What Are KPIs? How you should define?

KPIs are the lifeblood of business intelligence and defining what yours are the first important decision you'll need to make when starting your BI project. In this post I'll be sharing some tips on how to choose the right KPIs for your business.

This post is basically Business Intelligence KPIs for beginners and beyond. This post will make you understand all things BI, things like Data Analysis and Visualization as well as BI platform and how to choose the right one.

KPI stands for Key Performance Indicator. They are metrics that help you to measure a business’s performance, or successful in achieving its objectives.

KPIs will vary based on the nature of the business activity, but they can be high level like measuring the overall performance of a business or focus more on specific activity like marketing, finance or your website.

Now, how do you define your KPIs? Overall ones might come to mind easily like total revenue, total sales, that kind of thing, but what about the more specific ones? Well, like I mention above it really does depend on your particular business activity and the data that you have available.

Let me share with you some of my top tips for things to think about to help you get started.

My first tip is an exercise that you can try by imagining that your business has its very own personal assistant like Siri or Alexa, and this assistant has access to all of your business data and can answer any question you might have about how it's performing.

So, what questions would you want to ask? What for your key performance indicators?....

Here are a few example questions

How much has our revenue grown this month? 

Obviously, that will be your revenue metrics, but then focused on a specific period of time compared with a previous period. 

How is our website performing? 

In this case you will need to define what KPIs defines performance for you. It won't just be the number of visits it gets because it could be that visitors aren't engaging with your site or you might be getting some spam traffic so you need to think about things like the average session length, the number of pages viewed per visit and the bounce rate.

When should I order more stock?

Here maybe measure a percentage of your stock capacity remaining side-by-side with a KPI showing the rate at which your stock is selling.

How has our new promotion impacted sales?

Here you might need to compare sales for a period of time before and since the launch of the promotion to calculate the percentage difference.

What social media posts create the most engagement?

Here you could compare different social media channels to see which ones give you the most reach and engagement or maybe categorize your post depending on their theme or content to see which ones perform better. You can see that just asking these questions it gets you thinking about the data points that you'll need to answer them and focus in on the important KPIs.

Now consider different aggregators if you're not familiar with what an aggregator is it's things like Sum, Average, Minimum and Maximum and these can be applied to your KPIs. You don't always have to go for Sum to add everything up and get a total value. You might want to consider applying different aggregators to different KPIs, for example, let’s say you run a restaurant. You might want to know what the average spend per cover is or the maximum number of covers in any given period.

By measuring KPIs over a specific period of time it allows you to compare them with previous periods and see how things are trending and evolving. In a dashboard you might often see a KPI that looks like this. Here we can see revenue for the past 30 days with a percentage of variation from the previous 30. The figure for the previous period isn't all that important but seeing that there's a trend and by how much things have gone up or down.

Consider combining metrics in order to create calculated KPIs. Now let's say you run a shop or an Ecommerce business

and you provide shipping. Now you might want to create a KPI which takes your revenue minus your shopping cost to see how much you're generating just on the products themselves. Consider how you're going answer the questions you want answering with the data that you have available.

Combining metrics because it involves calculations and that's filtered or targeted KPIs. If there's a specific area of your business you'd like to analyze or focus on more closely you might need to apply a filter to one of your metrics like revenue.

Taking the restaurant's example again, it might be that you want to see how much you're generating on just the dessert. In that case you take your revenue metric and you'd apply a filter to just the dessert items or if you're talking about your website traffic you might want to know what traffic is coming from social media so in that case you take your website visits metric and you'd filter by the social media channels.

In this post I tried my best for helping you to define your business KPIs. AS I mention in the beginning that every business is different with different data and therefore different KPIs. This post is just to help you to get started thinking about how to define yours, then you'll need to find out where the data lives to produce them and start planning to build your dashboard.

About the author

Syed Sarfaraz has over 17+ years of experience in multiple BI Analytical tools, Software Development. In various project he has successfully implemented BI Solution for client. Apart from this he has Digital Marketing and business strategy experience. He also contributes articles for digital-ranking.com. He focuses on solutions that merge current technologies, applications, and concepts together to help each client meet their goals with success.