Choosing KPIs: The top 5 KPIs for your business
Choosing KPIs is, admittedly, difficult. Often companies will avoid making hard decisions and end up with more and more KPIs. This is dangerous, because the more KPIs you choose, the less clear of a signal they will provide. If you have a few dozen KPIs, on any given day it’s likely that half of them will be up and half will be down, making it hard to understand the overall message!
It’s also unlikely that there is a single metric that captures everything about your business. So, what is the right number of KPIs? As few as possible is the best rule I can give you. Most companies will end up with around 5 KPIs that reflect each of the 5 core drivers of most businesses:
- Acquisition – How quickly do you acquire new customers?
- Engagement – How engaged are customers with your product and service? Are they happy?
- Retention – Do your customers come back again?
- Revenue – How much money does your business collect?
- Cost – How much does it cost to generate that revenue?
The metrics you choose to measure each of these drivers depends on your business and your goals. For example, a retail store might measure retention as “Repeat Purchasers”, while a subscription software service might measure “Annual Contract Renewals”. Your objective is to have KPIs that measure all of the most important aspects of your business so that you have covered all of your bases.
The shorter your list of KPIs the more useful they will be, so if you can choose less than 5 I encourage you to do so. If you are able to choose a single metric please let me know as I’d love to hear how you were able to do it!
Tomorrow we’ll cover how to avoid choosing the wrong metrics for the right reasons when we cover the difference between good and bad KPIs.
Quote of the Day: “AARRR!” – Dave McClure