Tuesday, August 16, 2005

Analyzing Customer Data: Defining Key Performance Indicators

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Jason  Burby
Defining Key Performance Indicators
› › ›   Analyzing Customer Data

BY Jason Burby
August 16, 2005

On my daily view of the Yahoo! Web Analytics Forum, managed by Eric Peterson, I ran into an interesting question. An individual wanted to know about common key performance indicators (KPIs) for a specific industry.

It got me thinking about what the right metrics are for an individual company. Some materials cross industries or may be more pertinent to specific industries. Yet I struggled to post a response to the question, even though we've done analytics for nearly a dozen companies within the industry he was asking about.

I kept changing the KPIs in my response as I thought through the different companies we've worked with. It forced me back to where we begin when defining metrics or KPIs for a client: KPIs shouldn't be driven by what others are doing in your industry or in other industries; they should be driven by the overall goals of your business and the role the Web site plays within your organization.

Webopedia.com defines a KPI this way:

KPIs, or key performance indicators help organizations achieve organizational goals through the definition and measurement of progress. The key indicators are agreed upon by an organization and are indicators which can be measured that will reflect success factors. The KPIs selected must reflect the organization's goals, they must be key to its success, and they must be measurable. Key performance indicators usually are long-term considerations for an organization.

A few key components in this definition:

  • "Organizational goals." It's imperative KPIs aren't set to standard industry goals but to your goals for your business and Web channel. The second-to-last line speaks to this again: "The KPIs selected must reflect the organization's goals, they must be key to its success, and they must be measurable."

  • "Measurement of progress." We want to look at KPIs over time as we make changes to improve the overall site performance based on those KPIs. After a change is made to the site, did it drive KPIs in the direction we expected?

  • "Agreed upon by an organization." This is imperative so everyone is on the same page, and the KPIs are constructed by people with different functions within the organization.

In the past few years, a number of analytics tool providers have approached me about what "standard" KPIs they should build into their tracking tools. I tell them they can create some basic KPIs, such as "visits to lead conversion" and "visits to sales conversion," to get people started. More important, they must allow each company to define its own KPIs based on what's important to each one's business. Some providers have built this function into their tools, based on similar feedback from many other people.

Don't worry about the KPIs your competitors use; in many cases, they don't have well-defined KPIs and success metrics for their Web channel. Instead, focus on what will make your overall business successful based on the Web site's role.

Once you've defined your KPIs, make sure you share them with the Web team and people driving site traffic. Look back at your current online initiatives. How many of them truly support and drive those KPIs? What effect will they have on the KPIs? You'll most likely want to monetize those initiatives' potential effect based on the KPIs, then reprioritize those initiatives. You'll be surprised how having well-defined KPIs can change your current initiatives and priorities in a very positive way.