How You Can Use SMART KPIs

KPIs are a business strategy that is are a key part of any company’s success. KPI stands for Key Performance Indicator, and its goal is exactly that: To measure quantifiable performance over a set period for a specific goal, to see how well a business is performing and reaching its main objectives. KPIs should provide targets and milestones for insights into a company’s performance.

Many businesses that set Key Performance Indicators (KPIs) expect incredible results but end up disappointed because it doesn’t go as they’d imagined. This is because companies set too many unclear KPIs. There tends to be a large gap between what a company wants their goals and objectives to be and the way they articulate them.

That’s where SMART KPIs come in. SMART KPIs help provide clarity on your goals and expectations for your employees: how much they should be progressing, and what they need to do. Good SMART KPIs should let your employees succeed in your business. 

In this article, we’ll go over what sets SMART KPIs apart from regular KPIs and how you can use them for your business.  

What does SMART stand for?

To create an effective Key Performance Indicator, use SMART goals. SMART stands for goals that are specific, measurable, achievable, relevant, and time-bound.

Let’s look at each attribute of a SMART goal in more detail. 

Specific

A goal should be specific. A clear, well-defined goal can be understood and followed.  Specific KPIs steer your employees in the right direction and avoid unnecessary confusion. When your KPIs are specific, employees feel more satisfied.  

If a goal is vague or unclear, not only will employees guess what you want from them, but you’ll also find it hard to manage their performance and achieve your desired outcomes.   

Let’s compare two common KPIs: get more visitors vs increase website traffic by 25%. The first KPI clearly outlines what you want your employees to do and by how much. The second KPI leaves them in the dark about your intention to increase website traffic and by what amount. Clear targets mean employees know exactly what you want. When employees don’t know what you mean, they can’t deliver. 

Measurable

Employees need goals that can be accurately measured. With measurable objectives, you can identify weak spots in your strategy, assess your team’s performance, understand how your goals connect, and make data-driven decisions to improve your business. 

What should you be tracking? Here are some quantitative measures.

• General business metrics look at gross profit margin, ROI, gross productivity, total number of customers, and recurring revenue. 
• Marketing measures include daily web traffic users, new web traffic users, email open rates, and the number of leads generated. 
• Customer success metrics track customer retention rate, customer churn rate, customer feedback, the average customer lifetime, and the customer lifetime value.
• Sales metrics include qualified leads, lead-to-customer conversion rates, customer acquisition costs, and total new customers.
• Developer metrics look at product uptime, bug response time, daily active users, cycle time, and throughput.
• Human resource metrics track employee satisfaction, employee retention rate, and employee feedback.

Measurable KPIs in action

Imagine that a business has only a 60% customer satisfaction rate in one month. The owner would like to increase this rate and set a KPI to ‘increase the customer satisfaction rate by 50% next month’. By the next month, the business sends a survey to customers, asking them how satisfied they are with the service.

The business owner can then compare the new satisfaction rate to the KPI and measure whether the business has achieved it or not.

You can measure and compare these metrics with tools like Salesforce CRM or Tableau. These tools create KPI dashboards to help you analyse your data, measure whether you and your employees have achieved your goals, and whether business performance has improved. 

Achievable

The next step is to make sure your KPIs are realistic. This isn’t to say that they can’t be ambitious, but SMART KPIs have to balance ambition and practicality. 

To find out if a KPI is achievable, ask yourself two questions. Is it measurable? And is it feasible? If the answer is no, then the goal isn’t achievable. Trying to attain it anyway will demotivate your employees. 

An achievable goal isn’t a stretch. It should offer a small challenge, not one your employees find overwhelming.

Start small

If you’re unsure how far is too far to set your goals, start small. Smaller KPI targets and closer deadlines allow you to track progress effectively and still achieve the results you want in a way that is more enjoyable for everyone.

For example, if your ultimate goal is to run a marathon, you wouldn’t just wake up one morning and do it. You would set smaller goals first, like running 5 kilometres.

Relevant

Effective KPIs must be relevant and aligned with short-term or long-term strategies. A relevant KPI is ‘how many products did we sell during our sampling event’, which would be the marketing manager’s responsibility.

An irrelevant KPI would be asking a sales team to ‘improve the bug response rate on the website’. This KPI is relevant for the web development team, not the sales team.    

Irrelevant metrics

Even if your KPI is relevant, make sure you’re not checking irrelevant metrics. Tracking metrics that aren’t in line with your KPI is a waste of time and resources. For example, if your KPI is to achieve a 10% increase in new customers, there’s no need to check metrics related to web traffic users. Checking irrelevant metrics wastes time and confuses everyone. And when confusion mounts, as you drown in all the possible data, the KPI outcome gets muddled as well.  

Vanity KPIs are among the irrelevant metrics to avoid. For example, knowing that the number of downloads for your app has increased might feel great, but it doesn’t tell you anything about usage and doesn’t necessarily indicate a growing customer base.

Choose KPIs that matter and focus on different areas of your business. Your KPIs should be objectives you can improve on, so they help you understand the overall health and performance of your business. 

Time-bound

KPIs need a deadline. Deadlines give employees structure, focus, and urgency to meet objectives, rather than setting them aside. When a team has a deadline for a KPI, they’re much more likely to work towards that goal and finish it on time.

