Business KPI - Defining Your Key Performance Indicators

They are a way to actually see how effective your marketing programs are in growing your small business. If your KPI's are trending downwards, you'll be able to take corrective action before it is too late.

The main challenge in determining any business KPI is to identify the actual metrics that will help grow profits. You can measure until the cows come home, but if your KPI's don't allow for practical changes that actually increase business results, you're wasting valuable time.

Any key performance indicator you define needs to be quantifiable and to reflect a critical success factor for your business.

Defining Your Business KPI

1. While it may seem obvious, it should be stated. Key performance indicators must be tied to the overall goals of the company.
2. A business KPI must be easy to measure with consistency and accuracy.
3. Performance indicators must be quantifiable. "Generate more web traffic" is too broad to be considered a KPI.
4. Each performance indicator must have a corresponding target. For example, if you define "Newsletter Registrations" as a business KPI, you might define the target as "150 new registrations per month."
5. Don't overdo it! It's better to have three or four focused performance indicators as opposed to a dozen that only serve to spread out your attention and efforts.

Below are some examples of solid key performance indicators. I've focused these examples on a typical small business website. Feel free to use them for your own business. In addition, many of these ideas can be developed as offline KPI's as well.

Business KPI #1: Conversion Rate

That action could be any of the following:

• Responding to a direct mail offer
• Making a purchase online
• Coming into your physical store and using a coupon
• Registering for your company newsletter
• Downloading a report
• Making a donation
• Filling out a survey

The average conversion rate for an e-commerce website (i.e., for people making a website purchase) is around 2%, but I've seen some sites achieve double-digit conversions through split and multivariate testing.

Of course, non-purchase conversions can be significantly higher. For example, if you are surveying existing customers and offer an incentive for completing the survey, it is possible to achieve a 50% or higher conversion rate.

If you would like to use Conversion Rate as one of your KPI's (and I strongly encourage you to do so), your first step is to decide how you wish to define your conversion. Any of the above examples I've given would work just fine.

So how do you actually go about measuring conversion rate? As an example, suppose I wish to monitor monthly newsletter subscriptions as one of my business KPI. Each month, all I would need to do is to count up the number of people that subscribed to my online newsletter and divide that by the number of unique visitors that viewed my newsletter registration page.

This is easily and quickly accomplished by using a website analytics package. Personally, I use Google Analytics, because it's powerful, easy to install, and completely 100% free.

Business KPI #2: Average Order Value

As you can see, a small increase in your average order value can have far-reaching consequences on your bottom line! Start monitoring your average order value and work to find ways to upsell and cross-sell accessory items and complementary services.

Business KPI #3: Visits to Conversion

A visitor may come to your homepage, bookmark it, come back later and read some articles and then - finally - come back again to register for your newsletter or make a purchase. It may take several visits before enough trust is established to close the measured conversion. This is especially true if your products and services are expensive or somewhat complicated.

The main purpose in monitoring this metric is twofold.

1. Different marketing channels may have different lag times to conversion. Understanding this allows you to allocate your budget towards those marketing vehicles that convert faster. After all, the more people you convert in a specified period of time, the quicker you'll achieve your overall objectives.
2. By monitoring this metric, you can work to test various changes to your site in an effort to decrease the overall "Visits to Conversion."

The free Google Analytics tool has the ability to monitor Visits to Conversion.

Business KPI #4: Visitor Loyalty

Visitor loyalty is a great business KPI to monitor as you work to strengthen your brand and make your site more engaging and compelling.

But how does one actually measure website loyalty? Once again, it's Google Analytics to the rescue!

Once you have the Google JavaScript tag installed on your web pages, monitoring visitor loyalty is a snap. Take a look at the Google Analytics reporting screen below.

By monitoring the change in visitor loyalty from month to month, you can actually see how an improvement in your branding and content is working to engage your customers. If you can't engage your site visitors, you'll have a difficult time convincing them to make a purchase or to fill out a registration form.

By the way, Google Analytics also allows you to set up and monitor Visitor Recency (time since previous visit), Length of Visit (time spent at the site) and Depth of Visit (number of pages viewed per visit.) These are all fantastic KPI's to monitor on a monthly basis.

Business KPI #5: Competitive Reach

While there are many tools out there with sophisticated competitive intelligence reports, they can be a bit expensive for the small business owner. Fortunately, some of these tools provide some free reporting services. While you won't be able to drill down to specifics, you'll certainly get an idea of where you stand with respect to your competition.

Compete.com offers a free tool that gives a rough indication of unique website visitors over time. What makes this tool so useful is that you can enter your website along with four additional competitive websites, and see how your site compares in overall traffic volume.

Since my past marketing work involved the distribution of scientific instrumentation, I decided to compare three different instrumentation distributors against each other; Daigger, Cole-Parmer and Lab Safety. The below screenshot from Compete.com shows the trend in unique visitors between these three organizations.

The real value in this report is not any particular monthly figure, but the trend over time. As you work to optimize your web pages, add additional helpful content for your customers, and drive higher numbers of quality inbound links, you'll be able to see the efforts of your work relative to the competition.

There are many types of KPI's you can define and monitor for your business. Start with just a few and add more as you gain knowledge. KPI's are an important tool in providing external validation of all your hard work. In addition, once they are set up, they are a quick way to determine the overall health of your business and will allow you to take corrective action before it's too late.

Start defining your business KPI today and profit from the power of strategic marketing!