What Is Wrong with Your KPIs and How to Fix Them

Every С-level manager knows how it feels to be buried under dozens of metrics and key performance indicators (KPIs) and bombarded with numbers from dashboards. After repeating the ritual of data collection and meetings, executives end up making decisions based on gut feelings, without a clear vision of the business situation.

To avoid this, you should establish proper KPIs for each department. If you think you’ve already tried every possible way to set up KPIs, try the OWOX approach. Every year, we implement analytics for dozens of projects. We’ve tested our approach in different niches and with businesses of all sizes and have found that it helps all our clients make better decisions based on solid data.

Here’s the main rule behind the OWOX approach: KPIs must describe the value created by each department in the framework of your business model.

There are three steps to defining KPIs using this approach:

1. Quantitative KPIs: Measuring the Value Created

First, you need to determine the value created by each department using quantitative KPIs (ideally you would do so for each position). For example, the CEO is typically responsible for profits and revenue, the digital marketing director for acquiring new clients, and the paid acquisition manager for revenue from paid channels.

Make sure each KPI is assigned to a position and avoid using too many KPIs at once – especially if you don’t have specific plans for them.

Achieving quantitative KPIs should come at a reasonable price. Given limited resources, you should estimate the efficiency of implementing your KPI strategy, considering both revenue and costs. And you should take into account qualitative KPIs as well.

2. Qualitative KPIs: Setting Boundaries

When you are done with step #1, you have to define your spending limits using qualitative KPIs

For example, to bring in even a dollar of revenue, your ROS (Return on Sales) should never go negative. Meanwhile, the new client acquisition metric is limited by the maximum affordable cost of acquiring a new client, and revenue for paid channels is restricted by ROI (Return on Investment) or ROAS (Return on Ad Spend).

These qualitative KPIs set boundaries for the strategies you use to achieve your quantitative KPIs. They define how effectively you use your resources to achieve your main KPIs.

Here’s the connection between positions, quantitative, and qualitative KPIs:

Avoid these common mistakes at this step:

1. Using KPIs that are unclear for employees or aren’t agreed with the team lead
2. Setting up more than three quantitative KPIs per position – This will surely lead to splitting of efforts and none of your KPIs being achieved.
3. Ignoring qualitative KPIs

3. Choosing Effective Strategies

Once you have your list of quantitative and qualitative KPIs, you should choose a strategy for achieving them that fits your business model. By doing so, you’ll simplify the decision-making process and get higher-quality results.

You might use different strategies with the same KPIs:

1. Achieve the maximum revenue with a fixed max CAC or ROS.
2. Achieve the maximum revenue with a fixed advertising budget.
3. Meet the revenue plan with the minimum ad budget.

If you’re a reseller with a fixed number of stored goods in the warehouse, the third strategy will fit best. On the other hand, if your company sells electronics, you might choose the first or second variant depending on your advertising budget.

Your choice of strategy will dictate the combination of tools and tactics available to you. (I’ll publish a separate article on this.) What’s certain is that you have to agree on a per-team strategy with the leader of the team responsible for achieving the KPIs. Many businesses fail because C-level managers and employees don’t share the same aims and visions for KPI performance.

KPIs are set up. What’s next?

You can implement forecasting for each KPI and set up an automatic alert system to warn of deviations and anomalies in your performance.

And no, you don’t need any artificial intelligence (AI), or machine learning (ML), or blockchain technology for that. Often, all you need is Google Sheets or Excel. But that’s a whole different topic for another article.

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