KPI management: why and how to use KPIs for performance management
When we talk about KPI management, one of the main points is how to choose effective strategies. After all, it is necessary to know precisely whether the approach used is bringing results or if a new path needs to be taken. Thus, for this plan to be carried out effectively, it’s necessary to make a tangible analysis of what is being managed.
That said, key performance indicators, also known as KPIs, have a strategic objective, indicating whether the goals previously aligned are being achieved or not. Do you know what is KPI and how it impacts performance management?
What is KPI management: understand the performance indicators
Indicator management is a model that was born in the mid-90s. In this context, companies began to worry more about service quality and internal productivity. Thus, to get a better view of this strategy, the concept of performance indicators emerged. In that way, KPI stands for Key Performance Indicators.
KPI can be defined as how you prove the performance and effectiveness of your strategies, based on real and tangible data. Because of this, you need to measure your results, and you need to collect metrics obtained as a result of your digital presence.
Reasons to adopt the KPI Management model
As William Edwards Deming said; “If you can’t measure it, you can’t manage it.” Therefore, you must have methods to measure the successes (or failures) of the strategies you are using. Managing projects and evaluating results is not an easy task. When it’s time to make decisions, the process gets even more complicated. That’s why KPIs are a great method to optimize your performance management.
By establishing indicators, it is possible to assess the performance of processes and, thereby, make them more efficient. Thus, based on tangible data and facts, the strategy becomes more assertive. That way, you can manage your company effectively and obtain better results.
Plus, the reports will be less complex and more objective, saving you considerable time when making decisions for your business. This will give you insights to manage better, as you can quickly identify your team’s strengths and weaknesses.
In the digital age, the focus is on the user experience and the results it generates for your business. It is therefore essential to keep up with what is happening, and most importantly; always innovate. That said, KPI management can even assist in the company’s digital transformation process. Thus, it will be possible to make better management, with greater assertiveness, accuracy and save capital and time.
Essentials and effective KPIs for management
As in most cases, there are some basic and mandatory steps for you to begin your journey to switch for indicator management. So here, we will introduce you to the main KPIs you should start using and teach you how to start applying them to increase the effectiveness of your strategies.
This is the main and most known indicator for a company. It represents the amount collected or receives provided from products and services offered.
A SaaS company, for example, has a higher volume of recurring revenue, offering more predictability and safer decisions. Thus, it is not enough just to know the company’s revenue; you need to make the forecast estimate to know if the revenue is in line with the company’s working capital, for example.
ROI is a popularly known KPI. The name stands for Return On Investment and thus represents the relationship between the amount invested in a particular strategy and the financial return from it.
With this, you can know exactly how much you are earning or losing for every $ 1 you are investing in. It is extremely important to always be aware of this metric. An in-depth analysis of ROI can save you a lot of time and especially capital by checking if actions are being profitable and/or effective.
CAC (Customer Acquisition Cost)
This is one of the most important indicators when it comes to efficient performance management within your company. Customer acquisition cost should be measured and managed strategically with other metrics such as ROI, Lifetime Value, etc. With it, you can measure, for example, if your growth and ROI tactics are working as expected.
Also, there are some recommendations for this KPI. The CAC must be recovered within 12 months. Otherwise, your business will need a lot of capital to grow.
How much is a customer worth? So, this is what this indicator measures. The acronym stands for Lifetime Value and it is the net profit a customer provides during their time within the company.
Thus, LTV helps you define important points for your company. For example, the maximum marketing budget expected revenue and optimizing customer acquisition cost. This makes Lifetime Value an indispensable tool for clear and effective performance management.
KPIs Management for sales
Still, within the essential and mandatory KPIs for good and strategic management, we will list here some examples that are most important to the company’s sales processes.
The churn rate is your company’s cancellation/abandonment rate over a given period. Therefore, this indicator is directly related to Lifetime Value, for example. The higher the churn rate, the worse your LTV will be. Thus, it is easy to deduce that customers who stay longer in the base of clients offer greater benefits to your business.
The conversion rate is the percentage of people who visit the site and provide some contact information. Also, it can be defined as the rate of leads that turns into customers. So it all depends on which approach you need to take at that particular time.
For example, if your site is receiving a lot of visits but your number of leads is not being proportional, there is something wrong with your strategy and maybe it’s time to take a new path.
If you participate in a company’s administrative process, you certainly know that there is a customer growth goal for a certain period. So you should know well how many customers are currently in your base and how much it is growing over time.
For example, suppose your quarterly growth target is 5%. However, this month you grew only 0.5%. Consequently, in the coming month, you will have to compensate for this flaw with new strategies that contribute to the growth of your customer base and, consequently, to the financial health of your business.
All of the indicators we listed above will help you grow your business as well as the performance of your team. If you’re having trouble measuring performance indicators and strategically running your business, check out STRAWs ONE; a corporate performance management software developed by Siteware!
We hope this content was helpful and that you can optimize your management with our tips. If you still have questions, leave it to us in the comments! It will be a pleasure to answer you.
Keep browsing and see: How to perform a KPI presentation for the executive board objectively!