Defining KPIs and What Not to Measure
Episode #3 of the course How to create a data-driven culture by Jon Leighton
Last lesson, we looked at how to properly define your business objective and encouraged you to start thinking about which metrics can help you track these business objectives.
Today, we’ll look at the definition of a KPI and start by looking at what a KPI shouldn’t be.
Defining KPIs
One of the best resources you can refer to throughout this course is Avinash Kaushik’s Web Analytics 101: Definitions: Goals, Metrics, KPIs, Dimensions, Targets. In it, he gives us the definition of a KPI:
A key performance indicator (KPI) is a metric that helps you understand how you are doing against your objectives.
While you’ll have many metrics available to you to measure, a KPI will become one of your most referenced metrics when it comes to measuring the success of your business.
As Kaushik writes, the key word in this quote is “objectives.”
A KPI is a metric that measures specific objectives that you’ve set, hence its importance.
A simple way to identify KPIs is that they should be actionable, simple, and able to be segmented. If a KPI isn’t one of these things, it’s not a very good KPI.
Poor KPIs can usually be defined by another well-used term—vanity metrics.
Vanity Metrics
These metrics are pretty much what it says on the tin—shallow metrics that don’t really tell us all that much about our objectives.
Ask yourself this:
Does a metric make you feel good if it goes up? Does it help you make decisions? If the answer to the first question is yes but the second question is no, you’ve got yourself a vanity metric.
The list of vanity metrics includes things like sessions, page views, number of followers, number of downloads, number of users.
When any of these metrics go up, we give a little fist pump in the air, but do they tell us why they’ve gone up? What happened to make your Twitter followers increase?
Does an increased vanity metric equal one step closer to fulfilling our business objective?
Probably not.
It’s not to say you should completely disregard these metrics, just don’t use them as a key part of making your decision.
Note: For some businesses, such as publishers, page views can be a good KPI. This is because the metric “page views” has an impact on their business objective to “make profit.” The more page views they have, the more revenue they generate from ads.
Keep this in mind when choosing your own KPIs—does an increase/decrease in your chosen metric have a direct impact on your business objective?
In the next lesson, we’ll take a look at what makes a good KPI, with some example metrics.
Recommended book
Lean Analytics: Use Data to Build a Better Startup Faster by Alistair Croll, Benjamin Yoskovitz
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