KPI – what is it?

KPI – definition

KPIs (Key Performance Indicators) are key performance indicators used to assess the achievement of goals and monitor progress in implementing strategies or activities within a company, project, or process. KPIs are measurable, specific, time-based, and directly related to an organization's goals. They are used to assess performance, identify areas for improvement, and make data-driven business decisions. KPIs can cover various areas of operations, such as sales, marketing, customer service, finance, production, or logistics. It is important that KPIs are well-defined and tailored to the specific needs of a given company to enable effective monitoring of progress and the achievement of strategic goals.

Types of KPIs

Due to the purpose:

• Strategic KPIs: They measure the long-term goals of the company, e.g. the company's revenues over a year.
• Operational KPIs: Measure short-term goals and the performance of business processes, e.g., the monthly sales result of a given department.

By area of ​​application:

• Financial KPIs: Measure a company's financial performance, e.g. revenue, net profit, profit margin, return on equity (ROE).
• Marketing KPIs: Measure the effectiveness of marketing activities, e.g. number of website visitors, conversion rate, number of leads, customer acquisition cost (CAC).
• Production KPIs: Measure the efficiency of production processes, e.g. order fulfillment time, defect rate, production efficiency.
• Customer service KPIs: Measure the level of customer service, e.g. call waiting time, customer satisfaction rate, customer retention rate (CRR).
• IT KPIs: Measure the performance of IT systems and IT infrastructure, e.g. system availability, application response time, number of calls to the IT helpline.
• HR KPIs: Measure the effectiveness of the HR department, e.g., employee recruitment time, employee turnover rate, employee absenteeism rate.

Additional divisions:

• Quantitative KPIs: Expressed in numerical values, e.g. number of products sold, order fulfillment time.
• Quality KPIs: Expressed in a descriptive manner, e.g. customer satisfaction level, product quality assessment.
• Leading KPIs: They measure factors that influence the achievement of strategic goals, e.g. the number of new customers, conversion rate.
• Outcome KPIs: They measure the results achieved by the company, e.g. revenues, net profit.

How to measure KPIs?

Measuring KPIs (Key Performance Indicators) is a key element of effectively managing a company, project, or process. There are several steps you can take to properly measure KPIs:

First, each KPI should be carefully defined, specifying clear objectives, measurement metrics, and success criteria. KPIs should be specific, measurable, achievable, relevant, and time-bound (SMART).

Next, it's necessary to select the appropriate tools and systems for collecting the data necessary to measure KPIs. These may include CRM systems, analytical tools, reporting systems, survey research platforms, and so on.

The next step is to establish a KPI measurement schedule, i.e., the frequency at which they will be monitored and reported. The frequency may depend on the nature of the KPI and the needs of the organization – these could be daily, weekly, monthly, or quarterly.

Once data is collected, it's essential to analyze and interpret it in the context of the organization's goals. It's important to regularly evaluate KPI results and compare them with previous results and planned goals to identify areas of success and areas requiring improvement.

Based on KPI data analysis, specific actions should be taken to improve performance. These may include changes to strategy, processes, products, or marketing that will help achieve the intended goals.

It's also important to consider communicating KPI results within the organization to engage employees in the improvement process and motivate them to achieve better results. Regular reporting of KPI results can also enable the identification of trends and patterns, allowing for a better understanding of the dynamics of the organization.

Finally, the KPI measurement process should be dynamic and flexible, allowing for the adaptation of goals and actions in response to changes in the business environment and organizational needs. Constantly monitoring KPIs and responding to changes is a key element of effective management and achieving business success.

Examples of KPIs in eCommerce

Conversion:

• The percentage ratio of transactions to visits to an online store. Higher conversions mean more effective conversion of website traffic into sales.

Average order value:

• The average monetary value of a single order. This can be used to evaluate the effectiveness of upselling and cross-selling strategies.

Cart Abandonment Rate:

• The percentage ratio of abandoned carts to the number of initiated shopping sessions. A high cart abandonment rate may suggest problems with the shopping process.

Repeat Purchase Rate:

• The percentage of repeat purchases to total transactions. A high repeat purchase rate indicates loyal customers.

Average Customer Acquisition Cost (CAC):

• The total cost of customer acquisition divided by the number of customers acquired. A low CAC is beneficial for business profitability.

Customer Lifetime Value (CLV):

• The average monetary value a customer brings to the company over the course of their relationship. High CLV indicates profitable customers.

Return rate:

• The percentage of returns compared to the number of products sold. A high return rate may indicate product quality issues or poor marketing communication.

Average Order Value (AOV):

• Average order value. Can be used to identify customers with higher purchasing potential.

Session duration indicator:

• The average time a user spends on a website. Longer session durations can indicate greater customer engagement.

Customer Satisfaction Score (CSAT):

• Post-purchase customer satisfaction rating. A high CSAT score indicates a positive purchasing experience.

KPI vs OKR – comparisons

KPIs in Shopify

Shopify offers a variety of native reporting and analytics features that allow you to track the key performance indicators (KPIs) of your dropshipping store.

Here are some important KPI categories to pay attention to in Shopify Poland :

1. Sales KPIs:

• Sales: Total sales revenue during a specific period.
• Conversion rate: The percentage of visitors to your store who make a purchase.
• Average Order Value (AOV): The average amount spent by a customer on a single order.
• Customer Lifetime Value (CLV): The total revenue a customer generates for your store over their lifetime.
• Profit Margin: The difference between a product's selling price and its cost to purchase from a dropshipping supplier.

2. Marketing KPIs:

• Traffic Sources: Channels from which visitors to your store come, e.g., search engines, social media, email.
• Customer Acquisition Cost (CAC): The average cost of acquiring a new customer through marketing activities.
• Marketing Return on Investment (ROAS): The ratio of revenue generated from marketing activities to their cost.
• Click-through rate (CTR): The percentage of people who clicked on an ad or link in your marketing campaign.

3. Customer-related KPIs:

• Customer Satisfaction Score (CSAT): The level of customer satisfaction with customer service and purchases.
• Churn Rate: The percentage of customers who have stopped shopping at your store.
• Return Rate: The percentage of orders that were returned.

4. Operational KPIs:

• Order Processing Time: The time it takes to ship an order to the customer.
• Shipping Cost: Average shipping cost for an order.
• Cart Abandonment Rate: The percentage of visitors who added items to their cart but did not complete the purchase.
• Inventory: Monitor product inventory levels with dropshipping suppliers to avoid out-of-stock situations.

Data analysis in Shopify ( Shopify in Polish ):

Shopify offers a rich admin panel with an analytics section that allows you to visualize data and generate KPI reports. You can filter data by various criteria, such as time period, marketing channel, product, or region.