How to Find Key Performance Indicators (KPIs) with Examples

What is a KPI?

‘Key performance Indicator’ (or KPI) is a metric which is one of the most important indicators of the current performance level of an individual, department and/or a company in achieving goals.

What is a metric?

A metric can be a number or a ratio. So we can have number metrics and we can also have ratio metrics.

The following are examples of number metrics, because they are in the form of numbers:

The following are examples of ratio metrics, because they are in the form of ratio:

Since KPI is a ‘metric’ and a metric can be a number or ratio, we can have KPIs in the form of numbers and ratios.

So we can have ‘Number KPIs’ and we can have ‘Ratio KPIs’.

Example of number KPIs: ‘Days to purchase’, ‘visits to purchase’, ‘Revenue’ etc

Example of ratio KPIs: ‘Conversion rate’, ‘Average order Value’, ‘Task completion rate’ etc

What is the difference between a Metric and a KPI?

Every KPI is a metric. But not every metric can be used as a KPI.

KPI is a key metric which has the ability to directly impact the cash flow (revenue, cost) and/or conversions (both macro and micro conversions) in a considerable way.

For example if you sell ‘display banner ad space’ on your website and ‘display advertising’ is the main source of revenue for you then ‘pageviews’ can be used as a KPI.

The more pageviews you get, the more you can charge for every thousand impressions (CPM) from your advertisers.

Similarly, ‘average order value’ can be used as a KPI because it hugely impacts the website sales.

You can greatly increase your website sales at the present conversion rate just by increasing the size of your orders (i.e. the ‘average order value’).

What is the difference between a KPI and Goal?

A KPI is not a goal. However it needs accompanying goal in order to be effective.

A goal is a specific outcome or result you want to achieve. Whereas KPI is a metric which tell you whether you are on track on achieving your goal.

For example, if your goal is to decrease acquisition cost then your KPI could be ”% decrease in CPA in the last one month‘.

Here the KPI does not define the goal itself.

It only tell you whether you are on track on decreasing your acquisition cost.

So don’t try to use KPIs and Goals interchangeably. They are not the one and the same thing.

What is the difference between a KPI and target?

A KPI is not a target. However it needs accompanying target in order to be effective.

A target is a metric through which you define success and failure in achieving your goals.

When you have achieved your target, it is considered as success. When you do not achieve your target, it is considered as failure.

Whereas KPI is a metric which tell you whether you are on track on achieving your goal.

For example, your KPI could be ‘% decrease in CPA in the last one month‘.

Here the KPI does not define, what % decrease in CPA is considered as success.

For that we need to set up KPI target like the one below:

10 or more % decreased in CPA in the last one month.

So KPIs and targets are not the one and the same thing.

What is a KPI used for?

KPI is used to measure your performance (as an individual, department and/or a company) in achieving key goals.

Who should use KPIs?

If you are an individual, department and/or a company and you have set up clearly defined goals for yourself then you should use KPIs to measure your performance in achieving your goals.

Who should not use KPIs?

If you do not know your goals as an individual, as a member of your department and/or as a member of you company then you don’t need to use any KPI.

When should I use a KPI?

The best time to use KPI is when you have set up clearly defined goals & strategies and you are now ready to measure your performance in achieving those goals.

What are the attributes of a Good KPI?

A Good KPI has got following attributes:

  1. It is available and measurable.
  2. It highly impact its corresponding goal.
  3. It is relevant to its corresponding goal.
  4. It is instantly useful.
  5. It is available in a timely manner.

#1 Available and Measurable

You can use only those metrics as KPIs which are available to you in the first place.

For example if ‘Net Promoter Score’ metric is not available to you then you can not use it as a KPI.

Similarly if you come up with something which is impossible to measure (like ‘frustration level of customers who abandoned the shopping cart for the 3rd time’) then you can not use it is as a KPI.

So when you are finding your KPIs, you need to be 100% sure that there is a mechanism/tool available, to measure and report your KPI in the first place.

#2 Highly impacting

If a metric does not greatly impact its corresponding goal then it is not a good KPI.

#3 Relevant

If your KPI is highly impacting then it is got to be relevant to its corresponding goal.

#4 Instantly useful

If your KPI is highly impacting then it is got to be instantly useful i.e. you can quickly take actions on the basis of the insight you get from your KPI.

#5 Timely

Your KPI should be available to you in a timely manner so that you can take timely decisions.

For example, if you are using a compound metric (a metric which is made up of several other metrics) as a KPI and it takes several months to compute it once and then another several months to compute it the second time then it is not a good KPI, as you can not take timely decisions on the basis of such KPI.

