The difference between quantification, measure, metric, and kpi

The difference between quantification, measure,

metric, and KPIBased on www.bscdesigner.com/quantification-measure-metric-kpi.htm

By Aleksey Savkin, bscdesigner.com

BSC DESIGNER

http://www.bscdesigner.com/


KPIS DON’T WORK FOR OUR BUSINESS!

KPIs don’t work for our business!

• Does this statement sound familiar to you?


• Does this statement sound familiar to you?• In a business world there is no good

understanding of what a KPI, a metric and a measure is…


• Does this statement sound familiar to you?• In a business world there is no good

understanding of what a KPI, a metric and a measure is…

• And what the difference is between them.


• As a result, many executives have a long list of metrics



• They call them KPIs



• They call them KPIs• They put them of a visually appealing

dashboards



• They call them KPIs• They put them of a visually appealing

dashboards• But these efforts don’t provide any tangible

effect on business performance.

NOT ALL METRICS ARE KPIS!

Let’s see if we can clarify the situation.

Observation. A marketing and sales process. Mapping observations into numbers.

Metric. A derivative of measure.

Measures. An amount or degree of something.

$ 88

A total cost to gain a new customer

$ 200

$ 1300 4

11

2

17

$ 1500

The number of customers acquired

Funds invested in the marketingFunds invested in the marketing The number of customers acquired

=

Observation Quantification

Source: www.bscdesigner.com

FROM A QUANTIFICATION TO A METRIC

BENCHMARKING WITH METRICS

• A metric is a standard of measurement.


• A metric is a standard of measurement.• It means that we can use it to compare our

measurements with past results.


• A metric is a standard of measurement.• It means that we can use it to compare our

measurements with past results. • Or, we can compare something that we

measured in our company with measurements of another company.


• An example: we can compare “a total cost to gain a new customer” with historic data to update company’s marketing strategy and choose a more cost-effective marketing approach.

WHAT IS A KPI? WHY ISN’T ANY METRIC A KPI?

• KPI is a metric (it doesn’t imply that any metric is a KPI).



• KPI stands for Key Performance Indicator.



• KPI stands for Key Performance Indicator. • These three words define the function of a

KPI…


• Indicator. It should show the number.


• Indicator. It should show the number.

• For example: “How good our customers are engaged” is not really an indicator; in opposite, “Average customer engagement score according to the monthly survey” is an indicator.


• Performance. It should be connected to a performance.


• Performance. It should be connected to a performance.

• “The number of computers in an office per an employee” is a metric, but it is not really connected to the ultimate business performance. If you will double the number of computers you don’t expect your profits to be increased.


Key. It should be important for your business, department, team or whatever you current scale is.

A QUICK TEST: METRIC VS. KPI

• Ask yourself a question: would you pay a significant sum to get the value of this metrics two times higher (or lower)?


• Ask yourself a question: would you pay a significant sum to get the value of this metrics two times higher (or lower)?

• If the answer is “no,” then we are talking about a metric, not a KPI.


• An example: “a total cost to gain a new customer” might be or might not be a KPI.



• It depends on your business strategy.



• It depends on your business strategy. • If your currents costs to gain a new customer

are high and your team found a way to reach the same customers, but at a 10 times lower price, then it is an excellent KPI that will affect your ultimate performance significantly.

“MONTHLY WEBSITE VISITORS” IS NOT A KPI

• The number of monthly visitors is a metric, but if it is a KPI?



• Let’s do a “metrics vs. KPI” test: How much would you pay in US $ to double the number of your monthly visitors?



• Let’s do a “metrics vs. KPI” test: How much would you pay in US $ to double the number of your monthly visitors?

• Don’t rush to come up with a figure, it’s not as simple. Any experienced website owner will start asking the questions: what SEO methods will be used, who will be these new visitors, where will they come from?

FOR MOST ONLINE BUSINESSES THE NUMBER OF MONTHLY VISITORS IS AN EXCELLENT METRIC, BUT IT IS

NOT A KPI.

