How to: choose the right KPIs in an era of 'big data'

We're in the middle of a 'data explosion'. 90% of the world's data has been created in the past two years. In 1992, 100 GB of data was created each day. By 2018, that figure will reach 50,000 GB each second. Two decades ago, few businesses would have held electronic data on their customers. Now, almost every business we use on a regular basis holds our entire transaction history and many of our personal details.

We're in the middle of a 'data explosion'. 90% of the world's data has been created in the past two years. In 1992, 100 GB of data was created each day. By 2018, that figure will reach 50,000 GB each second. Two decades ago, few businesses would have held electronic data on their customers. Now, almost every business we use on a regular basis holds our entire transaction history and many of our personal details.

Businesses have taken advantage of 'big data' to improve cost visibility, create precisely targeted marketing campaigns, and better manage their companies on a daily basis.

If you use EPOS software, you're generating huge amounts of data each day about transactions, stock levels, and your finances.

With so much data available to you, it's easy to be overwhelmed by it, and fail to use it in the manner you intended to. However, by choosing the right key performance indicators (KPIs), you can avoid drowning in data and pick out the figures that matter most to your business.

Your goals

There's no set of 'ideal' KPIs that every business should keep track of. Instead, the statistics you choose to watch are dependent on the nature of your business.

Firstly, you should revisit your business goals. Are you trying to cut costs? Is improving employee retention one of your objectives? How about opening two new stores in the next financial year?

Once you have your goals, you should assign two or three KPIs to each. For example, if you're trying to expand, you may track average order size or the number of repeat customers acquired in the previous month. If improving profitability is your goal, you should use metrics that reflect the efficiency of your resource use – such as sales per square foot or sales per employee.

Avoid vanity metrics

Vanity metrics are statistics that make us feel we've accomplished something, but in reality tell us very little about progress towards an objective. Website page views are a classic example. If you're launching a new product or a sale's started, your marketing campaign will certainly boost your page views. You see the spike in views and start celebrating – but it's too early for that! Instead, you should be measuring the behaviour of those new visitors. What's the bounce rate? How many actually go ahead with a purchase? What percentage of visitors return to your website in the future?

Instead of choosing numbers that look good to the directors, look at KPIs that actually reflect business success (or failure).

Leading vs. Lagging indicators

Another way to think about KPIs is to split them into two categories: lagging indicators, which measure events that have already happened (sales figures, costs etc.) and leading indicators, which attempt to predict the future.

Leading indicators are difficult to measure. Examples include the number of new customers with loyalty cards and the number and age of sales opportunities. These indicators are less concrete than lagging indicators, but can be helpful to keep track of, depending on your objectives.

Quality over quantity

Overall, the KPIs you choose should mirror your goals and provide actionable information to you and your staff. They should serve as useful metrics that give your business focus. To ensure this, keep the number of KPIs in the single figures. Of course, your software allows you to measure almost any outcome you can think of, but attempting to follow too many numbers can lead to an ineffective scattergun approach.

Integrity's Trader software is retail management software built for merchants. Transform your KPIs into easy to read graphs and charts using the reporting tools, to ensure you never lose sight of those crucial goals.

Explore more features of our EPOS software, and get in touch if you'd like to see it in action.