What are the different types of KPIs?

There are three broad categories of KPIs:

#1 Business KPI (also know as ‘high level’ KPI) – It is the KPI set up for measuring the performance of a core business goal. Business KPIs are set at the organization level and focus on measuring the overall performance of a business.

#2 External KPI (also known as ‘low level’ KPI) – It is the KPI set up for measuring the performance of an external goal. External KPIs are set at the department/team/function level and focus on measuring the overall performance of a department/team.

#3 Internal KPIs (also known as ‘low level’ KPI) – It is the KPI set up for measuring the performance of an internal goal. Internal KPIs are set at an individual level and focus on measuring the overall performance of an individual.

Note: External KPIs can also be used as internal KPIs. There is no hard and fast rule here.

How an organisation should use KPIs?

An organisation should use KPIs at multiple levels (organisation level, department level, individual level).

How to find KPIs?

Follow the steps below to find KPIs:

Step-1: Establish your company’s mission and vision statements

Step-2: Define your core values (principles) as a business.

Step-3: With your mission, vision and core values in mind and with the help of KPQs (key performance questions) define your company’s core business goals (objectives).

Step-4: Make each core business goal SMARTER by creating well defined strategies for achieving them.

Step-5: Set up Business KPIs for each SMARTER core business objective:

Step-6: For each business KPI set up clear target that define what success looks like.

Step-7: Iterate your strategy for each business KPI so that it clearly outline how you will achieve your business KPI targets.

Step-8: Share Core business objectives and corresponding business KPIs and targets across your organization.

 

Step-9: Break down each core business goal into several smaller goals (called ‘External Goals’).

That’s how you create an alignment between your external goals and business goals.

So whenever you achieve one of your external goals, you get one step closer to achieving your corresponding business goal. Use KPQs to identify external goals.

For example, for the business goal ‘Acquire new customers‘, following can be your external goals:

  • Acquire customers through organic search traffic.
  • Acquire customers through paid search traffic.

For the business goal ‘Retain existing customers‘, following can be your external goals:

  • Build brand loyalty
  • Increase user engagement

For the business goal ‘Increase website sales‘, following can be your external goals:

  • Increase number of transactions
  • Increase user engagement

Similarly, for the business goal ‘Decrease acquisition cost‘, following can be your external goals:

  • Re-target users
  • Fix website tracking issues

Step-10: Make each external goal SMARTER by creating well defined strategies for them.

Step-11: Set up External KPIs for each external goal:

Step-12: For each external KPI set up clear target that define what success looks like.

Step-13: Iterate your strategy for each external KPI so that it clearly outline how you will achieve your external KPI targets.

Step-14: Share external goals and corresponding external KPIs and targets with your team / department.

 

Step-15Break down each external goal into several smaller goals (called ‘Internal Goals’).

That’s how you create an alignment between your external goals and internal goals.

So whenever you achieve one of your internal goals, you get one step closer to achieving your corresponding external goal.

Use KPQs to identify internal goals.

For example, for the external goal ‘Acquire Customers through organic search traffic‘, following can be your internal goals:

  • Increase organic search traffic
  • Increase the quality of your email outreach
  • Fix website crawlability and indexing issues.

Step-16: Make each internal goal SMARTER by creating well defined strategies for them:

Step-17: Set up Internal KPIs for each internal goal:

Step-18: For each internal KPI set up clear target that define what success looks like.

Step-19: Iterate your strategy for each internal KPI so that it clearly outline how you will achieve your internal KPI targets.

Step-20: Monitor your KPIs against your targets on a weekly/monthly basis.

Step-21: Review and adjust your goals, strategies, KPIs and targets at regular intervals so that they effectively capture any strategic, functional or tactical change in your business.

Remember the top down approach

Before you can set up Internal KPIs, you need to know your external KPIs.

Before you can set up external KPIs, you need to know your business KPIs.

Before you can set up business KPIs, you need to know your core business goals and the strategies to achieve those business goals.

The strategic direction need to come from the top management.

If the captain (aka your CEO) is not sure to which port his ship (aka company) should sail then the sailors (aka employees) can’t help him, no matter how good they are as an individual or team.

Similarly,

Before you can set up Internal goals, you need to know your external goals.

Before you can set up external goals, you need to know your core business goals.

Before you can set up core business goals, you need to have mission and vision statements + well defined core values in place.

The strategic direction need to come from the top management.

What is ‘Key Performance Question’ (KPQ)?

‘Key Performance Question’ or KPQ are those questions which help you in setting up your goals and strategies.

