Business

Video: Top 5 common mistakes companies make with KPIs

Today we talk about KPIs, key performance indicators. It is undeniable that the right use of KPIs can help managers make informed decisions about the future of their company. But that’s today’s focus: “the right use of KPIs.” Just using them is not enough to get insights.

A manager has to know how and which KPIs to use in order to get the most out of the available data. Through our research, we found out that there are 5 common mistakes that managers fall victim to, ending up denouncing KPIs. Watch the video and make sure that you do not fall in the same category.

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Here’s what you should do, and therefore what you shouldn’t do, when talking about KPIs:

Number One: choose KPIs that are good for your business, not for your vanity. 

We cannot be too specific here, as vanity metrics differ for industries. However, let us give you an example. Many brands give free trials and use “Free trial signups” as a KPI to demonstrate the success of the campaign that led to this action. That’s a vanity metric, as it doesn’t say how many people actually use the product during the free trial period, and therefore no business value, nor learnings. An actionable KPI related to the same example would be “Free trial usage”, where the brand measures how often and how frequently the client uses the product during the free trial. 

Number two: choose KPIs that are immune from bias

Here, we can give you a good example. One of the most popular KPIs today is the NPS, net promoter score. It determines the willingness of a customer to recommend a product or service to someone else. So basically, the customer needs to imagine if he would do something in the future, without even knowing if he ever did so in the past. Things like this add bias to the measurement and influence your decision making. My advice is don’t use KPIs that force people to imagine the future, but only relate to past experiences.

Number three: connect your KPIs to your strategy, and set employees OTE accordingly

This is strictly connected to the mindset of the higher management, which needs to shift from the standard KPIs (such as revenue) to customer-focused KPIs (such as Customer Lifetime Value). It’s clear that employees will put their effort into what will eventually drive their personal success and growth. If a company aims to measure and perform against certain KPIs, these need to be used, as key metrics, to determine employees’ On-Target-Earnings. A good example, for product companies, is using the star-rating as a key metric for the company and, as KPI for the employees, set a minimum increase of the star-rating for some products.

Number four: collect KPIs in the right moment

You can’t imagine how many times we see brands doing this mistake. The basic, silly situation that we encounter is often related to the measurement of the NPS, where we see companies asking customers to rate their experience at every touchpoint. Let’s say you buy a TV online, and you receive an email from the brand asking if you would recommend the product to others when you purchase it, when you received it at home, and after the first time that you use it. What’s the value of such a thing? It clearly just answer the needs of the data for some managers, but it doesn’t say anything about the real satisfaction of that client, because the only right moment to ask, would probably be some weeks after the purchase when he had time to make his own opinion. All the other measurements are misleading…and please, leave the customers alone!

Number five: limit the number of KPIs to what you can comfortably measure

Sinking in data is so easy today where we have abundance of big data and lack of small, usable data. Don’t make the mistake of collecting KPIs that you cannot easily measure and that are not meaningful for you. Try to limit your KPIs to 5 max, and you can progressively replace the ones that do not contribute to your decision making with new ones, from time to time. The risk of adding more KPIs is that you would end up creating unnecessary steps to collect them, instead of focussing on what you can already measure with no effort.

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