime value (CLTV).
Here's when smart KPIs support the differential purpose of your business.
They help you figure out whether the KPI you choose is directed towards your business goal, how it's valuable for your business, and if it’s measurable within a given period.
If we talk numbers, there are thousands of KPIs, but all KPIs are not essential to your business.
Smart KPIs refine or narrow down your hunt and present you with the most valuable and relevant insights for your business.
A simple yet smart KPI for a marketing firm would be increasing the number of followers by 30% every month.
This KPI is smart because it’s
Another prolific example of a smart KPI is Customer Acquisition Cost (CAC).
For example, suppose we say a SaaS company spends $10,000/month on ads and acquires 100 customers through it. Now, the cost incurred to acquire a customer can be calculated as follows:
CAC = Total cost of sales and marketing / Total number of customers acquired
So here, CAC = $10,000/100 = $100
The company spends $100 to acquire one customer.
Ideally, a smart goal for this KPI would be to reduce the CPA (cost per acquisition) over time. This can be achieved via better retargeting ads, appealing ad copies, and proper CTA placement.
Besides the above examples, here's a list of smart KPIs filtered for different industries.
Read more: KPI Examples: Here Are the Best 30 You Can Find in 2022
Although the terms - smart goals and KPIs are used interchangeably by some marketers, there's a vast difference between the two.
Anyone who uses goals and KPIs as one, is vulnerable to confusion and possible mistakes when creating KPIs.
But we have made it quite simple to remember. Here's how:
A smart goal can be visualized as a finish line. You can look at a goal and ask yourself: 'Did we accomplish that?'
Here’s an example to understand better:
These are simple 'yes or no’ questions, just like crossing the finish line. Because you know what success looks like, and you know when you’re successful and when you’re not.
On the other hand, KPIs are anything with a measurement scale attached to them. Just like a speedometer with a minimum and maximum indicator.
For smart KPIs, as yourself:
These questions require a comprehensive answer by analyzing data, insights, and events rather than a simple yes or no.
If this wasn’t enough, we have tried to explain the differentiation between smart goals and KPIs via four key parameters:
A smart goal is an ultimate outcome or result you want to achieve by accomplishing a set of activities. On the other hand, KPIs are metrics or indicators that tell you whether you're on track to achieve that goal.
The purpose of a goal is to set the benchmark or milestones for a company's day-to-day tasks. Every task performed in the organization is directed towards achieving the goal.
KPIs, however, are insight-driven. They are put in place to track, monitor, and analyze performance management of any business. They're not the actual goals but play a significant role in achieving the goal.
For example, suppose you aim to increase the number of customers from 0 to 100. In that case, you could quickly generate qualified leads via sharing lead magnets, paid advertising, or answering forum questions - but none of these would contribute to the overall goal of bringing in new customers.
In this case, leads are the probable KPIs, but it's not the ultimate goal. Increasing leads is your smart goal.
As both goals and KPIs are measurable and time-bound, it becomes confusing to differentiate between them.
However, there's one reason not to get confused.
Smart goals are created keeping in mind a broader perspective. Whereas KPIs are created keeping the goal in mind.
KPIs are preferably set for 3-6 months. This is necessary for analyzing your performance time after time and tweaking the KPIs if needed.
While you can't keep changing goals, you can always tweak your KPIs for better outcomes.
Goals are independent quantifiable measures based on the company's ambition and vision. Whereas KPIs are dependent on the set goals. They are created to access the timely and progressive approach toward reaching the goal.
In simpler terms, a KPI is derived from a smart goal, but a smart goal is not derived from KPIs.
Suppose we say your goal is to attract 100 leads in 90 days. To achieve this goal, you may derive a set of KPIs like monthly website visits, conversion rate per visit, the conversion rate of call-to-action, and so on.
These KPIs blend to give you insights into how you're going with your goals.
The other way round isn't true. Meaning that you won't be deriving your goals based on a set of KPIs.
As we thought, the differences might be thin to process, so here's a quick overview:
Now that you know what smart KPIs are and how it's not interchangeable with smart goals. Let's explore a simple three-step process for creating smart KPIs.
To get started, you need to determine which of your organization's strategic goals you're trying to gauge. You can stalk your competitors (in an ethical way, of course 😉) to see how they strategize things so that you stay one step ahead with your plans.
Or, you can talk to your investors and stakeholders about their expectations from the company by the end of a certain period and then plan your goals according to that.
But most importantly, remember that every business has its respective goals, which are planned based on many factors such as availability of resources, market size, budget, and other market conditions.
So, when planning your business goals, it's always wise to use a trial and error method rather than a copy-paste method.
For example, a good strategic goal is to ‘Increase the flow of the marketing pipeline by 30% by the end of 2022.’
Moving forward with the strategic goal mentioned above, find and research KPIs that are important to track, monitor, and analyze the performance of employees and the organization towards the goal.
