Key Performance Indicators (KPI’s)

Author

Kevin Urrutia

What is a KPI?

The KPI (key performance indicator) gives you a way to measure performance for any business activity. Many are focused on marketing and sales.

As illustrated by our flying-through-fog analogy, the right website metrics are critical for online success because there’s no visible way to understand customers or troubleshoot operations without first having a way to measure results.

Tracking progress & measuring success

If goals are broad and multi-part, it may be hard to measure overall success. KPIs are the best-practice standard for evidence-based management.

Well-written KPIs map the steps between goals and results.

They give you the power to clearly define success and set a black-and-white threshold for measuring it from the beginning of any project.

The right key metrics let you spot and resolve problems earlier. You’ll know quickly when something works, or doesn’t.

For example, let’s say your goal is something vague like “build a winning team.”

You try to fulfill this goal without success. After several fruitless months you’ll probably lower your expectations because it’s human nature to do so.

Eventually you end up hiring only half the number of talented workers that you originally hoped to find.

That’s because it’s too easy to move the goalposts.

In contrast, the feedback and improvement cycle is much faster when there’s a clear way to measure successful results.

Focusing & motivating a team

Key performance indicators are also a good way to focus and motivate the entire company on a specific goal.

This is especially important for organizations with multiple members who work remotely.

Bonuses and other rewards can be tied to achieving KPI milestones.

When the company’s strategy changes, simply change the goals and related KPIs to keep everyone moving in the same direction, even the remote workers.

Create efficient feedback loops

Key performance indicators have the power to create quick, efficient feedback loops. This greatly speeds up your business development cycle.

Workers see direct results from achieving their short-term goals, and they’re eager to continue in the next round of improvement.

Workers’ low-level KPI results are combined to meet the company’s high-level objectives.

The difference between goals, metrics & KPIs

It’s important to understand that a KPI isn’t the final goal that you hope to achieve. Instead, it’s a key metric or milestone for measuring progress toward reaching a particular goal.

Any type of data could be used as the basis for an ordinary metric, but the KPI defines a successful milestone for monetizing your business.

For example, an ordinary metric might be a statistic like the Number of Site Visitors.

On the other hand, a better key performance indicator would be Number of New Customers, since that metric reflects a critical operating milestone for sales revenue.

Number of Site Visitors doesn’t directly put money into your pocket, while Number of New Customers does.

It’s also important to note that a KPI can be used to measure product performance, customer satisfaction or operational effectiveness.

Still, most KPIs used in eCommerce are focused on sales and marketing metrics because they offer the most direct ways to increase revenue and profit.

Reach high-level goals by using low-level KPIs

Key performance indicators help turn high-level goals into actionable steps.

This is critically important in eCommerce where it’s otherwise difficult to translate fuzzy goals into concrete weekly tasks for individual workers.

Goals and key metrics cascade from high-level down to low-level.

A high-level KPI is used to measure overall performance at an organization, while a low-level KPI is focused on outcomes of tasks performed by individuals and teams.

Typical teams include marketing, customer service, product development, sales and IT.

Instead of giving all workers the same overall (high-level) goal, establish separate key performance metrics for each individual on a team.

As an example, let’s say you’ve set a company-wide goal of increasing your eCommerce business revenue by 25% in 2020.

Although that’s a worthy goal because it’s quantifiable, it still doesn’t guide individual team members about which steps they must take to help achieve it.

The solution is to set low-level goals for departments, teams and individual workers. These low-level goals are tied to appropriate low-level KPIs that drive each task or process.

Low-level KPIs are established after breaking down the 25% company-wide goal into separate department or team-level tasks with short-term milestones.

This drives accountability for performance and results, from individual team members upward to senior managers.

In this example the general manager first explains the responsibilities for each department manager or team leader separately toward achieving the overall goal of 25% growth.

Next, the managers define low-level goals and establish low-level KPIs for teams.

KPIs help your eCommerce business become more successful because they let you quantify and qualify the work results from each team member.

How KPIs can help your eCommerce business

If you continue to tweak the KPIs as your business operations evolve, you’ll quickly increase sales, improve productivity and speed up the feedback and development cycles.

Continuing with the same example, let’s say that you believe some part of your target 25% revenue growth can be achieved through the customer service team, say a 5% portion of it.

Let’s say that the main activity of the customer service team is to resolve support tickets regarding customer orders in a timely way.

We’ll also assume the customer service manager believes that if the ticket-resolution turnaround time can be cut from 12 down to 4 hours, the customer churn rate will drop from 3% down to 1%, and the revenue will rise by 5%.

That’s because experience shows customers are less likely to cancel eCommerce orders when their support inquiries are answered quickly.

That target 5% revenue increase is the customer-service team’s portion of accountability for the overall goal.

The team-level goal is to reduce turnaround time from 12 down to only 4 hours. The team’s KPI is based on their ticket-resolution time.

Faster turnaround time is expected to reduce customer churn.

