PSA: Not all metrics are KPIs - best practices

Metrics: defined

Metrics track and measure performance. 

A list or group of metrics is essentially a report. These figures are important to know because they monitor specific processes and results for the business.

Generally, metrics are updated regularly, such as weekly, monthly, annually, or even daily. 

While they can provide helpful insights into a team’s performance, metrics don’t show a path to hitting the company’s overall strategic goals.

For SaaS companies, website traffic is a great metric. It’s useful to know how many visitors the website is getting and it shows whether certain marketing efforts are leading to an increase in traffic.

...However, website traffic doesn’t necessarily dictate increased customers or revenue, which are likely strategic objectives.

Metrics are important to monitor but aren’t the most critical information nuggets a company can focus on.

KPIs: defined

KPIs, or key performance indicators, track a company’s progress toward achieving strategic initiatives.

KPIs are metrics that clearly show which goals the business needs to meet to keep progressing toward long-term success.

Similar to metrics, KPIs are generally tracked regularly: daily, monthly, quarterly, or annually.

Because KPIs relate directly to the company’s long-term goals, they’re critical measures that allow leadership to focus on what matters most.

As mentioned before, website traffic may be a useful metric for SaaS companies. However, it’s not likely considered a KPI because it isn’t a direct path toward increasing revenue or growing the customer base.

Instead, a KPI may be the number of new customer trials for the software or the revenue per new customer.

Those measures clearly show whether the company is on the right path to growing revenue and customer base.

Tips for creating great KPIs

Since KPIs are the easiest way to measure the company’s progress toward its strategic goals, it’s important to track the right data from the beginning.

By having the best KPIs in place early, companies can better manage their progress and focus clearly on what’s important.

Keep it limited

When a company tries to measure everything under the sun, it loses focus on the critical metrics.

Instead, limit KPIs to around 5-7.

Though that may seem low, the company likely only has a couple of critical strategic initiatives. KPIs should relate directly to those limited goals.

Set a target

Measure what the company needs to track to hit its targets.

Define what needs to be monitored and what’s crucial to the business plan.

The KPIs should clearly show what a company hopes to achieve but should be kept realistic.

Create parameters for data and tracking

Make sure data is consistently pulled from the same accurate source. The source should be clearly defined to maintain the integrity of the KPI.

Additionally, the frequency of the KPI should be consistent so it is compared at the same time interval. This ensures the data is uniform and can be easily analyzed.

It’s best to have one person in charge of the KPI to create a sense of ownership and reliability.

Decide on leading and lagging indicators

There are two categories that a KPI or metric can fall into: leading indicators and lagging indicators:

• Lagging indicators are historic numbers that are difficult to influence. They indicate whether a company has achieved its goals. Examples include revenue and number of customers.
• Leading indicators are forward-focused metrics that, while more difficult to measure, are much easier to influence. These indicators show a business what factors must be improved to meet certain goals. Examples include new customer trials and the level of subscription service that a customer purchases. 

These two types of indicators complement one another.

Where a lagging indicator can clearly define whether a company has achieved its goals, a leading indicator can help the team focus on the activities that improve the lagging indicators. 

Using the examples above, a company may hope to improve revenue and the number of customers they have for their software subscription. Those lagging indicators focus on past data and answer the question, “did we achieve our goals?”

To improve the number of customers, a company can focus on improving the leading indicator of how many new signups they have for a trial or consultation.

To generate more revenue, the company can work to have customers sign up for a higher subscription tier.

Look at push and pull 

Metrics take on a push-and-pull method.

Push metrics are pushed out to employees, who interpret the data and take action based on that information.

Pull metrics require someone to dig for the data and analyze its meaning.

Efficient KPIs are the kind that can be automatically pushed out to key players at the right time based on timing or thresholds being broken.

For example, the sales team may track their travel spending for the year. The department leader may want to be notified when their travel expenses reach a certain threshold.

If that process is automated, the sales manager can receive that KPI when it becomes crucial, when travel expenses reach an undesired threshold.

Most metrics and KPIs create a loop of push and pull.

The Finance Team may pull data to create a KPI. Then, that KPI is pushed out to the key employees who benefit from its knowledge. From there, the employees can adjust to guide that KPI figure in the best direction. 

Conclusion: not all metrics are KPIs

Metrics can help a business keep its eyes on the prize with KPIs being the best place to focus.

Where metrics can measure process performance, KPIs show the direct path between performance and meeting strategic business goals.

That’s why it’s best to keep KPIs limited to just a few–measuring only what matters to helping a business achieve its goals.