A common question we are often asked by our clients is: What KPIs should we track, and work on improving? The answer to this question depends largely on the overall goals of the business (macro and micro), as well as the specifics of the industry it operates in. There are a few key methods that can help you determine which key performance indicators (KPIs) to track for your business:
1. Start with your business goals and objectives: Identify the specific goals and objectives that your business is trying to achieve and consider which KPIs would be most relevant and useful for measuring progress towards those goals.
2. Look at industry benchmarks and best practices: Research what other businesses in your industry are tracking as KPIs and consider which of those metrics might be relevant and useful for your business as well.
3. Consult with your team: Involve your team in the process of selecting KPIs by asking for their input and ideas. Your team members may have valuable insights into which metrics are most important for your business.
4. Test and iterate: Once you have identified a set of potential KPIs, try tracking them for a period of time to see how useful they are in practice. You can then adjust and refine your list of KPIs as needed based on your findings.
Ultimately, the method you choose for determining your business goals and objectives will depend on your specific needs and priorities. It may be helpful to use a combination of these methods to get a well-rounded understanding of your business and its direction.
Industry Benchmarks
Industry benchmarks are statistical measures that provide a benchmark or reference point for comparing the performance of a business to its peers in the same industry. Industry benchmarks can be useful for evaluating the performance of a business and identifying areas for improvement. Below is a high-level overview of relevant benchmarks to track across the E-Commerce, Manufacturing, and Retail industries:
E-Commerce / Marketing
There are several industry benchmarks that are commonly used to measure the performance of e-commerce businesses. These include:
1. Conversion rate: This refers to the percentage of visitors to your website who complete a desired action, such as signing up for a newsletter, or placing an order. A high conversion rate is generally seen as a sign of a successful e-commerce business.
2. Average order value (AOV): This is the average dollar value that a customer spends per transaction on your website. A higher AOV can be a sign of a healthy e-commerce business.
3. Customer lifetime value (LTV): This is the total amount of money that a customer is expected to spend on your products or services over the course of their relationship with your business. A higher CLV can indicate that customers are satisfied with your products and are likely to make repeat purchases.
4. Return on Average Spend (ROAS): This is a measure of the profitability of your e-commerce business, calculated by dividing the net profit from your various marketing efforts by the cost of marketing. A high ROAS is generally seen as a sign of a successful e-commerce business.
5. Customer acquisition cost (CAC): This is the cost of acquiring a new customer, calculated by dividing the total cost of marketing and sales efforts by the number of new customers acquired. A lower CAC can indicate that your marketing and sales efforts are effective at attracting new customers.
6. Cost per lead: This metric measures the cost of acquiring a new lead and can be used to compare the efficiency of different marketing channels or campaigns.
Manufacturing
Some common benchmarks that are often tracked in the manufacturing industry include:
1. Production efficiency: This includes metrics such as cycle time, throughput, and utilization, which measure how effectively a manufacturing process is producing products.
2. Quality: Quality metrics such as defect rate and customer complaints can help a manufacturing company understand how well they are producing products that meet customer expectations.
3. Delivery: On-time delivery and on-time delivery rate are important metrics for manufacturing companies, as they can impact customer satisfaction and loyalty.
4. Safety: Manufacturing companies often track metrics related to workplace safety, such as accident rate and injuries per million hours worked.
5. Cost: Cost metrics such as cost per unit and total cost of production can help a manufacturing company understand the efficiency and effectiveness of its production processes.
6. Inventory: Metrics related to inventory management, such as inventory turnover and average days of inventory on hand, can help a manufacturing company understand the efficiency of its supply chain and production processes.
Retail
Some examples of industry benchmarks for retail businesses might include:
1. Sales per square foot: This metric measures the sales generated by a retail business in relation to the size of its physical storefront. Industry benchmarks for sales per square foot can vary significantly depending on the type of retail business and its location.
2. Customer conversion rate: This metric measures the percentage of visitors to a retail store who make a purchase. Industry benchmarks for customer conversion rates can also vary widely depending on the type of retail business and its target audience.
3. Average transaction value: This metric measures the average amount that customers spend per purchase. Industry benchmarks for average transaction value can be useful for understanding how much value a retail business is generating from each customer interaction.
4. Customer retention rate: This measures the percentage of customers who go on make purchases from a retail business over time. Industry benchmarks for customer retention rates can help a retail business understand how effectively it is retaining its customer base.
5. Inventory turnover rate: This metric measures the number of times a retail business’s inventory is sold and replaced over a given period of time. Industry benchmarks for inventory turnover rates can be useful for understanding the efficiency of a retail business’s inventory management practices.
It’s important to keep in mind that industry benchmarks can vary significantly depending on the specific type of business, as well as its location and target market. It can be helpful to research benchmarks specific to your business and industry to get a more accurate understanding of what is considered “average” or “good” performance. If you have additional questions about the right benchmarks and KPIs for your business, feel free to contact our team for a free consultation.