How to Measure KPIs & Types of Key Performance Indicators You Should Monitor

To grow as a business, you need a way to measure what’s working and what isn’t.

Key performance indicators (KPIs) let your company set goals and evaluate operations. In this post, learn more about KPIs — from the benefits of tracking them to how to implement them for your business.

Keep Reading: 25 Digital Marketing KPIs You Should Be Monitoring

What are KPIs?

KPI Definition

KPIs, or key performance indicators, are quantifiable measurements you or your company can use to measure long-term performance by tracking specific goals and metrics. You might set KPIs for an upcoming social media campaign or to prepare for an annual performance review.

You should collect and track KPIs over an extended period for the most accurate measurement. The longer you track your objectives, the more valuable data you’ll have to inform future marketing campaigns, budgeting, employee performance and other facets of your business.

Your KPIs should always be measurable and relevant to your business or organization and never based on factors beyond your control, like weather-related impacts on manufacturing production, new competitors opening nearby, or changing community needs.

Many organizations and companies rely on analytics software and reporting tools to create and manage KPIs across teams and departments.

Benefits of tracking KPIs

The more you know about your operations, the better prepared you are to continue growing and reach new goals. Keeping a KPI scorecard to track metrics helps you identify your strengths and weaknesses, streamline operations, and note any trends in marketing or processes.

Some benefits of KPI management include:

1. Finding growth areas: Find growth opportunities in your current processes by setting KPIs to improve strategies and processes. Examples include improving efficiency, speed, or safety in production or boosting customer satisfaction rates. Use this information to create supplemental training and improve equipment as needed.
2. Growing profits or customer base: It’s one thing to see an increase in store traffic or online visitors — it’s another to track quantifiable metrics for specific conversion rates, net sales, and profits versus losses. Tracking KPIs helps you see the raw data of your business’s growth.
3. Making smart marketing choices based on data and forecasting: Insight into your operations through KPIs gives you the knowledge to make smarter decisions and allocate efforts and resources to the most profitable and relevant areas. A series of financial KPIs can help you better divide your next quarter’s budget, while marketing KPIs can inform next quarter’s campaigns.

4 types of KPI metrics

Four common types of KPIs for companies and organizations are process, financial, customer, and marketing-based metrics.

Let’s break down the different types of KPI metrics you’ll want to measure:

1. Process

Process-based metrics are typically reserved for backend operations, such as manufacturing, shipping, production, content creation, and similar.

Process KPI examples include:

• Decreasing the average time to complete a specific task, such as shipment turnaround times
• Balancing accuracy with completion speed
• Fine-tuning efficiency by reducing the number of defective products compared to overall products produced
• Meeting industry-specific safety standards
• Improving click-through rates (CTR) and time spent on your ecommerce store for online order fulfillment

2. Financial

Measuring financial KPIs gives better insight into quarterly and annual budgets, operating costs and business profits compared to losses. Many financial KPIs go hand in hand with process KPIs, like measuring profits and losses compared to production errors and product defects.

Examples of financial KPIs include:

• Net profits versus operating expenses
• Operating cash flow
• Debt ratio
• Revenue per customer or employee
• Earnings before interest, taxes, depreciation and amortization (EBITDA)

3. Customer

Customer-related KPIs let you gauge how well you’re meeting your target customers’ needs and identify areas for improvement.

Examples of customer metrics to measure include:

• Customer acquisition cost (CAC)
• Number of customer complaints in a given period
• Loyalty card usage
• Customer retention rates
• Customer referrals, feedback and reviews
• Customer lifetime value (CLV)

4. Marketing

You want your marketing budget to stretch as far as possible, targeting your ideal consumer and meeting them where they are. Marketing KPIs help you track how successful a marketing campaign is or isn’t to adjust and better allocate resources moving forward.

Examples of KPIs in marketing include:

• SEO rankings
• CTR
• Website performance
• Ad performance on different platforms, like email, social media, print ads or pay-per-click (PPC) ads
• Social media following and engagement rates

How to set and measure KPIs

Measure and define KPIs for your project or business with these steps:

1. Know your baseline

Create a baseline to compare new data to. For example, to set a KPI to improve shipping times by Q3, you first need to measure average Q2 shipping times and collect data from last year’s Q3 shipping information to establish a “baseline” for measurements.

Your “lagging indicator,” last year’s Q3 shipping times, is how you will measure your success from this baseline. The “leading indicator,” like current Q2 turnaround times, is how you’ll track and compare data.

2. Identify target metrics

Now that you know where you’re at, it’s easier to decide where you want to go. Look to others in your industry, like leaders or competitors, to help determine a standard metric to work toward.

Quality KPIs should be objective and centered on an end goal. Decreasing the time it takes to respond to customer inquiries is one goal, but to make it a KPI, it should be more specific and support a long-term ideal.

In this case, your long-term goal could be to improve customer satisfaction in the next quarter by analyzing and improving response times on a specific channel, like your website contact form. You could make this KPI measurable by implementing a way to track web inquiries and response times and charting how different factors, such as time of day or team members on duty, affect those times.

3. Use the SMART method

Using the SMART method for KPIs means crafting goals that are:

• Specific
• Measurable
• Achievable
• Relevant
• Timely

A SMART KPI is realistic for your organization, timeline and resources and avoids vanity goals, like “our KPI is to be the best shipping company globally” or “our retail store will expand internationally by next quarter.” Your goals should be easily measurable and realistic for your business.

4. Integrate tools and software

Specific tools and software take the time-consuming labor and organization out of tracking and measuring KPIs. Look for cloud-based programs with automatic saving, report generating and similar features to simplify metric measurement.

A tool like MarketingCloudFX, for example, can automatically process millions of data points to help you gain insight into the performance of your most valuable marketing KPIs.

5. Generate and distribute KPI reports

You can only meet your KPIs when your whole organization is on board. Generate KPI reports stating each KPI, its overall goal or reasoning, any relevant images or data, and a list of steps or methods for achieving and tracking progress. Distribute KPI reports to each relevant party.

6. Monitor and adjust

Use your tracking method to monitor and adjust your KPIs, noting trends and patterns. You can create and measure multiple KPIs for each department, subsection, or goal in your organization, such as:

• After daily shifts
• At the end of the workweek
• During monthly check-ins
• As part of your quarterly review
• Annually for long-term measurements

Once you reach or miss your set KPIs, adjust operations accordingly and continue monitoring with either the same set of metrics and a new approach or more attainable metrics, like incremental goals.

Achieve your KPI goals with revenue marketing solutions from WebFX

If your organization’s goals include creating more effective, profitable digital marketing campaigns, contact WebFX to learn how we’ve helped others in your industry achieve results with custom-designed campaigns.

We’ll help you launch and monitor marketing campaigns to track and meet your company’s key performance metrics. Get your free, no-obligation quote today!