Hack95.Know the Difference Between a KPI and a Measurement

Hack 95. Know the Difference Between a KPI and a Measurement

All key performance indicators are numbers, but not all numbers are key performance indicators.

There is a longstanding argument in the web measurement community about whether raw measurements like "number of leads" or "total orders taken" can be key performance indicators. The easy answer is no, measurements are not key performance indicators, at least not well-defined key performance indicators [Hack #94].

The rationale for this statement is that raw measurements alone do not contain enough information to drive action, an essential element of a well-defined KPI. If you tell me that I gathered "1,000 leads" or took "10,000 orders," I have no idea if that is good or not, because you haven't presented the numbers in the context of how much work it took to get those leads or orders. This is why we look at leads per visitor, orders per visit, or even better, leads per marketing dollar spent and orders per referring source. As you can see, each of these KPIs drives an action (for example, "get more visitors," "drive more visits," "spend fewer marketing dollars," or "find more referring sources like this!").

Key performance indicators are all about creating context and conveying more information than is possible via a single number. Feel free to provide the raw numbers that make up the KPI beside or below the ratio if it makes you feel better (Figure 7-7). Over time, you'll realize that the number is nice, but it doesn't help you make any decisions you wouldn't make otherwise, provided you're using your KPIs correctly.

The exception to always using ratios is reporting revenue and sales numbers. Because we're all so focused on increasing revenue or decreasing operational costs, reporting those numbers in your KPI report will save you from having to answer the question, "How much money did we generate or save during this timeframe?" Still, consider using great indicators like revenue per visitor, revenue per visit, sales per search, and savings per call deflected to provide additional context whenever possible.

Figure 7-7. Present both raw numbers and well-formed KPIs