My good friend Christian Barbaray published an article (in French) where he listed the KPI’s that firms most commonly monitor. He split them in 3 categories (“global”, “asquisition”, “loyalty”) and concluded that firms on average monitor 11 KPI’s.
What I find interesting is not so much the number of KPI’s they follow but rather the type of KPI’s they follow. While some of them make perfect sense (revenues, visitors on your website) others seem to me as less relevant
The most important KPI’s are missing
The most important of all KPI’s seem to be missing : profits and loyalty !
Measuring revenues (84% of companies monitor it) makes no sense if you don’t follow your profits. You can generate tons of revenues, if your margin is too thin or negative you’ll go bankrupt.
This being said, remember that profits are only a by-product of loyalty (numerous scientific papers have been published on the subject, whereas in my opinion the equation “loyalty = profits” needs to be revisited in the light of e-commerce and the impact of algorithms on purchase habits). As such, monitoring only profits makes once again little sense. This leads me to my second remark, i.e. groups of KPI’s need to be monitored.
Groups of KPI’s need to be monitored
In my opinion monitoring isolated KPI’s isn’t a good practice. It won’t enable you to understand the dynamics behind variations.
Let’s take the example of loyalty. If we agree that loyalty is one of the (if not THE) most important KPI’s to follow, it follows that other KPI’s should be monitored too to understand the dynamics behind its variations.
Loyalty has long been shown to be influenced by customer satisfaction, whereas customer experience seems to have an even bigger influence. So, if you want to follow KPI’s that make sense, don’t follow isolated KPI’s. Follow groups of KPI’s to understand how they influence each other.
I’ve tried to represent graphically (see below) which KPI’s are intertwined and to categorize sets of KPI’s to monitor.
3 families of KPI’s to monitor in priority
The KPI’s set #1 is what I think is the most important group of KPI’s to monitor. It defines whether or not you’ll be able to survive on the long-run. Customer loyalty is at the heart of the equation and it has antecedents (customer satisfaction and customer experience) as well as consequences (customer lifetime value and profits).
The KPI’s set #2 will help you understand how you perform on the very elements of satisfaction and customer experience. Using the Net Promoter Score (NPS) is fine if you limit yourself to the KPI’s set #1 ; adopting #2 requires to go deeper in your understanding of how satisfaction and experience are built in the mind of the customer. That’s a difficult task (we can help you with it if needed).
Finally KPI’s set #3 is fine to project yourself in the future and to assess your growth potential. Typically I would recommend firms to follow those indicators once they have left the “risk of failure” zone, i.e. after 5 to 7 years of existence.
what is important to remember I think is that following KPI’s is necessary to monitor the dynamics of the firm on the market. In that perspective it makes no sense to assess isolated KPI’s. Rather, assessing groups of KPI’s that influence each other will allow the firm’s management to better understand what’s going on and to react faster in case of problems.
Image : ShutterstockTags: customer loyalty, customer satisfaction