Undoubtedly, you have heard the famous phrase, “You can’t improve what you don’t measure.” And yet, inherent in this quote is the misconception that the reverse is true as well – that if you measure it, you will also be able to improve it. This errant belief can cause leadership to overemphasize measuring a wide array of disparate metrics. The result is “measurement paralysis”, where true KPIs (key performance indicators) get drowned out by a cacophony of tracking and analysis.
So, how can you determine which numbers are the best metrics to track? We have put together a guide to B2B KPIs to help you better understand what to look at and how to identify KPI gaps.
For a metric to be a KPI it must be:
- Able to be Compared – Without being able to make a comparison to something else, a metric is just a meaningless number. A KPI will have a historical baseline, industry average, or goal value to use as a comparison. This is one reason why budgeting is so important! Most organizations loathe the budgeting process, but without having something to compare important metrics to, these metrics cannot be used as KPIs.
- Easily Obtained – Not only does a KPI need to measure the right thing, but it also needs to be easy to obtain from a dashboard or financial statement so that it can be regularly analyzed.
- One of Just a Few – A company should not have more than five primary KPIs because any more than that and you will spend more time on reporting than on doing your day job.
- Reviewed Regularly – KPIs should be regularly analyzed, but not overanalyzed. Typically, this means reviewing KPIs on a monthly basis, although sales management metrics will likely still need to be looked at on a weekly basis.
- Actionable – If a metric is not actionable, it cannot be a KPI. It may be a great metric, but if you cannot affect it in some way, why bother tracking it? You need to be able to take action to change it if it is too low or too high (or staying steady as efforts are being taken to change it).
Essential B2B KPIs
While there is not inherently a difference between what B2B and B2C KPIs do for their respective organizations, the areas they focus on may differ. For instance, a B2C company may be more apt to have in-store and ecommerce metrics to evaluate. However, regardless of the business type, must-have KPIs typically include revenue, gross profit, net profit, cost of goods sold (COGS), and overhead.
Then, each department will have its own team-specific KPIs as well that roll up into the organization’s overall KPIs. Ownership over these KPIs, therefore, belongs to the managers of each department, with executive leadership taking responsibility for the resulting companywide KPIs.
Understanding KPI Focus
A Forbes article on how to measure B2B success discusses the difference between revenue-oriented and brand-oriented marketing metrics. Brand-oriented metrics are concerned with the top of the funnel and include things like brand awareness and lead generation. Revenue-oriented metrics (also known as conversion metrics) are related to sales generation and include things like conversion rate, number of new customers, customer lifetime value, length of the sales cycle, customer acquisition costs, and customer churn. While revenue-specific KPIs are typically seen as more important, brand-related metrics feed into revenue KPIs, making them an important part of the overall picture as well.
However, that is not the only focus to be aware of when it comes to choosing KPIs to be the foundation of your business analysis. You also need to understand which metrics are leading indicators and which are lagging indicators. As the names would imply, leading indicators signal future events, while lagging indicators follow events. KPIs are almost always lagging indicators – profits, revenue, units sold, calls completed, etc.
Tracking KPIs that Matter
Selecting the right KPIs is crucially important because the metrics a business tracks will influence what it does and how it does it. Too many companies spend their time focusing on metrics that, while good to be aware of, do not actually contribute to their bottom line.
As a general rule of thumb, anything that is not related to how an organization does business should not be considered a KPI. For instance, a service provider that relies on in-person meetings should probably not use web-related metrics like website visitors as a KPI. But, often times, what makes a good KPI is more nuanced than that. For instance, that same company may also use their number of contacts as a KPI, and while that is certainly important to track, the number in and of itself does not mean much without knowing how the company is leveraging that contacts list. Without the right strategy around engaging with these contacts, this metric may not actually be correlated with success.
Identifying KPI Gaps
When a company is not achieving the results that they want they will start going downstream to look for a cause. For instance, if profitability is down, business leadership will look at the metrics feeding into overall net profit to see where they are not hitting their own department-specific KPIs. If they look at sales numbers and the metrics look fine, then they can presume that something is happening after the sale is made to reduce profitability. Depending on the organization, that might be finance, operations, manufacturing, or the like. If an examination into each of those areas does not reveal the cause, then they will know that they are not measuring something that they should be keeping track of somewhere in the organization because any question about what is happening at the macro level should be able to be answered through an analysis of another metric downstream.
If you need help aligning your organization to grow revenue, please reach out to me. Every day I work with B2B organizations that need help reaching their sales and marketing goals. I teach them how to identify the right KPIs, strengthen key relationships, and use the best tools for their needs to find success. Learn more about how I can help your organization achieve profitable revenue growth by creating a better strategic approach!