The term KPI is one that I hear far more than any other in this nascent field we call Web Analytics. Key Performance Indicators!

This is a KPI and that is a KPI and “you don’t have a KPI, oh my!” and “look at my KPI it is awesomer than yours!” and. . . . well you’ve been there. You can empathize.

Simple talk in this blog post:

Oh and at the end a summary of eight rules you should follow, and if you do you’ll charm the pants off your Key Decision Makers! : )

Let’s go.

What’s a Key Performance Indicator?

Let’s check the big gorilla: Key Performance Indicators (KPI) are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals. [Wikipedia of course!]

Ain’t that wonderful?

Never the one to let sleeping dogs lie, I wanted to simplify the definition a bit more. So here’s my definition, a bit more simple, a bit more English, a bit less jargon. . . .

Measures that help you understand how you are doing against your objectives.

In my mind it is as simple as that. KPI’s are measures. Their entire purpose in life is to highlight success, or failures, for the objectives you have created for your organization.

Far too often we slap KPI on any web metric without pausing to think what our business is solving for. Hence my stress on the bookends of that definition. Measures - Objectives.

If you are impressed with the number of web metrics you are reporting (or your web analytics tool is spewing out) and yet utterly frustrated that you can’t find actionable insights then your culprit without a doubt is an insufficient understanding of business objectives.

Do that.

Examples of Awesome Key Performance Indicators.

Before you get too deep a couple of thoughts.

I am not going to mention first-to-mind “KPI’s” like Visitors and Time on Page etc because I really think they are terrible places to start - even if they are most easy to access.

They are terrible because it is really hard to go to your Senior Management (people who are funding your salaries and budgets and campaigns) and start by telling them you acquired traffic. Recalling the stress on Objectives above, I’ll try to start with Outcomes (see Trinity Strategy).

None of these Metrics (which are great KPI’s) is a shocker, I would love for you to focus on why the choices were made - it is my hope that that will help you with ideas of your own to identify awesome KPI’s for yourself.

On that last note, it is important to remember that what works for Jane might not work for June. If anyone tells you that they give you a list of KPI’s and that’s all you need then they are misleading you. Even if you and I are in the same sector (ecommerce) or the same business (social networking) it is important to know that we will usually drive different objectives, and hence different KPI’s.

This post is a bit heavy on ecommerce, my apologies for that, purely a function of time pressures, had to write this week.

With that out of the way. . . .

#1: Conversion Rate.

Bet that surprised you!

After all I am constantly telling people to stop obsessing about conversion rate. : )

Why is Conversion Rate a great KPI?

When all is said and done Conversion Rate is a great place to start because of two reasons:

 

1] You are hard core focusing on Outcomes, that’s pretty serious.

2] You are going to force the conversation about Objectives, without that you don’t have conversion rate!

It is simple, it is effective and it will start you off on the right side with your boss. Have the tough conversation about why the site exists (and don’t directly pop open CoreMetrics or GA and start impressing people with data).

(Tips +) What should you be careful about?

Remember that the average website conversion rate usually is around 2%. So this is the fastest way to the heart of why your website mostly exists, but there is a lot more you should plan on worrying about in the future.

The most fun is in identifying that happens to the 98% that don’t convert.
[More tips at: Is Conversion Rate Enough? It’s A Good Start, Now Do More!]

Most of the time Conversion Rate is indeed thought of in terms of ecommerce websites. But increasingly tools are making it ever more easy for you to track conversions of any kind. Form submissions (leads). Trial signups. Content consumption. Download Software. View support FAQ. And more. No matter what your website, you can start measuring “conversion rate”.
[More tips at: Measure Macro AND Micro Conversions.]

#2: Average Order Value.

One of the problems with a obsession with conversion rate (no, no, no, I am not talking about you, you’ll never obsess!) is that it can hide a lot of interesting things.

That’s why I used Average Order Value (or for Mel and Ian: Average Basket Size :)).

Why is Average Order Value a great KPI?

Conversion Rate could be through the roof and yet revenue could be down, your first clues for this will be in understand AOV.

Vice versa conversion rate could be down but if you have done a good job of acquisition (relevant traffic) then AOV will save your butt when your boss yells at you (”Please Mr. Brent stop freaking out, look the average basket size went up 75%!”)

For most companies there is a lot of effort spent in the area of onsite merchandizing (working on cross-sells and up-sells and what not). Awesomeness of all that work can be detected in by measuring AOV. That makes it a very good measure of success for site effectiveness.

