Is There a Difference Between a KPI and a Metric?
How do you use KPI and Metrics in your business? Are they really necessary and how are they driving decisions that affect your revenue, profit margin, and overall company health?
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You might be asking yourself, what difference does it make, vs. what’s the difference. As long as you’re measuring something, isn’t that good enough?
I mean no one understands these numbers anyway, so as long as you’re tracking a few things for your accountant, you don’t have anything to worry about right?
You’re making money, so setting a bunch of goals you have to spend time monitoring isn’t really necessary, right?
Albert Einstein said, “Not everything that counts should be counted and not everything that is counted, counts.”
Like everything we do in our businesses, there should be a purpose and driver behind it.
If your only goal is to make money this quarter, that’s great, but are you measuring revenue, profit margin, owner distribution, or some other measure? How does making money contribute to your annual goals as well as your quarterly goals? What about your long term goals and your vision?
The concept for measuring my money is overwhelming to me because to be very honest with you, I’m in business to make money. I want to help people and I am doggedly passionate about bringing you great content, but I can’t do it if I’m not making money.
And, there’s more than one way to make money and new gurus seem to pop out of the woodwork to tell you the way they do it is better than the last guru who did it differently than the one before them. These ads for “the one proven way to make a gajillion dollars” drive me nuts…they worked their hinies off to get there and so will you.
Making money is a science that requires us study, grind, and calculate daily. Consistency refines what that science looks like and propels us into the next quarter. Making money is also an art that motivates us to constantly shift our perspective and periodically adjust our business models.
So in an age where consistency is King but flexibility rules the roost, do we even know if we’re coming or going anymore?
THAT is where KPI and Metrics come in. And I’ve invited my friend Kelsey Schmidt to help me with some of the details. And she has a FREE cheat sheet, you will NOT want to miss! Visit her website at https://www.innowik.com/opt-in for 3 Profit Maximizing Metrics. This phenomenal info graphic defines metrics, gives you three primary categories of metrics with examples, AND how to calculate them. Not only that, but she’s got some bonus examples as well.
Here’s the bottom line:
KPI’s measure the success of a specific business outcome at ABC, Inc.
Metrics measure the contributions of a specific effort, project or objective at ABC, Inc. They measure a progress toward a goal.
To help break this down a bit more, we’re going to follow the path of two companies throughout the rest of this episode: Todd’s Tattoo Parlor and Sophie’s Handmade Wearable Art.
Todd wants to see his customer acquisition costs decrease by 20% in the next twelve months. Todd has decided that this is a Key Performance Indicator that his entire business is doing well or not as well as he would like. He will not react to one terrible month or superior month, but will instead watch closely for month to month trends and if one is found, will dig more deeply. He may also choose to keep this KPI year over year to consider longer term trending. Several metrics rooted in individualized efforts will help move the dial on the KPI.
For example, Todd’s customer acquisition costs -remember, this is a KEY performance indicator of his business’s success, relies heavily on the number of client bookings. Todd will track these bookings in monthly metrics. In order to reach the goal of decreasing his costs, Todd needs to book more clients at the higher service levels. Because he knows his profit margins on each level of service, he determines how many bookings in each service level he needs and sets the targets accordingly. Then, of course his content and advertising go toward selling the higher end services and each month he tracks the actual numbers, compares them to the targets, and adjusts his content and advertising accordingly so he can make or exceed his goal of reducing his customer acquisition costs.
Todd watches his metrics and sees that the number of level 1 clients is increasing, and levels 2 and 3 are decreasing. Due to COVID, people have more time on their hands to get tattoos but less money to spend on the super-customized design. He makes some small adjustments to where he is spending his advertising dollars and may adjust his store hours temporarily to account for all working shifts in the workforce. Now he can accommodate the needs of his potential customers without changing the vision he has for his company.
Now, let’s look at Sophie. Sophie owns an online business selling handmade earrings, necklaces, bracelets and other wearable art. For the third month in a row, her Client Retention key performance indicator is indicating that she is consistently losing her customer base. When she looks at the metrics that help support the business objective of a 62% customer retention rate, she notices that her metrics measuring blog reads and You Tube views have also gone down.
So, her Key Performance Indicator of business success is maintaining a customer retention rate of 62%. The metrics that measure her effort (blog reads and YouTube Views) are decreasing. This helps her decide where to focus her energy and resources over the next coming weeks. She can choose to look at her competitor’s stats, ask her customers point blank, or check in with colleagues on trends they are seeing. She finds that businesswomen don’t need beautiful, custom pieces to show off at the office anymore, because, well, they’re not in the office, or the club, or the beach or where ever. Sophie needs to make a decision about whether to alter her business model or simply redirect her customer’s attention back to her custom made pieces.
Is it becoming clearer? Let’s try this:
- A metric tells you how you did yesterday, or last week or last month.
- A KPI tells you how well your business is contributing to your vision.
- Metrics are the everyday efforts that make a contribution to moving the needle.
- KPI’s measure how the effort of all those metrics is working.
- Metrics measure your website clicks, your email subscribers, your podcast downloads, and your Facebook Group membership numbers.
- KPIs measures your conversion rate, your profit margin, and your customer retention rate
You can see how important KPI and Metrics are to helping you decide who you need to hire, where you should focus your money, whether your past efforts have given you a return on your investment, and have given you a picture of whether your strategy is working for you. They will tell you if you need to make tiny adjustments or a major shift in your business model.
Make sure you have done your strategic planning first, that you’ve created your mission and vision statements and you know the top focus areas of your business for this quarter and this year. Otherwise, we find ourselves the butt of albert’s quote: we’re counting anything that can be counted, whether it counts, or not.
I’d love to help you get started, book a free consulting call and let’s see how I can be there for you. And don’t forget Kelsey’s free cheat sheet! You’ll find the link in my show notes or you can visit https://www.innowik.com/opt-in
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