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5 Pitfalls to Avoid When Establishing KPIs
KPIs are there to bring clarity, not confusion
Have you ever seen Key Performance Indicators (KPIs) get set and then fade away? This may actually be fine!
You set KPIs to measure your progress and maintain focus on your goals. As things get done and goals change, you shouldn't feel anxious about fading KPIs associated with objectives that have been accomplished.
But KPIs can also turn into energy-drainers that yield zero results. Here's a rundown of common pitfalls to avoid.
Too many KPIs
Remember, they're called "key" for a reason.
Having too many KPIs dilutes their impact and makes it difficult to zero in on what counts.
Instead, pick a handful of essential KPIs aligned with your current objectives. Don't hesitate to let go of or replace them with more fitting KPIs as goals evolve.
Consider this: an early-stage startup can go a long way by tracking just these four KPIs:
Finance: Revenue growth
Marketing: Leads per week
Product: Free-to-paid conversion rate (or Close rate, if your business is sales-driven)
Customer service: Churn rate
Not setting clear targets
Sometimes you are measuring something for the first time and you don't even know what to expect. That's fine.
But after a while, establish a specific target or benchmark to provide a clear indication of whether you're making progress or falling behind.
Put this into action with a KPI tracker that color-codes values in red or green (check out conditional formatting rules if you're using a spreadsheet).
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Not reviewing KPIs regularly
Regular reviews and upkeep are the bedrock of any system, whether it's a personal to-do list or an entire business:
Review and regularly update KPIs within a standard cadence of company’s habits.
Default to reviewing KPIs once a month in each group or department and adjust according to circumstances. Make this a standard agenda item, accompanied by progress updates on goals.
Overlooking the human element
Numbers say a lot but can never tell the whole story. Qualitative metrics can offer valuable insights into customer happiness and team morale.
Take NPS, for example. It has its fair share of critics, but I believe its true worth lies in customers' qualitative feedback and conversations that follow from the process.
Founders should take the time to ensure that the team understands the KPIs and their importance. Engage them in the KPI-setting process and encourage their feedback to foster a sense of ownership and accountability.
Keep in mind, this takes time. Founders may need to reiterate the point of KPIs at staff meetings for months until everyone's on the same page about the company's performance and goals.
How to spot irrelevant KPIs:
Your team can't influence them.
A major swing in either direction doesn't make you jump out of your chair.
It's an absolute number that always goes up—prefer a ratio or percentage instead.
There's no initiative in the company to affect them.
How to handle less critical metrics? Track them, just don't call them or treat them as KPIs. For instance, conversion rate of a new landing page is a metric that a marketing team will closely track and act on after launch, but is not something that the Head of Marketing will discuss at a monthly leadership meeting.
When to add a new metric? Add a metric to your KPI tracker only when you believe that you need to know that metric in order to make an informed decision.
Selecting and maintaining KPIs that are relevant, actionable, and aligned with your company's goals can be a tall order. We're tackling this challenge head-on with Operately. Stay tuned as we share more on this subject in the near future.
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