KPI

KPI Outcome and Performance Metrics

December 24, 2020 by Dustin

When defining metrics we might want to use as KPIs, it’s important to look at both Outcome and Performance.

Let’s take a look at the difference.

Outcome Metrics

Outcome Metrics look at things that are already done. Outcome Metrics tell us either how well something went or how much trouble it’s in. These are called trailing indicators because they take a look after the performance is done.

Great examples of Outcome Metrics are growth metrics. Things like:

Growth in the number of sales closed this month over previous month.
Growth in Monthly Recurring Revenue (MRR).
Growth in Website Unique Visitors.
Growth in Facebook Engagement

But don’t think that only Growth metrics are Outcome Metrics. A lot of metrics are outcome metrics.

Performance Metrics

Performance measures look at activities and behavior that lead to outcomes.

Performance Metrics are different than Outcome Metrics in that Performance Metrics measure the activities and behavior that lead to outcomes. Let’s take a look at that.

Let’s say we’re looking at the Growth Metric of Number of Sales Closed this month and we see it’s up over last month. What activities and behaviors do you think might explain that?

Here are a few suggestions:

Average Calls of Contacts per Lead in the month – On average, the more times we contact a Lead and provide values, the more often we’re going to close a sale.
Number of leads generated – It stands to reason that if we have more leads in our pipeline, we’re going to generate more sales. Right? I hope. If the universe is still turning on its axis. (And 2020 is over. May it rest in peace.)
Number of Quotes Generated – If we’re not asking for the sale, we don’t make the sale (also, btw, coffee is for closers).

All of these measures and metrics are looking at activity, or performance. All of these elements of performance lead to the outcome of “Sales.” So if you’re looking at the trend of these activities, you can “know” something about the Outcome Metric “Growth in Sales.”

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Performance Metrics Predict Outcome Metrics

Ok, actually, you don’t strictly know anything about the Outcome Metric “Growth in Sales.” But you sure can predict it.

If you and your team have more leads, are providing more value, and are offering more proposals, are you going to make more or fewer sales. Yes, more. Please and thank you.

And that’s the point. If you’re keeping a close eye on Performance Metrics – and if you’ve identified the correct Performance Metrics – it’s just about as good as keeping an eye on Outcome Metrics because the one is a great predictor of the other.

Pretty cool, yeah?

Back to Index | Next: Defining KPIs

How to use outcome and performance metrics to create effective KPIs.

Measures and Metrics

December 24, 2020 by Dustin

Key Performance Indicators, or KPIs, are quantifiable measures and metrics we use to evaluate the performance of our business. Many times, we’ll use these same data points to set goals and improve the performance of our business, not just evaluate it.

But what is the difference between measures and metrics?

Measures Are Point-in-Time Data Points About Almost Anything

We use measures every day and don’t realize it. In the general world, this looks like:

Cups of coffee for breakfast.
Cups of coffee before noon.
Gallons of gas purchased.
Pieces of mail.

In business, this looks like:

Number of calls made to leads.
Number of sales made.
Revenue.
Cost of Goods.
Profit.

And so on.

Measures are easy and they’re all around us.

However, quite often, when taken on their own, measures don’t mean much of anything. For example, if I told you we made $100,000 in revenue, great! But wouldn’t you want to know over what time period? After all, there’s a big difference if we made that in one year vs. in one week or even one day.

That knowledge, the context of the measure, is what we gain with metrics.

Metrics Add Context by Combining Measures

Metrics combine two or more measures to provide context and more information.

Quite literally, metrics are nothing more than the combination of measures. If you want to get fancy, we say that metrics are derived from measures. To derive a metric, we combine at least two measures.

I’m not fancy, so I say metrics are what happen when measures make a “per” sandwich. Look what I mean.

Calls per sale
Revenue per month
Cost of Goods per month

Truth is that example falls apart and does not apply to every metric, but at least you get what I mean. Metrics are the combination of measures. Let’s go through a few more examples.

Net New Customers – This is Customers Added less Customers Dropped for the month (or other time period)
Employee Productivity – Or, Revenue per Employee
Lead to Close Ratio – Or, the number of Leads it takes to win one deal.

In reality, a lot of these metrics in reality become things like “Average Revenue” but that’s still a derived metric, or if you prefer a combination of multiple metrics — Total Revenue divided by number of months.

The point is metrics are nothing more than measures that provide context for each other through a little math.

