How to choose KPIs for your startup

Ambitious projects need ambitious goals, and the best goals, whether KPIs, OKRs, or SLAs, track business outcomes rather than individual outputs.

Output/activity metrics Outcome/results-based metrics
Call 100 prospects Close $20,000 in sales
Ask 10 customers for a case study Publish 20 case studies
Ship 15 checkout improvements Increase conversion rate by 15%
Build a partner program Close 10 deals with new partners
Launch inventory management 15 inventory management users

Without outcome-focused goals, teams get caught up with busy work. They work very hard but deliver little value. Churning out work becomes the definition of success, even if that work fails to deliver value to the business. Outcome-focused goals are ideal because they keep teams focused on delivering value; they are the definition of working smart, not hard. With outcome-focused goals, success is defined by impact, not effort.

Outcome-based goals have one major flaw: it can take time for effort to breed results. This delay is especially complicated when individuals or teams require others to take it to the finish line.

For example:

When a product development team delivers a new feature, they might have to wait for customer success to upsell it to customers, making it difficult to measure product development success based on user adoption. An outbound salesperson can’t be measured by closed sales (the ultimately desirable business outcome) when the sales cycle takes three months, and another salesperson owns it.

When setting quarterly targets, if it takes more than a quarter to impact the number you want to affect, aligning a target to that number doesn’t make sense. If it’s not possible to move the needle within a brief period, you have two options:

  1. Tighten feedback loops. Sometimes, it’s possible to remove the impediments that delay gratification. A more aggressive release schedule will help product teams to deliver results more quickly. Try to find and reduce these impediments.
  2. Turn to output measures strongly correlated with the metrics you want to improve.

Finding good output measures

Not all output measures are completely detached from the outcomes you want to achieve, but many are. When a team can’t directly impact the numbers that matter most, the key to setting great targets is to identify activities that you know will eventually impact the numbers you care about.

It does not make sense to incentivise an outbound salesperson based on the number of emails they send because this output measure does not correlate with success. Sending 100,000 outbounds to poorly vetted prospects won’t deliver value, but such a target incentivises them to do this. It also might not make sense to incentivise an outbound salesperson based on the number of closed sales. While this is the ideal desired outcome, if your outbound salesperson does not close deals because they hand them over to someone else (as is typically the case), they are relatively powerless regarding close rates. Long sales cycles might also delay the impact of their actions on this outcome-focused measure.

In a situation like this, finding another measure or activity that you know should correlate with success is usually best. This problem is why most salesforces will incentivise qualified leads — the number of high-quality potential deals an outbound salesperson generates. There is little correlation between outbound emails and closed-won deals. There is at least some correlation between qualified leads with interested prospects and closed-won deals.

Another example is case studies. Many teams wish to constantly expand their repertoire of case studies because this social proof helps them to sell. Teams often struggle here, though, because the creation of case studies usually requires at least two parties to be engaged:

In this situation, giving customer success a KPI for the number of case studies you create is probably a mistake because they’re powerless when it comes to half of the process of creating case studies. In this situation, you have two options:

  1. Remove impediments to tighten feedback loops. The most obvious way is to have your customer success team write and publish the case studies themselves, which may or may not be a good idea for your business.
  2. Choose an output measure strongly correlated with case study creation that your customer success team can own. The obvious option here is to track and measure the number of case study opportunities they submit to your marketing team. You can then separately incentivise your marketing team on the percentage of these opportunities they manage to get live within a certain timeframe.

All output measures are flawed

Whenever you create distance between the business outcomes that matter and the goals and targets for your teams, you increase the likelihood of unproductive, busy work taking over. Business success is about pragmatism, though; an imperfect measure is better than no measure.

This reality is why it’s important to never take your eyes off the outcomes that matter. The KPIs for your teams must compound into these outcomes. For sales teams, incentivise top-of-funnel salespeople on qualified leads and bottom-of-funnel salespeople on conversion rates (in the form of revenue targets calculated by multiplying the expected number of qualified leads by your desired conversion rate). In this environment, if both teams achieve their KPIs, they’ll achieve your desired revenue goals. Splitting the funnel into separate KPIs makes it obvious where to focus when things go bad.

Another way to improve output-based measures is to try to measure quality. On a slow month, an outbound salesperson can lie to prospects about the capability of your product to meet their target for opportunities. This conflict is why most outbound sales teams have more than just this KPI. It’s common to quantify quality with criteria for lead qualification, which could consider the size and industry of the customer and their need for key features.

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