(Tips +) What should you be careful about?

By itself the Average Order Value will not be most productive as a KPI. Always seek context, as in the picture below.

Better still compare time periods (this month and last etc) and you’ll get even more.

Where AOV will shine is when you’ll click on those links under orange stars. Which campaigns are higher AOV and which are the losers. Ditto for traffic sources / keywords.

Another awesome analysis is “basket analysis”. Which products go with that. What promotions work with what products. What recommended items work and which don’t. Now you are getting into the “bonus credit” section, but then again you are a Overachiever so go for it!!

#3: Days & Visits To “Purchase”.

I love this metric, or these two sexy metrics twins. [Hmmmm. . . . twins. . . . :)]

Most web analytics is single session focused (Visits, Average Time on Site, whatever else you can think of). Most Marketers treat Visitors (you and me) on their site like one night stands. Come, night cap buy, bye.

Life rarely is about one night stands. People don’t behave that way. We like to take our time.

Hence I am a fan of metrics (and KPI’s) that force us to do pan-session analysis.

This picture is from my book Web Analytics: An Hour A Day. . . .

Why is Days & Visits to Purchase a great KPI?

They measure the true customer behavior on your website, how long it takes someone to complete an Outcome on your website.

They can be deeply insightful in terms of perfecting the marketing messaging on your website.

Help you measure success correctly. Many users simply measure conversion in the same session as success. But if multiple sessions lead to conversions you might not be attributing right campaign / acquisition drivers. Measuring Days & Visits to Purchase is a great way to start that process.

It is available in pretty much all the tools. Also did you note the quotes I have on “Purchase”? That’s because this can be a non ecommerce metric. “Purchase” can be any outcome if you are a non-ecommerce website. So awesome!

Justin has a post on exactly how to track any kind of outcome in this report using GA:Google Analytics E-Commerce Tracking Pt. 3: Why EVERYONE Should Use It.

Perhaps we can request Adam to whip up a quick post and tell us how to access and use this report in Omniture (where it surely exists) for non-ecommerce purposes.

(Tips +) What should you be careful about?

I think I have said this three different ways above, but the max power of this report can be achieved with segmentation.

In the above screenshot I have segmented Pay Per Click, Direct and Affiliate Marketing (my core acquisition strategies) and customers who originally come from each of those channels show a dramatically different propensity to “convert” (remember conversion can be non-ecommerce).

Do this, you will love it!

Also for this metric more than any other it is important to look at distribution and not averages (they lie!).

Finally, when you start to apply segmentation etc be prepared for some tough work - you are crunching a lot of data over a lot of time. Use data sampling if you have to. Remember the reward is well worth it.

#4: Visitor Loyalty & Visitor Recency.

Guess why I like these two?

Yes! Pan session analysis again!!

You have a social networking application. You own Twitter. You are creating the next YouTube killer. You are building a engaging website that will change the life of your University students. You are. . . . well other things like that.

How do you measure success?

Two possibly lovely Key Performance Indicators for you are ones that allow you to measure if people visit your site repeatedly AND if they do it more frequently.

Sounds good?

Meet Mr. Loyalty and Ms. Recency!

This view is from the wonderful Microsoft AdCenter Analytics tool. . . .

Why is Visitor Loyalty and Recency a great KPI?

Great KPI’s for non-ecommerce website. Everyone who wants people to visit their site again and again.

Next time someone wants you to measure the impact of “branding which creates a engaging experience” - throw this at them. Watch them weep (or jump for joy :)).

It usually impresses your boss to know that you can measure things like Loyalty, try it and email me if they don’t give you a kiss. They will!

Loyalty can also be a great way to understand effectiveness of marketing campaigns - deep analysis to know if you are driving behavior beyond the sign up (do people come back and “friend” others or just “nudge” or “super poke” :)).

(Tips +) What should you be careful about?

One thing to be very careful of for reporting Visitor Recency. Most web analytics tools will automatically put New Visitors into those counts. These New Visitors will show up in “less one day” or “0 days ago” bucket. That’s wrong. So be sure to filter out New Visitors.

Only look at distributions (look at that screenshot on the right, amazing, just as many people visited the site just one as did between 9 and 50 times a month!).

Segment out “most recent” visitors and “most loyal” visitors from those that are not. Gold awaits you, actionable gold!

#5: Task Completion Rate.

This would not be the home of Web Analytics 2.0 with a mention of VOC? No sirrie bob!