For example, if one of your core business goals is to increase customers acquisition, then your KPQs can be:

  • How can we increase customers acquisition?
  • Can we acquire two times more customers than last year? Is that realistically possible?
  • If it is possible then what do we need to change/adopt in order to achieve this goal?

KPQs are the building blocks of goals, strategies and KPIs.

What is mission statement?

Mission statement is a written declaration of the core purpose/cause of your organization. Why it exist? What problem you are trying to solve?

Your mission should be bigger than yourself and solve a real life problem for others in a bigger and better ways.

Your company does not exist just to make money.

Sure your company need to make money to survive but there needs to be an added mission which serve others and at the same time positively impact your business bottomline.

If your company is just driven by business opportunity/money then you won’t go very far in your business.

For example, Google’s mission is “to organise the world’s information and make it universally accessible and useful.”

And this has been their mission from the very start. There mission was never about making more money.

Mission statement do not change over time.

A mission statement help you keep on the track.

It is like a compass which when used daily, keep your organization in the right direction.

What is the difference between mission and business goal?

Unlike a business goal, a mission is not something which you aim to achieve. A mission is something that drives your day to day actions and decision making processes in business.

It is like a compass which when used daily, keep your organization in the right direction.

For example, your business goal could be to generate $100k in additional sales in the next 1 year.

But this can not be your mission.

What is your organisation’s vision statement?

Vision statement is a written declaration of what an organization would like to achieve in the long term.

For example, Google’s corporate vision is “to provide access to the world’s information in one click.”

Amazon’s vision is “to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”

What is the difference between mission and vision statements?

Mission is a general statement of how you will achieve your vision.

What are principles (core values) of a business and why they are important?

Principles (core values) is how your organization should behave on its way to achieving its vision.

Your core values support your mission and vision and drive your day to day decision making processes.

It is like the foundation of your company.

Without core values, your company has got no identity, no culture.

Following are examples of core values of a business:

  • Market backwards (focus on what the market wants and then deliver it to them).
  • Simplicity (less is more)
  • To the point (no rambling)
  • Focus is everything (do less, better)
  • Customers obsession
  • Results oriented
  • Long-term thinking
  • Ever evolving, always innovating to become a better version of ourselves.

What are Core Business goals (core business objectives)?

The core business goals are the results you want to achieve, improve or maintain as an organization in the short term and in the long run.

Your core business goals can be:

  1. Support and maintain company’s core values.
  2. Increase/maintain market share
  3. Increase profitability
  4. Improve brand retention
  5. Provide excellent customers service etc.

Following are the most common, core business objectives for an ecommerce business:

#1 Acquire more customers (i.e. Increase customers acquisitions)

#2 Retain existing customers (i.e. Improve customers satisfaction).

#3 Increase Sales

#4 Decrease the cost of acquiring customers (i.e. decrease acquisition cost)

How you can find your Core Business goals?

You can find your company’s core business goals through ‘Key Performance Questions’ (also known as KPQs).

For example, you can ask yourself following KPQs, in order to set up core business goals:

  • Why my business exist?
  • What is the purpose of the business?
  • What I am trying to achieve as an organization?
  • What is my company’s mission and vision?
  • What are the short term and long term goals of my company?
  • What are the core values of my company?

NoteThe core business objectives can vary from industry to industry and from business to business. Thus there are no standard set of core business objectives which should be adopted/copied.

What is the criteria for setting up a core business goal?

Your core business goals must be SMARTER (i.e SMARTER core business goals)

Your ‘key performance questions must help you in setting up SMARTER business goals.

What are SMARTER goals?

SMARTER stands for ‘Specific’, ‘Measurable’, ‘Attainable’, ‘Relevant’, ‘Time bound’, ‘Evaluated’ and ‘Readjusted’

Specific

Your goal need to be clear and specific. It should target a very specific outcome. The more specific your goal, higher is your probability of achieving it.

For example, ‘generating more’ sales is not a specific goal. Generating 10k extra per month is a specific goal.

You must be able to quantify your goal. You must be able to measure it. Otherwise it is not a goal but just some obscure direction.

‘Measurable’

Your goal need to be measurable.

You should be able to measure the results and progress of each goal. You would need to establish criteria for measuring results and progress towards the attainment of each goal.

For example, ‘Customers happiness’ can not be your goal unless you have a mechanism in place through which you can quantify and differentiate between different human emotions (happiness, frustration etc).

‘Attainable’

Your goal is considered to be achievable if you can achieve it in the short term. And by short term I mean within a year. However sooner the better.

Long term goals are not achievable unless we have accomplished corresponding short term goals. That’s why it is critical to break down your long term goals into several smaller short term goals.

