If you’re a business owner or on a company team of any kind, you’ve likely heard the acronym (or term) KPIs come up in business meetings, brainstorming sessions, impromptu business banter on Zoom, or in the breakroom. You probably even know KPI stands for Key Performance Indicators. But beyond that, what else do you know about KPIs? What exactly do KPIs do and how can they impact your business for the better?
Simply put, KPIs are a type of metric that measures how various aspects and/or levels of a business are performing. KPIs can track progress on everything from the top-tier company level to individual products and everything in between. Different software and data visualization tools are available to measure and analyze your KPIs. KPI metrics can track employee progress, sales, revenue, inventory, customers, and so much more.
Every industry can benefit from KPIs when properly applied. There are hundreds of KPI metrics out there. Trying to absorb them all can be overwhelming, and not all of them will be applicable to your business. However, a few KPIs are relevant to all industries in today’s high tech business world. Here are 4 simple KPIs you and your team will want to be familiar with as you collectively strive to achieve your company business goals.
Return On Investment (ROI)
ROI is a KPI most entrepreneurs are familiar with because it matters to all businesses. This important KPI determines if a business is getting their money’s worth from investing in advertising, marketing campaigns, employees, and other business ventures. If you determine your business is losing money on an expense, then it’s time to make a change.
Different formulas can be used to calculate ROI. Some are simple, and some are more complicated depending on your business objectives. In most cases, you can simply divide the gains from your investment by the cost. If you calculate a positive number, it’s a good thing! And, of course, a negative means you’ve lost money.
Click To Open Rate (CTOR)
Email marketing is huge and here to stay. CTOR not only measures email click-through rates, but also goes a little deeper into the actual content of the email. CTOR measures the number of people who click on your email and how many of those readers click through to your call to action (CTA).
CTOR can be calculated quite simply with email performance or campaign monitoring sections on most email marketing platforms. There’s also this simple formula: number of unique clicks through the link/number of unique opens. A strong CTOR rate is between 6%–17%.
Lead Conversion Rate (LCR)
This valuable KPI is key when it comes to digital marketing. It shows you if the leads you’re picking up via your email, online, and social media campaigns are turning into new customers. Ideally, your lead conversion rate is high.
There are different ways of tracking LCR. It can be as simple as a visitor subscribing to your email list or making a purchase. Watching your bounce-back rates tells a story: How long are visitors staying on your page? How many visitors navigate completely through your website without going to other pages?
Customer Lifetime Value (CLV)
Building customers for life is ultimately the name of the game for most businesses. That’s why the CLV is such a valuable KPI. CLV is often used interchangeably with LTV (Lifetime Value). Both refer to the value of a customer throughout their buying relationship with you. CLV is stronger from an SEO perspective since it contains the keyword: customer.
Ask yourself: What is more important? A customer who makes a one-time purchase and never returns or a customer who continues to buy your goods or services year after year? It’s a no-brainer.
The formula for measuring CLV is not difficult. Simply multiply your customers’ average purchase, frequency of average purchase, and average customer lifespan. Loyal customers help build a solid base for your business, plus they provide the best word-of-mouth referrals.
Narrowing Down KPIs
As mentioned earlier, the list of KPIs is endless and can seem like way too much information. Don’t let that deter you from narrowing down the indicators that will have the greatest impact on your business. It may take a little trial and error as you determine which KPIs relate best to your business goals. Once you get your KPIs down pat, the data you glean from them will be like gold nuggets to your business. You’ll wonder how you ever got along without them.
With some careful planning and emphasis on data collection, you can start reaping the benefits of tracking and acting on your KPI measurements. Not only will this help you to identify opportunities for optimization, leading to greater ROI and, by extension, higher profits.