HOW CAN WE POSSIBLY CONVERT THIS METRIC INTO A KPI?

• Let’s have a look at the questions that I suggested an experienced website owner would ask.



• What if we are taking about visitors that come from search engines?




• They were searching using keywords that were highly relevant to our marketing funnel.




• They were searching using keywords that were highly relevant to our marketing funnel.

• We know that these visitors will generate us qualified leads that will be successfully converted into sales.

THE NUMBER OF ORGANIC VISITORS FOR A RELEVANT KEYWORD MIGHT

BE A GOOD KPI.

WHY DO WE NEED A KPI?

• KPI is abused in a business jargon.


• KPI is abused in a business jargon. • People tend to call any numeric value a KPI.


• KPI is abused in a business jargon. • People tend to call any numeric value a KPI. • In most cases this doesn’t make sense and as a

result we hear something like “KPIs don’t work for our business.”


• KPI is abused in a business jargon. • People tend to call any numeric value a KPI. • In most cases this doesn’t make sense and as a

result we hear something like “KPIs don’t work for our business.”

• That’s because those were not KPIs, but were simple measures or metrics.

THE BENEFIT OF A REAL KPI IS THAT IT PROVIDES EXECUTIVES

WITH MEANINGFUL INFORMATION TO MAKE A BETTER DECISIONS.

LET’S TAKE “A TOTAL COST TO GAIN A NEW CUSTOMER” AS AN EXAMPLE

• It helps to come up with a better lead generation strategy.


• It helps to come up with a better lead generation strategy.

• A company might start promoting a low-cost or free product as a front end, making money on the back end product.


• It helps to choose of an appropriate marketing method and eliminate ones that are not cost effective.


• It helps to choose of an appropriate marketing method and eliminate ones that are not cost effective.

• Once compared an efficiency of various marketing and PR methods, a company might decide to replace expensive advertisement in a magazine with targeted CPC campaign in AdWords.


• It helps to define a right pricing for a product.


• It helps to define a right pricing for a product. • Knowing the cost to gain a new customer a

manager can decide on the pricing of a new product or on the maximum discount that he can afford.

KPI BEST USAGE SCENARIO


• In the best case KPI will not only tell us a story about what’s going on in the business right now…


• In the best case KPI will not only tell us a story about what’s going on in the business right now…

• But it will give a business time to react appropriately.


Following an example above:

• If a company tracks its positions in search engines for the keywords that are the most relevant and best converting, then KPI will work as an early warning signal, telling a management that something is going wrong.


Following an example above:

• If a company tracks its positions in search engines for the keywords that are the most relevant and best converting, then KPI will work as an early warning signal, telling a management that something is going wrong.

• Executives won’t be surprised by a sudden sales drop, they will have a time to react respectively.

EXAMPLES OF A GOOD CANDIDATES FOR KPIS

• EBIT (Earnings before interest and taxes) $• Average shopping cart value• Lead to sales conversion rate• % of returning customers• A total cost to gain a new customer• Market Share, %


• Bernard Marr in his article on LinkedIn suggests “The 4 KPIs Every Manager Has To Use.”



• You won’t actually find there ready-to-use KPIs.



• You won’t actually find there ready-to-use KPIs.

• For example, it’s impossible to come up with a universal KPI for “Internal Process Quality,”


A company need to search its own KPIs in the four areas mentioned in the article:

• Customer Satisfaction, • Internal Process Quality, • Employee Satisfaction, • Financial Performance.

METRICS AND KPIS IN BSC DESIGNER

In BSC Designer with have a “KPIs” tab:


Some users load the software with raw data, other use metrics, good projects consist of KPIs.


Some users load the software with raw data, other use metrics, good projects consist of KPIs.

Hopefully, after this presentation you’ll be prepared to differentiate raw data, metrics and KPIs.

MORE ABOUT THE BALANCED SCORECARD

Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com

BSC DESIGNER

http://www.bscdesigner.com/balanced-scorecard-articles.htm



THANK YOU!

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The difference between quantification, measure, metric, and kpi

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