That’s how you create an alignment between your short term goals and long term goals. So that ever time you achieve a short term goal, you come one step closer to achieving your long term goal.

So when we talk about a goal which is attainable, we refer only to the short term goals.

Without short term goals in place, your long term goal is not a goal but just some obscure direction, a wishful thinking.

You should be able to achieve your goal within the area of your responsibility and expertise.

At the organization level, an ‘attainable’ goal should be based on SWOT (‘strength’, ‘weaknesses’, ‘opportunities’ and ‘threat’) analysis.

‘Relevant’

Your goal must help you in achieving the desired outcome(s).

‘Time bound’

Your goal must have a deadline (target date) attached to it.

Without deadlines no goal in unachievable. You can achieve it next week, next month or next year. There is no urgency.

Set an exact date when you plan to achieve your goals.

Work on your goals backward.

So if your 5 years goal is to generate 1 million dollars in sales then what should be your 1 year goal?

If your 1 year goal is to generate $200k in sales then what should be your quarterly goal?

If your quarterly goal is to generate $50k in sales then what should be your monthly goal?

If your monthly goal is to generate $16,667 in sales then what should be your weekly goal?

If your weekly goal is to generate $4167 in sales then what should be your daily goal?

Then start working on achieving your daily goals.

Shorter the time frame, the more likely you are to achieve your desired goal. The longer the time frame, the less likely you are to achieve your desired goal.

‘Time bound’ goals bring urgency and help you in staying focused and motivated.

‘Evaluated’

Evaluate where you are with achieving your goals. You need to regularly evaluate your goals.

Things change, circumstances change, market change over time and you may need to adjust your goals accordingly.

If you fail to adjust your goals, they may become irrelevant overtime.

‘Readjusted’

If one approach is not working then you may need a different approach to achieve your goals.

Example of SMARTER business goal – increase website sales by 100% in the next 6 months by improving organic search traffic through SEO.

Who should setup and monitor core business goals?

Founders / top management executives should play a key role in setting up and monitoring their core business goals.

If you are an external consultant/agency then you determine core business goals with the help of the people who actually run the business and not from the website or Google Analytics reports.

Consequently you need to interview your client.

What are External goals (department or function specific goals)?

External goals are those core business goals which you can achieve within the area of your responsibility and expertise.

External goals are department/function specific.

For example, if you work as an SEO, your external goal is to increase customers acquisition and decrease customers acquisition costs through ‘Search Engine Optimization’.

Similarly, if you manage PPC campaigns then your external goal is to increase customers acquisition and decrease customers acquisition costs through ‘Paid Search Optimization’.

Whatever you choose as an external goal, make sure that it is always directly tied to achieving company’s core business goals.

How you can find your external goals?

You can find your external goals through ‘Key Performance Questions’.

For example, if one of your core business goals is to increase customers acquisition, then your KPQs for setting up an external goal for SEO can be:

  • How can we increase customers acquisition?
  • Can we acquire two times more customers than last year? Is that realistically possible?
  • If it is possible then what do we need to change/adopt in order to achieve this goal?
  • Why doubling the rate of acquiring customers is important to the business? How this would impact sales and profitability from organic search?
  • Who would be responsible for increasing customers acquisition through SEO?
  • How the success would look like?
  • What should be the time frame for achieving this goal?

What is the criteria for setting up an external goal?

Your external goal must be SMARTER (i.e SMARTER external goals)

Your ‘key performance questions must help you in setting up SMARTER external goals.

Who should setup and monitor the performance of SMARTER external goals?

Business owners/senior most management along with department heads must be involved in setting up, approving and monitoring SMARTER external goals.

What are internal goals?

These are the goals which are directly tied to achieving optimization objectives. They may or may not be directly tied to your core business goals.

For example,

If you are running an SEO campaign, your internal goal could be to improve the quality of your outreach emails so that you can earn more highly quality backlinks for your website. This in turn can increase the organic search traffic on your website.

If you work as a SEO then improving the quality of your outreach emails can not be your external goal.

That is because improving the quality of email outreach can never really be a core goal of any business (unless that’s all they do).

How you can find your internal goals?

You can find your internal goals through ‘Key Performance Questions’.

What is the criteria for setting up an internal goal?

Your internal goal must be SMARTER (i.e SMARTER internal goal)

Your ‘key performance questions must help you in setting up SMARTER internal goals.

Who should setup and monitor the performance of SMARTER internal goals?

Individuals who directly work on optimization tasks must be involved in setting up and monitoring SMARTER internal goals.

What is a business KPI?