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

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How We Use Measures & Metrics at Pivot Habit

KPIs are most powerful when used to establish a Performance Budget.

As you go through the next sections learning about KPIs, you’re going to find that I’m big on planning out KPIs. In other words, I do not like just identifying them and measuring how we do along the way. Noooo, dear friend.

As a little preview of what we do with KPIs, just as soon as we identify KPIs, we create a Performance Budget. Just as you budget your money for the year (um, you DO do that, right?), we do the same with our KPIs. We plan out the performance we want to see on each.

That’s super important as you’re about to see in about a 10 second read from now…

Which is Better: Measures or Metrics?

Measures vs. Metircs: Use whichever answers your question bestt.

This is a trick question. In reality it doesn’t matter, but smart people like to argue about this and make you think does matter. It. Doesn’t. Matter. Use what is appropriate for the question you’re trying to answer. Let’s look at an example of why.

Say you’ve tapped your credit line for $150,000 and you want to keep close tabs on the payback. You set a goal to pay back $6,000 at a time. Great.

Technically, “Payment” is a measure. You paid $6,000. That’s one data point. That is by definition a measure.

Some really smart people will tell you NEVER to track and use measures but only ever use metrics. So example metrics in this case would be either:

Growth of Payment – This doesn’t tell us anything about what we want to know, so this is out.
Line of Credit Utilization – If this is expressed as a percentage, it doesn’t do us much good (e.g. 67% utilized last month vs. 62% utilized this month). If expressed as a dollar amount, it sort of gets at what we want to know, but indirectly (e.g. $100,500 balance last month vs. $93,000 this month).

As you can see, if you look around, their might be a metric that captures the information you want to know. If there is, great. It is true that a general rule of thumb is that metrics usually capture more information and drive more performance. But that’s not always the case.

Here’s the thing. At minimum, in my method, you’re always going to be breaking your KPIs down into per month data points. So no matter what data point you use, you’ll end up expressing a metric. The question for you is data what best answers the question you’re asking. Most often that’s a metric, but sometimes a measure is what is called for.

Back to Index | Next: Outcome and Performance Metrics

Download the KPI Planning and Tracking Worksheet

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How to use measures and metrics effectively to create KPIs.

What Are KPIs

December 21, 2020 by Dustin

KPIs, or Key Performance Indicators, are measures and metrics which we have identified as critically important and valuable for their ability to help us evaluate the performance of the business. Put another way, they are data points that instantly tell us either that some aspect of the business is performing well, or that some aspect of the business is having a problem. They provide us with a lot of information in a very short amount of time and help us keep on top of the business.

KPIs are one of the two professional management tools we use to aid command and control of the business. OKRs are the other.

What KPIs Do For the Business

Even if you’ve used Key Performance Indicators (KPIs) before, I want you to think of them as the “daily drivers” in your business. KPIs serve as the “early warning radar system” you need. I want you to be clear that their purpose is to:

By their simple existence, they highlight those things which are important to measure in your business. I mean this in the vein of “What gets measured gets managed.” Also, “If you can’t measure it, you can’t managed it.” Both are quotes usually attributed to Peter Drucker.
KPIs are long term and steady. That is, we tend to keep the same KPIs quarter over quarter, and year over year. Obviously the values and even the targets change, but the KPIs we’re measuring and managing don’t change that frequently.
They provide “at a glance” intelligence about your business. When KPIs are crafted well and compiled effectively, you ought to be able to tell in 60 seconds or less which parts of your business are doing well and which aren’t. The clarity is amazing.
They help drive performance and growth. That’s because we’re not going to simply record performance against KPIs. We’re going to establish baseline (where we are now) and target (where we want to be). Then we’ll plan out performance against our KPIs and measure our success along the way.
KPIs show the trend of your business. They highlight when things are getting better, holding steady, or declining. They show these things with plenty of time for you to be able to take action. That’s how they serve as an “early warning system.”

What It’s Like to Use Key Performance Indicators (KPIs)

Take literally no more than 10 seconds and look at the diagram below.

Key Performance Indicators (KPIs) sample

You should be able to immediately tell that:

We’re making our revenue goals.
Also, Cost of Goods must be under control because we’re making our Gross Profit Ratio.
But Operating Profit is starting to dip.
And we’re not making our NET Profit goals.

I don’t know about you but I feel like I have command of information. I know what questions to ask next to drill into the issues. And that was just using four data points. Normally, we’d have a more complete picture.

That is one of the key power points of KPIs, but there is much, much more.

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