For the sake of simplicity, in this example we’re assuming that reducing customer churn is the only way for this team to influence their company’s overall revenue.

So, the team manager develops an action plan that’s narrowly designed to reduce customer churn.

Success is first measured by seeing whether the team achieves its goal of reducing support-ticker turnaround time to 3 hours.

If turnaround time drops and the company’s revenue rises at least 5% by the end of this quarter, then the customer service team can claim some credit for success in reaching the company’s overall goal.

Key performance indicators for each role

The only way to directly measure individual contributions to team results in meeting goals is to establish separate KPIs for each role on the team.

If there’s no way to hold someone directly accountable for completing a task, there’s no reason to assign it.

Here’s a continuation of the same customer service example: Let’s say you’re building up your customer service and support team.

We’ll assume your company is generating an average of 50 support tickets per week.

Right now you have 3 part-time customer service representatives and you’re adding 2 more, for a total of 5 workers on this team.

So in addition to giving each worker a KPI with support resolution time of four hours, you could also assign another KPI for resolving at least 10 support tickets per week.

These individual KPIs measure results which are combined to meet team goals and ultimately the company’s overall goals.

Be SMART when defining your KPIs

Now that we’ve talked about what key metrics are and how they can help your online business, it’s time to look at how to choose and apply them correctly.

The first step is to define your KPIs using the well-known “SMART” acronym for rational goal-setting criteria.

SMART stands for the following characteristics –

Specific…. Is the goal simple and so specific that everyone in the company or team knows exactly what they’re working to accomplish, as well as a specific date by which to achieve successful results?

Measurable…. Is the goal measurable? Can it be quantified with a concrete number?

Accountable…. Is there at least one person or team that can be held responsible for achieving each goal?

Realistic…. Is the goal realistic, and can the related KPI be achieved realistically?

Time-bound…. A good goal is time-bound. That means it can be accomplished within a measurable period of time, hopefully short instead of long.

The protocol for setting goals and KPIs is as follows:

Set company goals > Set goals for departments, if any > Set goals for teams > Establish KPIs for teams > Set goals for individuals > Establish KPIs for individuals

n our example, the high-level goal is to increase revenue by 25% this year. Your customer service and sales team managers each create their own mid-level goals to help meet that high-level goal.

In this example, the customer service team is being held accountable for 5% of the overall revenue.

Now let’s focus on the sales team. Assume your cocky sales team thinks it can account for the remaining 20% in target revenue increase.

The sales manager thinks that by increasing their inbound leads 50%, the team can sell 20% more.

Together the customer service and sales teams have goals and related KPIs that are expected to generate 25% more revenue this year.

In order to achieve the sales team’s overall goal of “increasing inbound leads 50%,” the sales manager decides to assign the following individual KPIs:

Publish 2 new SEO articles on the company’s blog each week
Send 100 email messages to old inactive customers each week
Offer 1 special promotion for different merchandise each week

You’ll note that these tasks all meet the SMART criteria – They’re specific, measurable and quantifiable, realistic and time-bound.

They’re also assignable and accountable to a single member of the team.

Anytime the team discovers that a given KPI is unrealistic, it can be updated.

For example if the marketing team manager learns that the company’s staff writer can only write one article each week, then the KPI could be changed to reflect “1 new article per week” instead of 2.

Or, the manager could add a writer in order to fulfill the existing KPI.

Measuring success with KPIs

If you define your KPIs by using SMART metrics as outlined in this article, there won’t be any problem in verifying results later.

Looking back at the example of 3 marketing KPIs, let’s check to see if they meet the SMART criteria:

Publish 2 new SEO articles… The KPI passes the SMART test because this task has a measurable number of articles and a time limit (each week), plus it seems realistic and doable. Also, the task can be assigned to one person who’s ultimately accountable for making sure it’s completed.

Send 100 email messages….. This task also passes the best because the target numbers are clear, and they seem doable, and there’s a time limit of one week.

Offer 1 special promotion…. Again meets all the SMART criteria for a good KPI.

How to use KPIs for troubleshooting eCommerce problems

The actual tools that you use to troubleshoot problems and measure results will vary depending on the systems that teams and workers use for their daily work.

For example, the marketing team probably uses Google Analytics for their KPIs. Meanwhile, the sales team relies on CRM tools to assess KPI results, and the customer support team uses help-desk reporting software for theirs.

As teams achieve or fail to meet goals, you’ll be able to assess whether each KPI and its related tasks are helping or hurting efforts to reach high-level goals.

We’ll look at a few examples of how to use KPIs to solve marketing and sales issues.

KanineKuisine

Let’s say that a B2C company called KanineKuisine has an online business selling dog treats and exotic foods for canines.

The general manager mistakenly sets a flawed high-level goal to “Be more important to dog owners everywhere.”

At first, he simply wants to measure whether potential customers are becoming more aware of the KanineKuisine brand in the marketplace.