It is the KPI set up for measuring the performance of a core business goal.

A business KPI is a metric which is one of the most important indicators of the current performance level of a business in achieving its core business goals.

For example, if one of your core business goals is to acquire more customers then your business KPI can be: Customers Growth Rate’.

Customers Growth Rate is a measure of the percentage increase in customers between two time periods.

What is the criteria for selecting a business KPI?

The metric that you choose as a business KPI must highly impact the corresponding core business goal.

This is possible only when the metric has the ability to provide recommendation(s) for action which can have a high impact on the business bottomline.

In other words, your KPI must have the ability to provide recommendation(s) for action which can highly impact the business bottomline.

If you are not sure whether or not a metric can be used as a business KPI then correlate it with its corresponding core business objective and then determining following two things:

#1 Determine whether a linear relationship exist between your chosen KPI and its corresponding core business objective

That is as the value of your KPI increases or decreases there should be corresponding positive or negative impact on the core business objective.

For example if you sell ‘display banner ad space’ on your website and ‘display advertising’ is the main source of revenue for your company then ‘pageviews’ can be used as a business KPI.

The more pageviews you get, the more you can charge for every thousand impressions (CPM) from your advertisers.

#2 Determine the strength of linear relationship between your chosen KPI and its corresponding core business objective

That is as the value of your KPI increases or decreases there should be significant positive or negative impact on the core business objective.

Note: Acquisition is also known as ‘conversion’ or ‘customer’. So cost per acquisition (CPA) can be the ‘cost per conversion’ or the average cost of acquiring a customer.

Who should setup and monitor business KPIs?

Founders / top management executives should play a key role in setting up and monitoring the business KPIs.

Note: Your core business objectives need to be crystal clear before you can find business KPIs.

What is an external KPI?

It is the KPI set up for measuring the performance of an external goal.

An External KPI is one of the most important indicators of the current performance level of team /department in achieving external goals.

An external KPI is also known as department/function/team specific KPI.

External KPIs are tied to external goals and are used to determine how you or your team/department are performing, in achieving external goals.

These are the KPIs we generally report to clients/senior management.

Whenever we talk about KPIs in general, we are referring to external KPIs.

Following are examples of different categories of external KPIs:

  • Sales KPIs
  • Marketing KPIs
  • Financial KPIs
  • Customer Support KPIs etc

What is the criteria for selecting an External KPI?

The metric you choose as an External KPI must highly impact the corresponding external goal.

This is possible only when your chosen KPI has the ability to provide recommendation(s) for action which can highly impact your external goal.

As the value of your external KPI increases or decreases there should be corresponding positive or negative impact on the external goal and this impact should be significant.

For example, if one of your external goals is to improve website sales then you can use ‘Average Order Value’ as an external KPI because it can highly impacts the website sales.

You can greatly increase website sales at the present conversion rate just by increasing the size of the orders.

Who should setup and monitor external KPIs?

Business owners/senior most management along with department heads must be involved in setting up, approving and monitoring external KPIs.

What is an internal KPI?

It is the KPI set up for measuring the performance of an internal goal.

An Internal KPI is one of the most important indicators of the current performance level of an individual in achieving internal goals.

Internal KPIs are tied to internal goals and are used to measure optimization efforts.

They may or may not be directly tied to core business objectives.

These KPIs are internally used by team members to measure and optimize their marketing campaigns’ performance.

They are not always reported to clients/boss/senior management.

For example, following KPIs can be used to measure your link building outreach campaigns:

  • Delivery Rate
  • Open Rate
  • Response rate
  • Conversion Rate of outreach
  • ROI of outreach

Often marketers make this terrible mistake of reporting internal KPIs to clients/senior management.

For example ‘Bounce Rate’ is a good Internal KPI for optimizing landing pages.

But it is not something which you will report to a CEO.

We report only highly business bottomline impacting KPIs to senior management.

Related Article: How to become Champion in Data Reporting

What is the criteria for selecting an Internal KPI?

The metric you choose as an Internal KPI must highly impact the corresponding internal goal.

This is possible only when your chosen KPI has the ability to provide recommendation(s) for action which can highly impact your internal goal.

As the value of your internal KPI increases or decreases there should be corresponding positive or negative impact on the internal goal and this impact should be significant.

For example, if one of your internal goals is to improve the quality of your outreach emails, you can then choose ‘Response rate’ as an internal KPI.

Note(1): Internal KPIs do not need to be business bottomline impacting.

Note(2): External KPIs can also be used as internal KPIs. There is no hard and fast rule here.

Who should setup and monitor internal KPIs?

