KPI is an assessment method applied by many businesses. However, in reality, many cases of KPI implementation do not bring the expected value. Partly because managers do not have a clear direction in how to set KPI exactly. Partly because the criteria are too far away and implicitly put direct pressure on employees. Learn more about KPIs and how Developing KPIs for employees through the 5 effective steps below.

What are KPIs? 

KPI, aka Key Performance Indicator, is a measure used to evaluate job performance. Specifically, KPIs reflect the completion of work and goals of an individual, group, department or the whole organization. There are many ways to represent KPIs as specific metrics, ratios or quantifiables. Depending on the object and specificity of the job, KPI will be presented in different forms.

Why do you need to set up KPIs for your business?

Normally, businesses will build much KPI system varies with each level from easy to difficult. This is to ensure that less experienced or highly specialized staff can use it and measure it.

For example, a salesperson with 6 months of experience needs to bring in 200 million in revenue/month, but a salesperson with 1 year of experience must reach 500 million in revenue/month. In addition, big KPIs are often strategic and for departments such as increasing revenue by 100% in the quarter compared to the previous quarter.

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5 KPI templates for each position and department

1. KPI Template for HR

• Number of CVs received
• Ratio of suitable candidates to total CV
• Cost for a CV
• Number of new employees
• Expenses for a new employee
• Average training cost per new employee
• Average duration of recruitment periods
• Percentage of full-time employees after probation period
• Number of internal events in a month
• Number of people participating in internal events in a month
• Employee satisfaction index

2. KPI Template for Sales

• Revenue of each individual
• Number of orders
• Lead-to-Order Conversion Rate
• Average lead-to-order conversion time
• Order cancellation rate
• Number of calls made
• Call-to-order conversion rate
• Average customer response time
• Customer Satisfaction Index

3. KPI Template for Marketing

• Ratio of marketing expenses to total revenue
• Number of potential customers
• Traffic to lead conversion rate
• Cost per lead
• Number of followers on social networks
• Number of monthly website visitors
• Average customer retention time on website
• The amount of organic traffic on the website

4. KPI Template for Customer Care

• Customer retention rate
• Percentage of customers who stop using the service
• Rate of complaints, customer feedback
• Ratio of resolved issues/backlogs
• Customer satisfaction rate
• Average time to respond to customers
• Average time to solve a problem

5. KPI template for Production department

• Average output for the day/week/month/quarter
• Average time to complete an order
• Percentage of quality goods right after production
• Quality Index
• Finished goods inventory ratio
• Rework rate
• On-time order completion rate
• Efficiency index of maintenance activities
• Equipment efficiency index

5 Steps to create the most effective KPIs

Step 1: Determine who is the department/KPI maker

Businesses can choose one of two ways:

• Way 1: Active departments and divisions Building KPI system.

The head of the department or department will be the main person in charge of setting up the KPI system, because they are the ones who directly assign the work and understand the responsibilities of each position in the group. In contrast, the senior management team or HCNS is responsible for suggesting and guiding the method of setting appropriate criteria.

Although KPI criteria will be highly feasible and close to the actual task of each individual, this method can make the goal less objective or set low. In the long run reduces the actual performance and capacity of the entire department. Therefore, if you choose how to set KPI In this case, businesses need to organize a team of experts to closely monitor and verify.

• Way 2: Senior management and HCNS set up KPIs and transfer them to subordinates.

The implementation will be the opposite of the above method. Therefore, this method ensures the most objectivity of the target. But sometimes KPIs can be far from reality because the builder doesn't have a clear understanding of the task the department performs. Or the KPI criteria are not suitable, there is no ability to measure the quality of work.

Step 2: Give KPIs

To work build KPI for Business To be effective, indicators must be closely aligned with the overall goals and mission of the department. For example, the sales department will have evaluation criteria based on monthly revenue, the time it takes to reach X orders or the number of leads they find. Meanwhile, the HR department has criteria such as recruiting 10 new employees in a month. The internal IT department has criteria such as increasing Internet transmission speed within 1 month.

Then you can apply these SMART criteria to evaluate each indicator. If the KPI criteria do not ensure SMART, the assessment is difficult to bring high value and accurately reflect the actual situation:

• S - SpecificGoals must be specific. Otherwise, employees will not know what their work needs to be done and what goals need to be accomplished.
• M - MeasurableGoals must be measurable. An unmeasurable metric will not yield any value. Hence the evaluation becomes pointless and time consuming
• A – Attainable: The goal must be achieved. A goal that is too high and far away can easily cause psychological fatigue and discouragement because no matter how hard employees try, they cannot complete it. Many businesses divide different KPI levels for employees to actively try and raise the KPI level gradually from time to time.
• R - Relevant: The goal is close to reality. Not only achievable, the goal must be consistent with the business context, the company's overall goals, and the internal environment. This helps employees have all the resources to accomplish their goals.
• T - Timebound: Goals have a clear deadline. This helps employees actively balance and control their work. Moreover, measuring KPIs will be more effective.