Given a fuzzy high-level goal, the marketing team focuses on Number of Website Sessions as the metric for its team-level KPI.

This seems like a logical choice, because a higher Number of Website Sessions “should” be an indicator that consumers are paying more attention to your company.

However, the entire goal-and-KPI cycle is flawed because the high-level goal fails to meet SMART standards.

“Be more important….” isn’t quantifiable, so it can’t be measured or verified. This goal also lacks a time limit, so there’s no way to hold anyone accountable for its completion.

In this example let’s assume that after a few months of working to achieve the company’s unclear goal, sales haven’t improved.

KPIs based on numerical metrics instead of generalities

Let’s say that web traffic analysis through Finteza or other software shows the number of visitors to the website is slowly increasing, but sales have remained stagnant.

Almost nobody visits multiple web pages. Worse, visitors seem unaware that KanineKuisine posts a new dog video on YouTube each week.

Team members fall short of meeting their revenue goals, even while the Number of Website Sessions metric rises.

Senior executives at KanineKuisine decide to change their company-wide goals and KPIs to reflect SMART principles.

This time the company and its teams use sharply-focused goals and KPIs with numerical metrics. The new company-wide goal is to sell 25% more dog treats this year.

In contrast to the company’s previous “just do better” goal, this new objective meets the SMART standard for success because it’s concrete, measurable, and can be portioned into tasks for individual performance accountability.

The company also focuses on using milestone-type metrics that focus on monetization.

For example, during previous marketing campaigns the team has already learned that many visitors who click links to watch KanineKuisine’s humorous “Hungry Dog” videos on YouTube will eventually place online orders for dog treats.

So in order to define a true milestone of progress toward more sales, the marketing manager establishes new metrics to focus the team on measuring and improving visitors’ engagement: Minutes of Video Watched, and Bounce Rate.

The marketing team’s new SMART goal is to help the company achieve its target 25% growth by selling 20% more dog treats.

The team’s KPI is based on increasing the metric (total Minutes of Video watched weekly) from 500 minutes up to 700 minutes in hopes of selling more dog treats.

The team uses a similar method to create a KPI based on the Bounce Rate metric.

The new marketing KPIs achieve better results because they meet all SMART criteria for goal-setting and performance.

The 7 best KPI metrics for eCommerce

Site Traffic

This is the baseline metric for all websites. It’s especially important for eCommerce KPIs because your store needs a steady flow of repeat customers as well as at least a trickle of new customers to grow the business.

The standard Site Traffic metric reflects the number of daily, weekly and monthly visitors to your site. It’s also important to set KPIs according to New Visitors and Returning Visitors.

Average Time on Site

By tracking how much time visitors spend on the site, you’ll see whether they’re engaged by your content.

If visitors leave quickly, it’s most often a sign of –

Poor-quality written content doesn’t hold reader attention
Visitors won’t wait for slow-loading pages
Lack of a landing page or other clear marketing funnel
Not optimized for mobile devices

Page Views per Visit

Similar to the AToS metric, Page Views per Visit is another key metric often used for eCommerce KPIs.

It’s simply the average number of webpages viewed during each visit to your site. It shows engagement and highlights how informative the content may be.

Exit Pages

You’ll find the visitors’ “pain points” on your Exit Pages. This is a key metric showing loss of engagement.

It shows exactly where you lose prospective customers.

Instead of simply helping you sell more, this metric is especially important for building good eCommerce KPIs because it can guide you toward changes in overall business strategies and policies.

For example, let’s say analytics show that the worst Exit Pages are your webpages with shipping prices and return policy.

You’ll want to consider changing your policies or rewriting content that triggers visitors to leave the site.

By defining KPIs based on identifying and modifying your worst-performing pages, you’ll eliminate loser pages and retain visitors longer, for more sales.

Conversion Rate

This is the total number of sold orders (whether single or multiple items) divided by the number of visitors to your site.

Simply put, it’s the percentage of your visitors who buy something.

Many factors can affect this critical performance metric, and it takes awhile to develop the right KPIs to drive improvement.

On a practical level, the Conversion Rate metric is most helpful in alerting you about technical problems that affect traffic flow to and through your website, rather than directly improving sales.

Bounce Rate

This basic metric is calculated as the percentage of site visitors who leave immediately after they arrive.

It’s especially important for eCommerce because Google algorithms consider this metric when ranking your site for search-page results.

When the Bounce Rate is high, it might be a sign of incorrect and SEO keywords. Or, your site may be too hard to load and use.

Likewise, if your site isn’t optimized for mobile devices, it will surely have a high Bounce Rate.

Cart Abandonment Rate

This key metric is calculated by dividing the number of shoppers who abandoned your checkout process by the total number of shoppers who started the process. This includes everyone who put items in the cart, whether they completed the purchase or not.

In eCommerce cart abandonment rates can be higher than 70% for some businesses, especially those which rely on aggressive marketing to bring visitors into the store.

The main reasons for cart abandonment are –