Individuals who directly work on optimization tasks must be involved in setting up and monitoring internal KPIs.

What is a strategy?

It is a specific method you use to achieve your goals.

These goals could be business goals, external goals or internal goals.

How you can create strategies?

You can create strategies through ‘Key Performance Questions’.

These questions include ‘why’, ‘what’, ‘who’, ‘where’, ‘when’ and ‘how’.

Why?

‘Why denotes objective and reasoning of your strategy.

What you are trying to achieve? What should be the outcome?

What?

‘What’ denotes what is involved in implementing your strategy.

Creating and implementing any strategy requires time, cost, people, subject matter expertise and other resources.

Who?

‘Who’ is involved in implementing your strategy.

These people can be you, your colleagues, boss, clients etc.

Where?

‘Where’ denotes the ‘direction’ in which your strategy should move so that you can get highest possible return on your investment.

Your strategy should move in the direction where it helps you in achieving your goals in the most efficient manner.

Thus ‘where’ can also denote ‘efficiency’.

When?

‘When’ denotes ‘situation’, ‘date and time’, ‘assumptions’, ‘risks’, ‘barriers’, ‘deadlines’, ‘opportunities’ etc.

A strategy also need to be time bound in order to be cost effective.

Without deadlines there is no urgency.

How?

‘How’ denotes the ‘process’ you will use to execute your strategy.

This includes coming up with certain set of tasks.

When these tasks are complete, the strategy is considered to be executed.

Thus a strategy can be made up of one or several tasks.

Note: Without setting up goals and strategies beforehand, you will have hard time coming up with KPIs.

Why Core business objectives and corresponding business KPIs should be shared across your organization?

The ‘core business objectives’ and their corresponding business KPIs must be shared across your organization so that everyone is aware of what their company is trying to achieve.

This will help your employees and departments in setting up goals and KPIs which align with your business KPIs.

Do not mess up at this stage (as many businesses do).

In many companies employees/managers have hard time understanding how they are adding ‘value’ to the business bottomline and whether what they are currently doing, is really worth the time and investment.

And this happen because organization core business objectives and business KPIs are not shared across the organization.

Everyone in the company must be pushing towards the same organization goals. This is the only way to ensure maximum productivity and profitability.

And this can happen only when the core business objectives and business KPIs are shared across the organization.

Why you should share external goals and corresponding external KPIs with your team / department?

The external goals and their corresponding external KPIs must be shared across your team / department so that everyone is aware of what their team / department is trying to achieve.

This will help the individuals within your team / department in setting up goals and KPIs which align with external KPIs.

Everyone in the team / department must be pushing towards the same team / department goals.

This is the only way to ensure maximum productivity and profitability.

And this can happen only when the external goals and their corresponding KPIs are shared across the team / department.

Alignment between External and Internal goals is the key

Each employee/team/department need to have both external and internal goals and there needs to be an alignment between their goals.

Only then they will be in a position to achieve the core business objectives within the area of their responsibility and expertise and that too in the most efficient manner.

Let us look at the internal and external goals of a SEO guy.

External goalIncrease customers acquisition and decrease customers acquisition cost through ‘Search Engine Optimization.

Internal goal Improve the quality of outreach emails

Now once the SEO improved the quality of his outreach emails, he can earn more highly quality backlinks for his website.

Which in turn can increase the organic search traffic of his website and which in turn can increase customers acquisition and decrease customers acquisition cost through ‘Search Engine Optimization.

Thus there is a clear alignment between the SEO’s external and internal goals.

Our SEO guy knows exactly how his day to day work activities impact the business bottomline.

Unfortunately this is not the case with many companies where employees/managers have hard time understanding how they are adding ‘value’ to the business bottomline and whether what they are currently doing, is really worth the time and investment.

By aligning/re-aligning your external and internal goals on a daily/weekly basis, you and your team can stay focused and productive and achieve the organizational goals (core business objectives) in the most effective manner.

But all of this can happen only when you share: Core business objectives, Business KPIs, External goals and External KPIs across your organization.

So this type of sharing and openness is very important.

Examples of Good KPIs

#1 Gross Profit

It is the profit after production and manufacturing cost.

Gross Profit = Sales – Direct Cost.

Direct cost can be something like cost of manufacturing a product

#2 Gross Profit Margin

It is used to determine the effectiveness of your business in keeping production cost in control.

Gross Profit Margin = (Gross Profit/ Sales) * 100

Higher the gross profit margin, more the money is left over for operating expenses and net profit.

#3 Operating Profit

It is the profit before interest and taxes.

Operating Profit = Sales – Operating Cost.