For example, asking the sales team to ‘increase sales by 10%’ or ‘increase sales by 10% by the end of the quarter’ has different effects. ‘By Monday’ tells your employees that they have to prioritise this effort. 

Defined timeframes create accountability. A sense of urgency benefits the business and allows for more effective performance management.   

Short-term vs long-term KPIs

Short-term and long-term KPIs have different goals. A short-term KPI, or an operational KPI, aims to track performance daily, weekly, or monthly. Short-term KPIs also give immediate feedback, allowing daily adjustments that can enhance productivity, efficiency, and customer satisfaction. Operational KPIs are temporary, reflecting the company’s current state.

Long-term KPIS, or strategic KPIs, focus on the company’s long-term goals and vision. Strategic KPIs also aid executive decision-making.

Why SMART KPIs matter for your business

KPIs that don’t follow the SMART method lack clarity, take longer because they aren’t time-bound, and you may find it difficult to track progress, performance, and success. 

SMART KPIs improve decision-making. Information becomes clearer, project management is easier, and all of your decisions are now data-driven. KPIs help organise your thoughts and offer a more precise understanding of how your business is performing.

SMART KPIs correlate with business growth. With effective KPIs, you can identify areas for improvement, create actionable targets, and adjust those targets to real-time necessities. 

It’s easier to monitor team performance and productivity as well, particularly when employees aren’t confused by vague KPIs. 

SMART KPI examples by business function

Marketing

• Website conversion rate improvement measures the percentage of website visitors who complete a desired action, like buying something or submitting a form.
• Lead generation targets tell marketing teams how well their efforts are translating and whether they’re attracting potential consumers.
• Social media engagement metrics look at the effectiveness of a social media marketing strategy. This KPI helps marketing teams understand how well their campaign is performing, whether it’s achieving the desired effects, and flagging areas that need improvement.

Sales

• Revenue growth targets should use percentages to express precisely what goal you’d like to achieve.
• Customer acquisition goals measure the effectiveness of acquiring new customers through a range of sales and marketing techniques.
• Sales cycle reduction measures the time it takes to close a deal. Reducing this time is crucial for increasing sales. 

Customer service

• Response time improvements aim for an efficient response time. Often, customers expect a response within hours.
• Customer satisfaction scores follow a metric scale of 1-5 or 1-10, rating a customer’s happiness with the service they received. These scores are a crucial part of a business’s KPIs.
• Issue resolution rates measure the percentage of customer support issues resolved within a specified timeframe.

Adjust these KPIs based on how well your business is performing. They should all feature specific goals and timeframes.

How to create SMART KPIs for your business

1. Identify your business objectives

To identify business objectives, you need to understand your core business goals. If you don’t know what you’re on about, neither will your employees.

Don’t forget to prioritise. Along with deadlines, some objectives are more relevant and important than others. Those should always go first.

2. Choose relevant metrics

Always select metrics that align with your objectives. If a metric doesn’t, it wastes your time and your resources.

Vanity metrics might seem impressive (e.g. social media followers), but may be irrelevant to your business and its ongoing growth.

3. Apply the SMART framework

Work through each SMART criterion when writing a new KPI. 

Test your current KPIs against the SMART framework to improve them. KPIs should be specific, measurable, achievable, relevant, and time-bound.

4. Set up tracking and reporting

Many online tools can help you track and report your SMART KPIs. KPI dashboards help you visualise if you are moving further away, towards, or plateauing at your goal. For KPIs to work effectively, regularly review your progress through your KPI dashboards.

Common mistakes to avoid

Setting too many KPIs at once

One of the most common mistakes when creating SMART KPIs is to set too many at once. Don’t have more than five operational KPIs at one time. More than five leads to confusion, scattered focus, and little progress. 

Choosing irrelevant metrics

Another mistake is choosing metrics that are too complicated for your SMART goals. Complicated metrics can make your KPI results incomprehensible, so it’s harder to monitor progress or branch to related KPIs.  

Taking big leaps

Beware of your ambition. While ambition is great for your business, with KPIs, it often translates into unreachable goals. When writing KPIs, little steps are better than big leaps. 

Failing to communicate clearly

Another common mistake is failing to communicate KPIs clearly to the team. If you haven’t defined what you’re asking for, it can be difficult for your employees to know what to do. If your employees are working towards the wrong goal, you’ll have nothing viable to track. 

Failing to monitor

And speaking of tracking, the last common mistake is failing to monitor KPIs regularly. Scheduled checks help you adjust as needed and note your progress. If you don’t track your KPIs, you won’t know whether you’ve achieved your goals or if you’re behind.

Tracking and reviewing your SMART KPIs

The type of KPI determines how often you track its progress. Review operational KPIs weekly or even daily. You can take the long view with strategic goals, reviewing them monthly or quarterly.

How do you know when to adjust your KPIs? Here are some situations where adjustments make sense:

• If your goal has been reached
• When your business’s objectives, goals, or market conditions change
• If performance isn’t improving or the metrics have plateaued

You can adjust KPIs by changing the goal on your dashboard, revising your target metrics, or communicating the KPI differently. 

If you’re not seeing results, assess your KPI. Is it clear to your employees? Does it follow SMART criteria? 

Use all the data, including historical data, to make informed decisions and correctly assess how your work is performing.

Don’t forget to celebrate your wins just because your focus is on learning from your mistakes. It’s all about balance.