Step 3: Determine the levels to evaluate KPI completion

Building a KPI system for businesses There are many different evaluation criteria, managers need to determine the degree of influence on the overall goal of each criterion. For example:

• Group A is a collection of criteria and tasks that take a long time to complete and greatly affect the common goal
• Group B is the criterion, the task requires little time but has a great impact. Or a lot of time but little impact
• Group C is the criteria, the task has the least impact, the least time

The next step is to determine the weight of each criterion group. Example according to the table below

Step 4: Relationship between KPI completion and salary bonus

To encourage employees to achieve more KPIs, businesses should have appropriate bonus levels. The bonus policy should be unified right from the time of applying KPI in the department. After that, there will be a regular acceptance meeting for relevant individuals to summarize and evaluate the results.

This not only helps employees be more motivated in the future, but also creates a sense of recognition. Some businesses have additional bonus policies if employees exceed predetermined KPIs.

Step 5: Adjust and optimize for the most effective KPI

KPIs should be regularly monitored and adjusted as applicable. If HR cannot achieve KPIs after a long time, managers should consider working with employees and making adjustments if necessary. If employees consistently exceed KPIs, managers can increase their KPIs even higher. Of course, the bonus policy will also change flexibly.

Moreover, for a complete set of KPIs and long-term implementation, it is necessary to invest in testing for several months. Therefore, regularly optimizing KPI is a must for the most effective evaluation system. 

7 benefits when businesses build KPI

With staff:

• Work with clear goals, understand what you need to do
• Motivate to complete the assigned work well

Support to find weaknesses in yourself or things that slow down the progress when doing work

For managers and leaders:

• Employee performance tracking
• Properly recognize merit and show transparency in rewards
• Ensure the overall progress of the company and the set plans
• Improve efficiency and quality of joint work

3 Common mistakes when building KPI

Provide KPIs that are not aligned with business goals

Although the KPIs of each department are not the same, they must ensure an element that is consistent with the overall goals of the entire organization. For example, if the business sets a growth strategy of 300% this year, the Sales department needs to have a corresponding revenue KPI and the Marketing department needs a KPI about the amount of data and customer leads. Building KPIs for businesses Too far from the common goal will not bring real value and cause time consuming measurement.

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Focusing on KPI results but ignoring leading KPIs

For example building KPI The final result of the Marketing department is to get 200 leads monthly. But achieving this end goal requires a lot of additional work. So the above KPI has not shown the cause to create the result. Instead of just having a single KPI, businesses need building KPI supplementary supplement. That is, breaking down each goal to lead to a big goal.

Using leading KPIs not only helps to concretize the work, but also makes it easier to find areas for improvement if the final KPI is not reached. Similar to the example above, to reach 200 monthly leads, the Marketing department needs 20% leads from Google Ads, 40% leads from SEO and 40% leads from Facebook. Through the above sub-KPIs, the department head can soon adjust to ensure the completion of the main KPI.

KPIs are not adjusted, optimized to suit the time

Should not apply how to set KPI rigidly for a long time. You need to understand that KPI is just a supporting tool. Achieving KPIs is a good thing, but KPIs are not always the best destination.

For example, the Sales department has a common KPI of 3 billion in revenue in a quarter, divided equally among 5 employees. However, in the second half of the quarter, two employees suddenly quit, directly affecting the KPI progress of the whole department. What should businesses do now? Divide evenly and increase the KPI of the remaining 3 employees? Or adjust your KPIs to fit the current situation without putting pressure on other employees?

Or in case the whole room has reached the KPI after only 2 months. Should businesses increase KPIs to create more motivation and increase momentum? Or relax and, without trying, lose momentum for the rest of the month?

Surely businesses have answers for each of the above cases. No one wants to lose momentum, and no one wants to put too much pressure on employees. Therefore, continuously updating KPIs to match the actual situation is essential.

Ending

Here are some how to set KPI effective for businesses and employees. In order for the KPI evaluation system to be implemented successfully, businesses should gather the participation of all relevant departments and personnel. Instead of just building KPI system one-way, neither ensuring objectivity nor long-term feasibility. In addition, administrators can consider using KPI software to shorten the evaluation process while maintaining efficiency.

OOS Software has more than 15 years of research and development, is a reliable partner to support human resource management, accompanies many large enterprises and corporations in the market. Contact now to get advice on Recruitment Software for your Business.