Operating cost is the ongoing cost of running a business, product or system.

It can include both direct and indirect costs.

#4 Operating Profit Margin

It is used to determine the effectiveness of your business in keeping operating cost in control.

Operating Profit Margin = (Operating Profit/ Sales) * 100

Higher the operating profit margin, more the money is left over for net profit.

#5 Net Profit

Also known as net income, net earnings, bottomline.

It is the profit after interest and taxes

Net Profit = Sales – Total cost (this includes any direct and indirect cost + interest + taxes)

#6 Net Profit Margin

Also known as profit margin, net margin, net profit ratio.

It is used to determine the effectiveness of your business in converting sales into profit.

Net Profit Margin = (Net Profit/ Sales) * 100

Low profit margin indicates higher risk, that a decline in sales will erase the profit and result in net loss.

#7 Sales Growth Rate

Also known as revenue growth rate.

It is the measure of the percentage increase in sales between two time periods.

Revenue Growth Rate = (Current month’s Sales – Last month’s Sales) / (Last month’s Sales) * 100

#8 Total Economic Value

It is the total value added by your product/service/campaigns to the business bottomline.

Total Economic Value = Total Sales + Total value of the assisting conversions + Total value of the last click conversions

The ‘total economic value’ also take into account the role played by micro conversions and conversions which assisted and completed the sales.

#9 Return on Investment (ROI)

It is used to evaluate the efficiency of your investment or to compare the efficiency of different investments.

ROI= (Gain from investment – cost of investment)/cost of investment

#10 Return on Ad Spend (ROAS)

It is used to evaluate the efficiency of investment in an ad campaign.

ROAS = (Sales from investment – cost of investment)/cost of investment

ROAS is different from ROI in the sense that it takes only ad cost into account.

Whereas ROI takes total cost into account.

#11 Net Promoter Score

It tells how likely it is that your customers will recommend your business to a friend or colleague.

More information about Net Promoter Score.

Net promoter score = % of promoters – % of detractors

#12 Customer Lifetime Value

It is the projected revenue (repeat business) a customer will generate during his lifetime.

Different types of customers have different lifetime value (LTV).

One of the best ways to boost LTV is by improving customer satisfaction.

(Average order value) X (Number of Repeat Transactions) X (Average customer lifespan in months/years)

Average customer lifespan means how long he/she remains your customer.

#13 Customer Retention Rate

It is used to determine how good your company is in retaining customers.

Customer Retention Rate = [1- (Customers lost in a given time period/total number of customers acquired in the same time period)] * 100

#14 Customer Profitability Score

This score is used to separate profitable customers from unprofitable customers.

Customer profitability score = Revenue earned through a customer – Total cost associated with customer’ acquisition, management, service and retention

#15 Cost Per Lead

It is the average cost of generating a lead.

Cost per lead = total cost/total leads

#16 Cost Per Acquisition

It is the average cost of acquiring a customer or generating a conversion.

Cost Per Acquisition = Total Cost/ Total acquisitions

#17 Revenue Per Acquisition

It is the average revenue earned through an acquisition.

Revenue Per Acquisition = Total Sales / Total acquisitions

#18 Per Visit Value

It is the average value of a visit to your website.

Per Visit Value = Total Sales / Total Visits

#19 Goal Conversion Rate

It is the percentage of visits which results in goal conversions.

Goal Conversion Rate = (Total Goal conversions / total visits) *100

#20 Ecommerce Conversion Rate

It is the percentage of visits which results in ecommerce transactions.

Ecommerce Conversion Rate = (Total E-commerce transactions/ total visits) *100

#21 Average Order Value

It is the average value of an ecommerce transaction.

Through this metric you can measure how effective your upselling and cross selling efforts are and whether you are helping people in finding the product they are looking for.

Average order value = Total Revenue/Total ecommerce transactions

#22 Task Completion Rate

It is the percentage of people who came to your website and answered ‘yes’ to this survey question: “Were you able to complete the task for which you came to the website?

Task completion rate = (number of people said ‘yes’ to the survey question/ Total number of survey responses) *100

#23 EPS (earnings per share)

EPS stands for earnings per share. It is the indicator of a company’s profitability. Higher the EPS, more profitable the company is to investors.

Since EPS measures the company’s profitability, a negative EPS means the company is not profitable for investors.

Earnings per share is quite meaningless if analyzed on its own. Although the higher the number the better for shareholders themselves.

EPS is most useful as a comparison metric.

EPS is generally considered to be the single most important variable in determining a share’s price.

