In this article, we will talk about the main mistakes that marketers make when tracking KPIs. Moreover, we will also share with you recommendations on how to define the right KPIs for your business.
Although we are all aware that key performance indicators (KPIs) play a vital role in any business, many companies are still failing at using this management concept. As a result, by tracking the wrong KPIs, companies end up losing time by analyzing the wrong numbers. While tracking the right KPIs could help them to further develop and flourish much faster.
Another common issue that can be often observed is the situation when managers are blindly setting up KPIs just for the record without really thinking about their connection to the business goals. As a result, the fact that they track KPIs does not help them to identify issues and further progress.
The importance of tracking KPIs is unquestionable. However, what is more important is defining and measuring the right KPIs that could help you bring your business to the next level.
What is a KPI and how does it differ from a simple metric?
First of all, let us define what the main difference between KPI and simple metrics is.
Although both these two terms are often used interchangeably, understanding the key difference can help a company to develop and improve its business strategy.
Simply put, KPI is a metric that indicates how successful your company is in achieving its strategic goals. In other words, tracking KPIs helps you to understand on different levels if your current business strategy is working. While simple metrics are used for tracking specific business processes.
Let us have an easy example from everyday life.
For instance, when you want to lose weight, your KPI, in this case, will be the number of kgs you lose every month, while metrics then would be the number of workouts, calories consumed, and hours spent in the gym. In this case, tracking KPIs will help you to see how successful you are at achieving your goal – losing weight.
Now let us go back to business 🙂
For example, in the case of Performance Marketing: if your main goal is to convert users to paying customers, you use a conversion rate as a KPI. While in the same example, the number of impressions and clicks can be considered as simple metrics.
Hence, KPIs are used at multiple levels to estimate how effective your company is at reaching defined targets. Therefore, tracking KPIs is especially crucial at a strategic level. While simple metrics are used to estimate how effective different processes within the strategy are. In other words, tracking simple metrics helps you to keep it under the radar. Simple metrics are not always connected to the strategic business goals.
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Selecting the right KPIs allows managers to make smart and informed business decisions about the next steps. At the same time, simple metrics help to track the progress and effectiveness of various processes.
As you can see, the questions of defining the right KPIs for your business depends a lot on your business strategy and the strategic goals you are focusing on.
Nevertheless, some crucial rules need to be considered while defining and measuring KPIs.
Let us have a look at the most common mistakes people tend to make when tracking KPIs.
Seven mistakes people make when tracking KPIs
1. Vaguely defined KPIs
As it was mentioned above, tracking KPIs is vital for business, because this process helps to estimate how successful the company is at achieving its goals.
If your KPIs are not specific enough or defined too general (e.g. increase in profit, decrease in churn rate, etc), it cannot be measured, and as a result, it loses all its value.
We often forget that to be effective, you need to formulate your KPIs as well as business goals very precisely using SMART criteria. That means that your KPI needs to be specific, measurable, achievable, realistic, and time-limited.
For example: “Increase conversion rate by 10% within the next three months” or “Increase return on ad spend (ROAS) by 40% during the next two months”.
Think about which KPIs you would consider as indicators of success.
2. Tracking too many KPIs
Another mistake is tracking “everything that moves”. Although it may sound very harmless, this common mistake may play a dirty trick with results of your business performance. By trying to succeed in many aspects at the same time you lose drastically in the performance quality. As a result, instead of being the best in most important aspects, the company is being average at all of them by having poor or average performance. As a result, tracking KPIs that are not relevant to your main goals will not add any value – quite the contrary.
To avoid this problem it is crucial to define no more than 3-5 KPIs per strategic goal.
3. The majority of KPIs are highly depending on the external factors
The recent pandemic reminded us of how unpredictable and unexpected the external environment can be. Indeed, external factors have a great influence on the conditions in which the business operates in. Since we cannot control these external factors, we cannot rely only on those KPIs that extremely depend on them. Tracking KPIs that are thoroughly dependent on external circumstances make your strategy weaker.
Hence, make sure that in your KPI-set you have KPIs that can measure your performance regardless of external factors.
4. No responsibilities defined
It is important to define a person or a team who will be responsible for achieving each KPI. This will make the process of tracking KPIs much easier.
Otherwise, by skipping this step you risk getting poor results’ quality.
Make sure you define a KPI owner, who will be responsible for achieving the defined target and tracking the KPI.
5. Focus on the process, not results
Often companies forget about the main purpose of tracking KPIs by making the focus on the process rather than the result itself.
While as it was previously mentioned KPI is the metric that shows how successful your company is at reaching the strategic goals. Therefore, it is crucial that KPIs help you to focus on the desired results.
KPIs’ mission is to keep you motivated and focus on reaching the defined strategic goals. The more specific you set this goal as well as KPI the more effective your team will be at achieving it.
By tracking KPIs that are not focused on concrete results you risk to have poor performance.
6. No link between strategic goals and KPIs
Another common mistake that people tend to make when setting up KPIs is to define KPIs that have no connection between KPIs and current strategic goals. In this case, KPI loses its value and can be considered irrelevant. As a result, you simply lose your time by tracking these KPIs.
Hence, to be effective make sure you have a strong relation between your strategic goals and KPIs. By ensuring this alignment you increase your chances of success.
7. Measuring the same KPIs as other companies
This issue is strongly related to the previous point. It may seem tempting to simply copy KPIs that the majority of companies in your industry are tracking. Especially it seems rational to copy the same KPIs as your benchmark.
However, although there are indeed certain KPIs that are crucial to track regardless of the business strategy (for example, five must-track marketing KPIs), it is always important to define those KPIs that would be tailored to your strategy. These KPIs will be your special indicators of success.
By blindly copying KPIs that other companies have without checking them with your strategy you risk to end up tracking something that is not important for you at all. Make sure you are tracking KPIs that are related to your specific case.
How to define the right KPIs for your business?
1. Ensure the relation between your KPIs and strategic goals
Before setting up your KPIs make sure they are linked to your strategy and your desired goals. This way by tracking KPIs you can ensure a clear focus on the company’s main goals.
2. Define maximum 3-5 KPIs per strategic goal
Remember that it’s better to focus on 3-5 main goals and get ahead in those areas than trying to achieve 20. Moreover, make sure that not all of your KPIs depend on external factors.
3. Make sure you focus on results
When setting up your KPIs ensure that they are focused on desired results, not the process. Ask yourself: “What KPI would indicate the success of the strategy?”. By tracking KPIs that are focused on concrete results you increase your chances of achieving strategic goals.
4. Define KPIs using SMART criteria
Make sure your KPIs are specific, measurable, achievable, realistic, and time-limited. When tracking KPIs make sure you take into account these criteria.
5. Define responsibilities
Make sure you have someone responsible for each KPI. This way you will ensure a better dedication and higher quality of results.
Today we had a look at the most common mistakes people make when setting up and tracking KPIs. We hope that it was helpful for you and now you will avoid making these mistakes.