Kick things off by thinking about what the success of each objective looks like. If you're planning to increase the marketing pipeline, then the meaning of success for you is:
Again, instead of copying KPIs, it's better to hand-pick them yourself.
While cherry-picking KPIs, place them into the SMART funnel to see whether they are eligible for being a Smart KPI or not. Here's how you do it:
Keep your KPI focused on your business goals and objectives, and ensure your KPIs are directly linked to them.
Being too vague makes it much more challenging to drive action-oriented insights. Hence, when finding the KPIs, ask yourself:
Look for KPIs that are easily measurable. Eventually, this will help you quantify your process and see what you're actually achieving from the KPI.
Example:
❎ KPI: Improve customer satisfaction via customer service
✅ Measurable KPI: Reduce ticket resolving time from 48 hrs to 24 hrs by the end of next month
Ensure that you have the right resources and tools to achieve the goal via a set of KPIs.
Instead of relying too heavily on industry benchmarks, look inside your organization and see what's feasible for you.
Use data, knowledge, and experience to set achievable KPIs.
Note: While learning from your competitors is wise, choosing what's best for you and your business is wiser.
Hunt down KPIs that are relevant to your purpose.
Suppose you want to increase ecommerce website conversion by 30% next month. The relevant KPIs for the said goal would be monthly website traffic, cart abandonment rate, churn rate, conversions via the call-to-action button, and so on.
A set of relevant KPIs can provide you with more reliable outcomes than just gazing and measuring KPIs on a first-come, first-serve basis.
Once you're done figuring out the KPIs, try adding a time frame to each. Set a specific date by which you expect to achieve or measure that KPI - it could be monthly, quarterly, or annually.
Ensure that the set deadlines align with the time attached to your goals.
Finally, it's time to write down your KPIs. We've derived a formula to ensure that the KPIs stick to the SMART format every time you write a new one.
To make KPIs more understandable, use a color scheme as we have in the below example:
Action Detail Value Deadline
Let's see the format in action:
Increase conversion rate to 15 percent till September 2022
Increase the number of customers from 200 to 500 by next month
Reduce churn rate by 10% in 90 days
Pro Tip: Starting a KPI with a verb tells you what needs to be done. Assigning a value ensures your KPI is measurable, and a deadline will do wonders for staying timely on your progress.
Smart KPIs can be essentially used in five ways:
Smart KPIs act as a scorecard for measuring your company’s health. They cover every aspect of your company and identify what's preventing it from growing.
We've found that constantly measuring a few KPIs in each of four major categories - Employees, Customers, Operations, and Finance - can help you identify your company's financial, operational, and emotional health.
You can use a smart set of KPIs like Net Revenue, Total Sales, Gross Margin, Employee Satisfaction, etc. to measure progress towards your business goals.
All you need to do is set yearly or quarterly benchmarks and use these smart KPIs to measure weekly progress.
Again, choosing the right set of KPIs is crucial to measuring your business performance efficiently.
Apart from using KPIs to derive results, you can also use them to foresee the future. Yeah, you heard us right! 😊
Leading indicators include KPIs that help you predict future outcomes and results. Thereby helping you adjust your operational and strategic KPIs before it's too late.
You can even use a mix of multiple KPIs to resolve inbound or outbound business problems.
Let's say you're experiencing a sales crash. Your approach here should be to analyze a handful of KPIs like the number of sales calls, number of appointments, conversion rate, etc.
Put these KPIs into your dashboard and measure them constantly to determine what's working best for you. Once done, you can leverage that particular activity to drive more sales instead of trying everything and going haywire.
When measuring the same KPIs consistently, you can notice standardized patterns in your numbers.
These patterns can be beneficial in several ways. You could compare the trends to predict when your business is at a break-even point (nothing major is happening) and use that time to do a system update or launch a company-wide training initiative.
You can see the performance of your team members on their KPIs and can use this data to talk about consequences, good or bad.
What’s more, use the trends to set realistic goals for your business.
Setting smart KPIs for business is one thing, but to know their performance, you need to track them first.
Datapad (disclaimer: this is our tool) allows you to track all your smart KPIs from your smartphone by building customized KPI dashboards.
How is that possible?
Our dedicated mobile app is designed for purpose-driven entrepreneurs who struggle to stare for hours at their PCs or simply don’t have the time for it.
Datapad's KPI tracking and dashboarding tool is jam-packed with all the features you look for to track KPIs, design dashboards, and collaborate with your team on the go.
It's a matter of minutes to download and set things up, and then it's just you and your team measuring business performance from the beach, the mountains, or even deep down the oceans. Just kidding, the oceans are too much. 😆
Want to experience the magic of Datapad? Try it for free today!
Read more: KPIs vs. OKRs: What is the Difference and How to Use Both Correctly
Read more: 13 Recruitment KPIs Every HR Professional Should Track
