Wikipedia tells us: “A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organisation or of a particular activity (such as projects, programs, products and other initiatives) in which it engages.
When applied to sales, KPI’s are often most importantly a form of communication providing a way to let the team know how they are getting on.
The best sales KPIs encourage team members to focus their energy on the activities that will assist achievement of organisational objectives.
Its important to remember that KPIs should be designed to measure outcomes and not just activity. Often KPIs are confused with metrics. A metric is just a number within a KPI that helps track performance and progress. A key performance indicator is used to measure performance and success.
The best way to define a KPI is to ask the following questions:
- What is the required outcome?
- Why does this outcome matter?
- How is progress measured?
- How can the outcome be affected?
- Who can influence business outcome?
- What signifies success?
- How do you monitor the rate of progress?
If, for example, you want to improve profits by selling more effectively into your existing customer base and to improve the close rate of new business, you would define your KPI like this:
- Sales growth of 15%
- Growth designed to increase net profit by 30%
- The measure will be in income growth
- Key account plans and improved new business conversion rates
- All sales team members can affect this metric
- Year on Year growth in excess of 15%
- To be reviewed at bi-weekly sales meetings
To make KPIs as effective as possible, business leaders often talk about SMART KPIs. SMART stands for:
- Specific: What exactly do you want to achieve?
- Measurable: How will you determine that you have achieved your objective?
- Achievable: Is your goal realistic?
- Relevant: Is it appropriate to you or does it align with where you want to be?
- Time-bound: What is the time-frame for achieving this goal?
In our experience there is no such thing as a SMART KPI only a SMART objective or goal. The goal is the outcome or result that you want to achieve. The KPI is a metric or indicator that tells you whether you’re on track to achieve that goal. However, SMART is a great concept to build into your management systems – insightful and easily understood. SMART objectives or goals are valuable because they bring clarity, structure and measurability, turning an airy claim into something tangible.
The SMART criteria can also be expanded to be SMARTER with the addition of (E)valuate and (R)e-evaluate, ensuring you continually assess your KPIs and their relevance to your business. If you exceed your target by a significant margin you should determine whether it was because of a great effort or a poorly set KPI!
Forget SMART KPIs. This is how to create effective KPIs..
To summarise, SMART objectives will not automatically guarantee that your KPIs will provide the business insights that you need
These are the steps you must take if you want truly effective KPIs:
- If you don’t know where you want to get don’t be surprised if you don’t get there. It all starts with strategy, start there and establish or examine your company’s plan – your mission (purpose) and vision (ambition) statements perhaps.
- Create a one-page business plan that articulates your most important goals and objectives.
- Ensure that your objectives are comprehensive taking in the needs of your customers and staff alongside the traditional fiscal, risk and resource driven targets.
- Create a separate KPI for each goal that will facilitate the measurement of performance.
- Set clear targets that define what good looks like.
- Produce an action plan that describes the actions that need to be taken.
- Monitor the KPIs against your targets on a consistent and regular basis.
- Be flexible. Review and fine-tune your goals, KPIs and markers at regular intervals or whenever there’s a significant change in the business or trading environment.
- Don’t forget to celebrate success and reward the achievement of targets and goals.
Whether you’re a large established business or small smart-up, designing effective KPIs and setting clear targets will help you stay focused, and keep your business heading in the right direction.
Reach Revenue works with business owners, leaders and investors to develop high performing sales and marketing teams aligned to the strategic objectives of their business. To find out how we can help you, please call 0203 858 8030 or email firstname.lastname@example.org.