It seems that for as long as marketing has existed, there have been those who have questioned whether its contribution is worth the expense. And there is perhaps nothing more frustrating for marketers than having to continually prove their value to an organization. Fortunately, today’s marketers have tools that enable them to do just that.
In this first installment of a two-part article, we’ll explore how Key Performance Indicators can be used to gauge how well marketing programs are performing and ultimately prove their contributions to the success of an organization.
Many organizations have certain metrics that they use to show the outside world how well they’re doing. Then there are the ones they use internally to monitor their progress. These are called Key Performance Indicators, or KPIs. KPIs are a set of quantifiable measures that an organization, company or industry uses to gauge or compare performance in meeting their strategic and operational goals. They are selected measurements that together can provide a holistic view of an organization. KPIs vary between industries and organizations, depending upon their priorities or performance criteria.
Organizations need to measure progress toward those goals by:
Organizations need to establish their strategic and operational goals, and only then choose the KPIs that best reflect those goals. For example, if an organization’s goal is to have the fastest growth in its category, its main performance indicator may be the measure of year-over-year revenue growth. KPIs are often industry-wide standards, like “same-store sales” in the retail sector.
What are the best KPIs?
The most useful KPIs are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ for each organization and often for different departments.
Whatever KPIs are selected, they must reflect the organization’s goals, they must be key to its success and they must be quantifiable (measurable). KPIs usually are long-term considerations. The definitions of what they are and how they are measured do not change often. The goals for a particular KPI may change as the organization’s goals change, or as it gets closer to achieving a goal.
KPIs reflect organizational goals
An organization that has as one of its goals “To Be the Most Profitable Company in Our Industry” will have KPIs that measure profit and related fiscal measures. “Pre-tax Profit” and “Shareholder Equity” will be among them. However, “Percentage of Profit Contributed to Community Causes” probably will not be one of its KPIs. On the other hand, a school is not concerned with making a profit, so its KPIs will be different. KPIs like “Graduation Rate” and “Success in Finding Employment After Graduation,” though different, accurately reflect the school’s mission and goals.
KPIs must be quantifiable
If a KPI is going to be of any value, there must be a way to accurately define and measure it. “Generate More Repeat Customers” is useless as a KPI without some way to distinguish between new and repeat customers. “Be the Most Popular Company” won’t work as a KPI because there is no way to measure the company’s popularity or compare it to others.
It is also important to define KPIs and stay with the same definition from year to year. For a KPI of “Increase Sales,” you need to address considerations like whether to measure by units sold or by dollar value of sales. Will returns be deducted from sales in the month of the sale or the month of the return? Will sales be recorded for the KPI at list price or at the actual sales price?
SMART: A simple mnemonic device for identifying KPIs
It’s not difficult to create KPIs. However, there are some things that need to be considered in order to ensure that KPIs have the rigor and accountability that management requires. Using a simple acronym, SMART, you can ensure that KPIs have clarity and specificity necessary.
Specific: A specific KPI has a much greater chance of being accomplished than a general goal. A general KPI would be “Get in shape.” But a specific goal would say, “Join a health club close to the office and work out three times a week.”
Measurable: Establish concrete criteria for measuring progress toward the attainment of each KPI you set. When you measure your progress, you stay on track, reach your target dates and experience the exhilaration of achievement that spurs you on to continue the effort required to reach your goal. Ask “How much? How many? How will I know when it is accomplished?”
Attainable: When you identify KPIs that are most important to your organization, you begin to figure out ways that they can be achieved. You develop the attitudes, abilities, skills and financial ability to reach them. You begin seeing previously overlooked opportunities to bring yourself closer to the achievement of your goals.
Realistic: To be realistic, a KPI must represent an objective toward which an organization is both willing and able to work. A KPI can be both high and realistic; each organization must decide for itself just how high a goal should be. Every KPI must represent substantial progress.
Timely: Every KPI should be grounded within a time frame. With no time frame tied to it, there’s no sense of urgency. If you want to lose 20 pounds, when do you want to lose it by? “Someday” won’t work. But if you anchor it within a time frame—“by May 1,” for example—then you’ve set your mind into motion to begin working on the goal. Your KPIs are probably realistic if you truly believe that they can be accomplished.
Whether marketers are being asked to show a return on investment or are just keeping tabs on the effectiveness of their strategies, KPIs will continue to play a pivotal role in marketing programs. In Part 2 of this article, we will explore how to create KPIs and the different ways marketers can use them.
KPIs are crucial to ensuring measurable results in both direct and digital marketing communications. These techniques should be applied with every strategy in order to increase campaign effectiveness. To learn more proven ways to enhance the effectiveness of your marketing communications programs and apply these best practices, sign up for J&C’s Techniques to Optimize Your Communications to Drive Action webinar.
Topics: CMO