Formula to calculate EPS:

Net Earnings / average number of Outstanding Shares

For example,

Company A had earnings of $100 million and 10 million shares outstanding, which equals an EPS of 10 ($100 Million / 10 Million = 10).

Company B had earnings of $100 million and 50 million shares outstanding, which equals an EPS of 2 ($100 Million / 50 Million = 2).

So, Company ‘A’ seems to be more profitable to investors.

Types of EPS

#1 Trailing EPS – previous year’s EPS and the only actual EPS. It is often compared with the current EPS

#2 Current EPS – is the current year’s EPS.

#3 Forward EPS – is a forecast of what the EPS might be in the future.

Note: Most recorded and quoted EPS values are trailing.

#24 Price to Earnings Ratio (P/E)

The Price to Earnings Ratio gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings.

P/E metric is quite meaningless if analyzed on its own. Although the higher the number the better for shareholders themselves.

P/E is most useful as a comparison metric.

Formula to calculate P/E – Current Stock Price/EPS

For example, a company with a share price of $40 and an EPS of $8 would have a P/E of 5 ($40 / 8 = 5).

Note: Companies that are losing money do not have a P/E ratio.

 

There is virtually no limit to the number of good KPIs you can find and use.

It all depends upon the nature of the business and the industry you work in and your goals.

For example if you work in an industry where majority/all of the conversions happen offline via phone calls then you can use ‘Phone Calls’ as your KPI.

Related Articles

 

Do you know the difference between Digital Analytics and Google Analytics?


99.99% of course creators themselves don’t know the difference between Digital analytics, Google Analytics (GA) and Google Tag Manager (GTM).

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They just copy each other. Monkey see, monkey do.

But Digital analytics is not about GA, GTM.

It is about analyzing and interpreting data, setting up goals, strategies and KPIs.

It’s about creating strategic roadmap for your business.


Digital Analytics is the core skill. Google Analytics is just a tool used to implement ‘Digital Analytics’.

You can also implement ‘Digital analytics’ via other tools like ‘adobe analytics’, ‘kissmetrics’ etc.

Using Google Analytics without the good understanding of ‘Digital analytics’ is like driving around in a car, in a big city without understanding the traffic rules and road signs.

You are either likely to end up somewhere other than your destination or you get involved in an accident.


You learn data analysis and interpretation from Digital analytics and not from Google Analytics.

The direction in which your analysis will move, will determine the direction in which your marketing campaigns and eventually your company will move to get the highest possible return on investment.

You get that direction from ‘Digital analytics’ and not from ‘Google Analytics’.


You learn to set up KPIs, strategies and measurement framework for your business from ‘Digital analytics’ and not from ‘Google Analytics’.

So if you are taking a course only on 'Google Analytics’, you are learning to use one of the tools of ‘Digital analytics’. You are not learning the ‘Digital analytics’ itself.

Since any person can learn to use Google Analytics in couple of weeks, you do no get any competitive advantage in the marketplace just by knowing GA.

You need to know lot more than GA in order to work in digital analytics and marketing field.


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My best selling books on Digital Analytics and Conversion Optimization

Maths and Stats for Web Analytics and Conversion Optimization
This expert guide will teach you how to leverage the knowledge of maths and statistics in order to accurately interpret data and take actions, which can quickly improve the bottom-line of your online business.

Master the Essentials of Email Marketing Analytics
This book focuses solely on the ‘analytics’ that power your email marketing optimization program and will help you dramatically reduce your cost per acquisition and increase marketing ROI by tracking the performance of the various KPIs and metrics used for email marketing.

Attribution Modelling in Google Analytics and Beyond
Attribution modelling is the process of determining the most effective marketing channels for investment. This book has been written to help you implement attribution modelling. It will teach you how to leverage the knowledge of attribution modelling in order to allocate marketing budget and understand buying behaviour.

Attribution Modelling in Google Ads and Facebook
This book has been written to help you implement attribution modelling in Google Ads (Google AdWords) and Facebook. It will teach you, how to leverage the knowledge of attribution modelling in order to understand the customer purchasing journey and determine the most effective marketing channels for investment.

Himanshu Sharma

Digital Marketing Consultant and Founder of Optimizesmart.com

Himanshu helps business owners and marketing professionals in generating more sales and ROI by fixing their website tracking issues, helping them understand their true customers purchase journey and helping them determine the most effective marketing channels for investment.

He has over 12 years experience in digital analytics and digital marketing.

He was nominated for the Digital Analytics Association's Awards for Excellence.

The Digital Analytics Association is a world renowned not-for-profit association which helps organisations overcome the challenges of data acquisition and application.

He is the author of four best-selling books on analytics and conversion optimization:

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