Create SMART KPIs to strategically grow your business

Markets ebb and flow, internal resources wane and grow, and company culture fluctuates. So many moving parts raise the perennial question for managers: How do I keep my teams motivated and on track to achieve business goals?

Whether you manage a team of one or 15, keeping everyone on track is like navigating a boat through new waters. The tides change, and the territory is familiarly unfamiliar — without the right resources to guide the way, it’s easy to feel lost in open water. 

To keep up and maintain a healthy team, it’s essential to consistently set goals and track progress. SMART KPIs are strategically-created metrics that monitor progress toward your objectives to understand when and how to return to the drawing board.

What’s a KPI?

To understand the meaning of SMART KPIs, let’s first break down a KPI.

KPI stands for key performance indicator. This quantifiable measure illustrates the functionality of a business’s structures and processes. You use these metrics to track progress toward your goals. KPIs monitor costs, efficiency, and customer satisfaction, among other things that measure how well different aspects of a business are running. 

Here are six examples of common KPIs:

1. Customer acquisition cost is the total cost of converting a new customer, including sales costs, marketing budgets, and other customer outreach initiatives.
2. Company perks usage is the percentage of perks used by workers. 
3. Recruiting conversion rate is the number of hired candidates versus the number of applicants. 
4. Net profit margin is the amount of money after you’ve deducted all expenses from the total revenue.
5. Revision time is the average number of rounds or time it takes to reach the final design.
6. Absenteeism rate is the percentage of workers who are absent over a specific period.

KPIs provide powerful supporting information to understand the root of organizational weaknesses and the sources of successes. They give you the data necessary to make purposeful decisions. 

For example, a high absenteeism rate can suggest several potential problems, including bad hiring processes, burned-out employees, or a toxic work environment. When you examine high absenteeism rates alongside other KPIs, you can whittle down all the potential variables to find the root problem.

Significant absenteeism, low perks usage, and high revision times may suggest that employee engagement is dwindling. This might be because of a lackluster employee value proposition and complicated operating models.

What’s a SMART KPI?

To reach a specific goal, you must choose KPIs intentionally. The SMART method is an impactful way to ensure you pick good KPIs to track progress toward your objectives. 

SMART stands for specific, measurable, achievable, relevant, and time-bound. People commonly use this method to define their goals, but here’s how you can apply these criteria to choose effective KPIs: 

• Specific: Does the KPI accurately convey the information I need? 
• Measurable: Does this metric measure the success of overall business objectives and can it be measured itself?
• Achievable: Do I have the resources to properly measure and achieve this KPI? 
• Relevant: Is this metric relevant to my goals and what I want to achieve? 
• Time-bound: Does the KPI have a start and end point?

A simple KPI goal might be “shorten sales cycle length,” which tracks the average time it takes from initial contact to closing a sale. A SMART KPI goal would be “Decreasing sales cycle length by 5% each month to decrease sales costs by 15% by the end of Q4.”

What are the benefits of KPIs for your business?

Numbers talk. And not just about measuring profits. Backing up business strategies and analyzing performance based on quantitative measurements rather than qualitative assumptions empowers you to make clearer judgments and decisions. 

Here are six reasons you and your team should define SMART KPIs to track short-term goals, long-term objectives, and work tasks: 

1. Clarity: When you understand what you’re measuring regarding a strategic goal, it encourages you to use your business acumen to achieve that objective. 
2. Motivation: Specific, challenging goals keep workers motivated. And KPIs break down big objectives into specific challenges that encourage you to take ownership of your work and show up for your team. 
3. Flexibility: Companies without a road map outlining progress toward goals might lose themselves in the shuffle. KPIs pinpoint what’s working and what isn’t, encourage businesses to adopt more productive strategies, and help leaders construct effective action plans.
4. Collaboration: Measuring team and individual performance can make workers feel like their work has a direct impact. It encourages operational excellence by aligning your efforts to the health of your team and the company. 
5. Organizational knowledge: Carefully tracked and recorded KPIs create a powerful knowledge base that benefits everyone and crushes information silos. A centralized database with KPI findings helps employees understand what has and hasn’t worked in the past, gauge organizational trends, and avoid redundancies. 
6. Tracking: Checking in on your KPIs is like a regular health check. They let you see your performance throughout the process and understand what you need to adjust to reach an end goal.

SMART goals versus SMART KPIs

You’ll apply the SMART method a bit differently to goals versus KPIs. Here’s an example to illustrate: 

The goal: Increase the annual revenue growth rate by 10% by the end of Q4. 

The KPI: Hit 10k monthly sales for new product offerings.

And here are four ways to distinguish them from one another:

1. Intention: The goal is the final outcome you wish to accomplish. The KPI is a quantifiable performance metric you choose to reach that goal. 
2. Purpose: The purpose of the goal is to create a milestone you build all daily tasks and strategies around for achieving it. The purpose of the KPI is to provide insights into reaching the goal. 
3. Time frame: You can aim to achieve your goal in one month or five years, whereas you should break down your KPIs into smaller, manageable time frames to allow you to analyze your insights and reframe your strategies. 
4. Dependency: You define goals to support the organization’s larger mission and vision, and you define KPIs to support these objectives. 

How to create SMART KPIs

Here are three steps for choosing the right KPIs to help you focus on your goals:

1. Define the situation: Identify the challenge and build a realistic goal, like “Increase sales by 25% by the end of Q1.”
2. Choose SMART KPIs: Based on your objective, determine the necessary measurements to track progress. You might analyze customer conversion and bounce rates on your e-commerce website, social media engagement with target audiences, and click-through rates from social media to online stores. 
3. Build a work plan: Share and document everything in a comprehensive work plan. Schedule regular check-ins to evaluate progress and decide whether to change your plan. 

16 SMART KPI examples

Here are sixteen strategic KPI examples to get you started. 

Sales objectives

The goal: Increase the annual revenue growth rate by 10% by the end of Q4 by expanding product offerings and increasing the customer base in existing markets.

The KPIs:

1. Increase customer engagement across the web and social media by 100%
2. Hit 10k in total sales for new product offerings
3. Increase sales conversion rates across the web and social media by 45%
4. Lower average customer acquisition cost by 10%

Customer retention

The goal: Achieve a customer satisfaction score of 90% or more by the end of the quarter by improving customer service response times and offering personalized solutions to customers. 

The KPIs:

5. Lower average customer service response times from five to two minutes

6. Lower average turn-around time for creating personalized customer solutions from 30 to 15 minutes

7. Increase qualified lead-to-client conversion rates by 35%

8. Lower the number of support ticket escalations by 45%

Website traffic

The goal: Increase website traffic by 20% by the end of the next quarter by implementing an effective search engine optimization (SEO) strategy and improving your social media presence.

The KPIs:

9. Optimize 80% of web content by end of year

10. Train 100% of the marketing and sales team in SEO optimization

11. Increase target audience engagement by 45%

12. Reach 3k new social media followers

Employee retention

The goal: Increase the life cycle of an employee from three to five years and improve employee satisfaction rates by 80% by improving benefits and company culture.

The KPIs:

13. Decrease overtime hours by 60%

14. Increase the percentage of perks employees use by 45%

15. Decrease revision times from managers on team projects by 35%

16. Receive employee feedback scorecards from 100% by the second quarter

Strategically progress toward your goals

Clear and purposeful SMART KPIs help you perform more effectively, imagine smarter and more attainable objectives, and track progress in ways that encourage collaboration between you and your coworkers.

Now that you understand the power of building measurable frameworks to achieve business objectives, you can change your goal-setting strategies and perform to your best ability.