What are KPIs and why should you measure them in your company?

4 min of reading

Index:

1º What is it and how?

2º Types of KPI

3º Outstanding metrics

4º How to choose the KPIs

5th Conclusions

Digital marketing metrics, and even business management, are key when making decisions. KPIs (Key Performance Indicators) are elements that are fundamental to measure and evaluate the success of the activities that are generated in a company, in relation to the strategic objectives of an organization. KPIs are metrics that provide companies with a concise and quantifiable view of how they are performing in various areas. A KPI serves as a tool for making data-driven decisions. 

Let's start with the basics, what is a KPI? 

A KPI is a metric used to evaluate the success of an organization, team or process in achieving specific objectives. KPIs are the compasses that guide companies to meet their objectives, helping to identify areas for adjustment or improvement. 

To understand the concept, it is important to note that not all metrics are KPIs. A metric is simply a number that measures a specific activity, such as website traffic, or monthly sales. A KPI is a strategically selected key metric that directly relates to business objectives. In other words, a KPI is a metric that indicates whether you are on the right path to success or not. 

What does an effective KPI look like? 

For a KPI to be useful, it must meet a number of characteristics. It is not just a matter of choosing any random metric, it must be chosen in a specific, relevant and actionable way. 

The characteristics that a KPI should have are: 

1. Specific: It must be defined, focused on a specific area and aligned with the company's objectives. 

Measurable: It must be objectively quantifiable. If it is not measurable, it cannot be managed at all. 

3. Achievable: It must be realistic, considering the company's resources and context. Relevant: It must be aligned with the organization's objectives.

5. Temporal: It should be associated with a clear time frame to evaluate progress in a specific period. 

Types of KPI 

KPIs can be classified according to the level of the organization at which they are implemented: 

Strategic KPIs: These focus on the overall performance of the organization and its alignment with long-term objectives. Examples include revenue growth, market share and profitability. 

2. Tactical KPIs: These focus on the performance of specific departments within the marketing organization, such as sales, finance or human resources. Examples may include ROI, ROAS, or CPA. 

3. Operational KPIs: These measure the daily activities and internal processes of the organization. Examples include customer service response time, production time and manufacturing error rate. 

Important metrics according to the company's objectives 

Now that you understand what a KPI is and what its characteristics are, you should understand that the important KPIs for a company depend on its specific objectives. Now let's go into detail what are the most important metrics to measure, depending on the specific area or even common objectives in different business areas. 

Digital Marketing Objectives 

Digital marketing is one of the fields where KPIs play a vital role, because they allow measuring the effectiveness of marketing campaigns and strategies, in order to optimize ROI. The main metrics in this field include: 

CAC (Customer Acquisition Cost) : This KPI measures the average cost incurred by the company to acquire a new customer through marketing campaigns. This KPI is fundamental to measure the efficiency of campaigns and marketing spending.

ROAS (Return on Advertising Investment): Indicates when the company generates revenue for each euro spent on advertising. It is a key metric to evaluate the profitability of marketing campaigns. 

Conversion Rate: Measures the percentage of visitors who perform a desired action on a website (such as a purchase, subscription or registration). It is one of the most important KPIs to evaluate the effectiveness of advertising campaigns. 

Web Traffic: This is a basic metric, being an essential indicator of the interest generated in marketing campaigns. Even so, it is important to measure it with other metrics, such as conversion rate, to understand the final impact. 

Bounce rate: This KPI measures the percentage of visitors who abandon a website after viewing only one page. A high bounce rate can indicate problems with user experience or content relevance. 

2. Sales targets 

The sales department aims to increase the company's revenue. Sales-related KPIs focus on measuring the effectiveness of the sales team and the conversion of prospects into customers. Key metrics include: 

Total revenue: this is the most basic and essential metric, measuring the revenue generated in a given period of time. It is an indicator of the success of sales activities. 

Sales conversion rate: This KPI measures the percentage of prospects that convert into actual customers. It is a fundamental metric to evaluate the effectiveness of the sales process. 

Customer Lifetime Value (CLV): Measures the total value that a customer will bring to the company during the time he/she remains a customer. It is essential for assessing the long-term profitability of sales and marketing strategies. 

Customer retention rate: Indicates what percentage of customers continue to do business with the company over a given period of time. A high retention rate is a good indicator of customer satisfaction and loyalty. 

Average Order Value (AOV): This metric measures the average value of each sales transaction. It is important to identify opportunities to increase the average ticket through upselling or cross-selling strategies.

3. Customer Service Objectives 

Effective customer service is crucial to keeping customers satisfied, fostering long-term loyalty. KPIs in this area help measure the efficiency and quality of customer support. Key metrics are: 

Problem resolution time: This KPI measures the average time it takes to resolve a problem or customer inquiry. A fast resolution time is indicative of efficient service. 

Customer Satisfaction Rate (CSAT) : Measures the level of customer satisfaction after interacting with a customer's service. A quick resolution time is indicative of efficient service. 

Net Promoter Score (NPS): Measures the likelihood that a customer will recommend the company to others. It is a key indicator of customer loyalty and willingness to promote the brand. 

First Contact Resolution (FCR): This metric measures the percentage of queries or problems that are resolved at the first contact with the customer. It is a good metric to evaluate the efficiency of the support team. 

Churn Rate: Measures the percentage of customers who stop doing business with the company in a given period of time. It is essential to identify problems in customer satisfaction and loyalty. 

4. Financial Objectives 

Financial KPIs are essential in order to keep the company in good financial health, ensuring its long-term sustainability. Key financial metrics include: 

Gross Profit Margin: This KPI measures profitability before deducting operating expenses. It is very important to evaluate efficiency in production or service delivery. 

Return on Investment (ROI): Measures the financial return obtained from a specific investment. It is a critical metric for evaluating the profitability of projects and campaigns.

Liquidity: Measures the company's ability to meet its short-term obligations. It is a metric that ensures that the company can operate smoothly, avoiding cash flow problems. 

Debt ratio: This KPI measures the ratio of debt to equity. It is important for assessing financial risk and the company's ability to pay its debts. 

Return on Assets (ROA): Measures the company's ability to generate profits from its total assets. It is a key metric for evaluating operating efficiency. 

How to choose the right KPIs for your business 

Choosing the right KPIs for your business is not a simple process, because every company is unique and has different objectives, or belongs to a different industry. Some key steps to help choose relevant KPIs for your organization are: 

1. Definition of objectives: This is the most important part of selecting the right KPIs. Having clear short, medium, and long term objectives can help you choose the KPIs that will help you meet your objectives. They can be increasing sales, improving customer satisfaction, optimizing marketing spend, etc. 

Identify the key success factors: Each objective has different factors that determine success, or lack thereof. Identify what those key factors are and select the KPIs that effectively measure them. 

3. Align your KPIs with objectives: You must make sure that the KPIs selected are directly related to the company's strategic objectives. KPIs should provide actionable information to help you make informed decisions. 

4. Establish benchmarks: Compare your KPIs with industry standards or your company's historical performance to evaluate if you are on the right track. 

5. Monitor and adjust: KPIs are not static, you should periodically review and adjust them to ensure they remain relevant and effective as your business objectives or circumstances change. 

Conclusion

KPIs are powerful tools that enable companies to measure their performance and align with their strategic objectives. By selecting the right KPIs and monitoring them effectively, organizations can make data-driven decisions , optimize their operations and improve their long-term profitability. Remember that every business is unique, and the key to choosing the right KPIs is to understand your objectives, and select metrics that provide you with a clear view of your progress toward meeting your goals.

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