eCommerce Glossary: Defining KPIs

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Getting Started with Key Performance Indicators (KPI)

What is a Key Performance Indicator?

When you hear about the word KPI, you wonder what does KPI means? You need to get to know this thing and how this is beneficial for you in this technical era of e-commerce. You may be looking for an answer to the question of what is a key performance indicator, so here we are with an answer for you.

The answer to your question that what does KPI means; Key Performance Indicators (KPI) is a set of quantifiable measurements that can be used in order to gauge out the long-term performances of a company on an overall basis. It is something that particularly helps to determine the strategic, operational, and financial achievements of a company. It demonstrates how effectively and efficiently the company is achieving its objectives.

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A good KPI provides objective evidence of the progress towards getting the desired result. It measures what needs to be measured in order to help out making better decisions. It also offers a comparison that determines performance over time. A good KPI can track effectiveness, governance, efficiency, quality, behaviors, economics, compliance, the performance of the project, as well as personnel performance along with the utilization of the resource.

Types of KPIs?

How to Determine a KPI

The intelligence value of a set of measurements for business can be improved by the understanding of how different metrics can be used and how they can contribute to the organization's flow of work.

One can categorize the KPIs into different types:

  • Inputs – The inputs can measure up the attributes like quality, amount, and type of all the resources that had been consumed in the process of producing the outputs.
  • Process – The process is responsible for measuring the focus on the usage of quality, consistency, and efficiency of some particular processes in order to get the output. They are also capable of measuring the controls on the process, like the equipment or tools to be used for the process.
  • Outputs – Outputs are simply the resultant measures for indicating how the work is done and defining what product has been generated.
  • Outcomes – The outcomes normally focus on the achievements and impacts and are classified as two outcomes, one is Intermediate level Outcomes, and these can be customer brand awareness. The other one is the End Outcomes that are for customer retention or sales.
  • Project – The Project is something that measures the questions and answers about the status of deliverables as well as milestone progresses that are much related to some essential projects.

After getting to know that what is Key Performance Indicator, we can move on to the next things in that, we should have complete knowledge of how to determine a KPI and what points should be kept in mind.

When you are developing a KPI, you must keep in mind that how the specific KPI is related to a specific objective of a business. They need to be customized according to the business situation and should also be developed to help you in achieving your goals. There are a few steps that you should follow when developing a KPI:

Define a Clear Objective

Writing down a clear cut objective of the KPI is the most important step when you are going to develop a KPI. It is important for a KPI to be connected with a smart and major business objective. In fact, not just a business one, but also something that someone might think is important in the organization. It is a vital part of an organization to be successful.

If you are not doing this, you are going for something that is a complete failure in order to address an outcome for your business. It simply means that you are working on objectives that are not effective for your organization. In turn, you will waste your money, time, and every other resource.

Review KPIs on a Weekly / Monthly Basis

Maintaining the KPI is an essential thing as it is necessary to check on it regularly. You can track the progress so that you can do your assessment on how successful you are and what do you need to do in the future as well. It is simple to understand that not every KPI is successful for you. Some have objectives that are not attainable, and some fail to track down the business goals which were supposed to achieve. Only if you check in regularly can you get to know that there is a need to change the KPI.

Share the KPIs with Stakeholders

The KPI you are using is not worth it if it is not communicated properly. How can your employees, the people who are working on your vision, follow through on a goal you have set if they don’t even know what they are. So, if you are not sharing the KPI, you can risk your goals and can frustrate your employees as well as other stakeholders who are not able to go with the direction of your organization.

On the other hand, if you are sharing your KPI with the stakeholders, you are doing a job that not every organization does. They need to be communicated properly. KPI needs a context that is effective, and it can be done if you are explaining not only what you are measuring but also why and how you are doing it. Or else they are just some numbers that your employees will not bother at all.

You should explain to your employees that what you are measuring, what is the reason behind that. Also, tell them why you picked a specific KPI and not the other one, and most importantly, listen. KPIs are not always accurate, so listening is something that will help you to identify the goals that are not communicated properly.

Check in the KPI is Achievable

Along with other steps, it is also important that you set the targets that you are looking forward to attaining. If you set a target that is too high, your team’s morale can go down, and they can give up before starting. And if you will set a low target, they can also get in trouble when it comes to achieving goals and performing better.

For this reason, it is necessary that you set the goals that are achievable and bring efficiency to the work and your organization.

Keep the KPI Evolving for Future Changes

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Ensure your KPI is Practical

There is a process you need to follow to make your KPI practical and actionable. This includes:

  • Reviewing the business objectives
  • Analyze the performance on a current basis
  • Set targets on short-term and long-term
  • Review the targets
  • Review the progress and do the readjustments

The first two points we have covered already, and now we will talk about the development of targets for the short term and long term. Once you set a goal, you can work backward, too, and get to know the milestones you will need to target further. So, you can break the targets into short term goals and then track the performances accordingly.

Update the Objective When Needed

You also need to update the objectives in between. Only the ones you set before starting are not sufficient. KPI is not static; they need to evolve and update, so you need to change as required. If you are setting the KPI and then forget it, you can risk your objectives, and they will not be much relevant for long in your business.

So, you need to develop a habit where you are regularly checking the KPI performances and making necessary changes as well.

To the one who has never been into the development of KPI before, these all things might be exhausting, but once you understand them all, you are perfect to go and will get some efficient results.

Bringing it All Together

Just like goal setting and strategy, KPIs are also important in e-commerce. Without them, it is pretty impossible to keep up with the progress with the passage of time. Rather than making decisions on gut instincts and personal beliefs, you can get more information on your business through KPIs, and you can make good decisions for your customers as well.

The KPIs need to be actionable, and with them, you can be able to make more accurate strategies for driving online sales and understanding the problems from the customers' side as well.

Also, the data related to KPIs can be distributed in a larger team, and this can be used for educating your employees and encourage them to step up and come forward for any critical problem-solving.

There are many indicators of e-commerce that are categorized into sales, marketing, customer service, manufacturing, and project management. All of them make the business run smoothly and avoid any bad impact on the organization. With them, you can manage your online sales and keep updated with what is coming and how better you can be.

KPIs are essential tools for measuring up the success of your business, and it can allow you to make adjustments if needed for making it successful. Though KPI usefulness has limits, and it needs updating and proper management with time.

In any KPI, the most important part is its utility, and one must know how to determine a KPI. Once it is outlived its effectiveness, you can toss it and start with a new one for better alignment of your business objectives.

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