My one metric on a desert island, if allowed to choose from Web Analytics 2.0, would be Task Completion Rate.

It is measured using Surveys, in session interrupted or via on exit surveys (like the free 4Q). It is essentially a reply to the question “were you able to complete your task” - whatever the customer came to the site for.

Why is Task Completion Rate a great KPI?

Only 2% of your website visitors (for most websites) will ever convert on your website. How do you know why the other 98% visited your site and find ways in which your site is letting them down.

Most people who visit your website are there for purposes you did not create it, this is how you find out.

Web Analytics tools will only tell you what content I wanted if the content was there (by reporting page views to you). But how would you know what content I wanted that you did not have? This is how.

Company employees bitch and moan and complain about how much their websites stink. Then they make changes to stop the bitching an moaning. Stunningly, to them, none of the KPI’s improve. Guess what? They made changes they wanted to make, not ones that the customers wanted them to make.

Get Task Completion Rate (using any survey instrument you want, using any usability study you want). But get it. Or go home.

(Tips +) What should you be careful about?

This goes with all surveys: Ensure you are sampling enough visitors (and get atleast 300 responses a month for a aggregate measure and 1200 responses a month for a segmented view).

Surveys data, like Web Analytics data, can’t live in a silo. Correlate the two sets of data and validate one against the other, always a best practice.

#6: Share of Search.

No matter how desperately you desire it, your competitors won’t roll over and play dead. So you have to compete.

The web is the most frictionless environment in the universe and you compete the the fortune 500 company, you compete with the SMB and you compete with your neighbour’s dog who has started his own facebook clone.

A key measure of success is how you are doing against your competition as as much you should have Key Performance Indicators that show how you are doing in the web ecosystem.

One KPI that I am quite fond of is measuring Share of Search, it is inspired from the traditional supermarket metric “share of shelf”. Google, Microsoft, Yahoo are the virtual “supermarket” now given how much they influence users. So measure Share of Search.

For example I am using Compete to measure how much “share of shelf” I have for diapers (and I am pampers). . . .

Clearly not enough!

Of course trends are better, how am I, Cingular (old name), doing against Verizon, when it comes to % of traffic from www.google.com? Here’s Hitwise. . .

If indeed they were using Share of Search as a Key Performance Indicator at one company the Search Marketer is going to get fired and at the other She is getting a bonus. : )

Why is Share of Search a great KPI?

It gives you external validation of your success (or lack thereof).

It also stops you from being blind sided.

For example, using a example from our Google Insights for Search post, Lenovo’s web analytics tool could be showing a nice 3% increase in traffic from the keyword “Thinkpad” to www.Lenovo.com. But what might be completely hidden is that Thinkpad as a search query has been gradually declining over the last four years (Lenovo could just be getting more visits from the reduced traffic at the search engine because their competitors have become more incompetent).

For traditional Marketers this is a KPI that they can wrap their heads around (so if you are in a big company or a traditional retail business then listen up!).

It is a great metric to start teaching your senior management the value of Competitive Intelligence data.

(Tips +) What should you be careful about?

For heaven’s sake please do not compare the number to the web analytics tools on your site. Let me give you the punch line, they don’t tie. And its ok.

Pick the methodology with the largest sample size, with the least amount of sample bias and one that does not still use a method developed to measure TV ratings. Yes I am biased.

Hurray, we are done!!! Here are the rules I promised. . . .

The Eight Avinash Rules for Entering KPI Heaven:

 

#1: Start simple, start direct, and please start with Outcomes!

#2: Leverage metrics that identify success for areas where you spend the largest efforts.

#3: Wean your Marketers off the “one night stand” mentality, do pan session analysis.

#4: If you can’t segment a Key Performance Indicator, you have picked the wrong one.

#5: Even “brand” and “site usage” can be measured, Loyalty rocks!

#6: If your short list of KPI’s don’t include a couple that report customer voice directly then you will Never be as successful as you should be.

#7: Using KPI’s that can tie back to the “old world” and “traditional metrics” and help you bring people to the current age.

#8: Not using Competitive Intelligence KPI’s can be considered a crime against humanity!

I wish you all the very best!!

As always its your turn now.

What is your absolutely favorite Key Performance Indicator? Which one was the one that most over promised and under delivered? Have you used any of the above? Love ‘em? Hate ‘em? Do you have a rule of your own that you tend to follow?

Please share your feedback, ideas, and critique.

Thanks.