Do your KPIs influence your net profit? 90% of the entrepreneurs we studied do not.

If you dig deep and try to understand the topic of KPIs, a strange situation emerges. An entrepreneur monitors dozens of indicators every day, employees transfer a bunch of reports and Excel tables, but profits do not grow.

We kind of “surround” ourselves with a lot of data and metrics so as not to miss when something goes wrong. Or to see if our progress is as planned. And we try to rely on numbers when making decisions. This is a good approach, no doubt. However, many people encounter errors in implementing this approach. Thinking that it is enough to simply set target indicators, tie the motivation of each employee to them, and then the mechanism will begin to generate profit. As a result, the data obtained may not only not help, but also harm the business.

Thus, KPIs are turned from a good tool into another bureaucratic piece something, which does not show the team’s real contribution to the financial result. And there are several reasons for this. Buckle up We are going on a tour of a company where the KPI has been so distorted that they are about to abandon it.

What's the focus?

Any company starts with people. Therefore, first, let’s go to the HR department and see how everything works there.

We see a lot of interesting things. The table with the hiring funnel attracts our greatest attention. The fact that it exists is already a good signal. This means that the process of searching and attracting candidates is at least somehow digitized. Not everyone has this, to be honest, that’s why it’s so surprising.

But even more surprising, of course, are the KPIs of specialists. For example, such an indicator as “the number of interviews conducted per month.” Let's think: how does it affect the motivation of employees, what actions does it encourage?

Of course, if the goal is to conduct a lot of interviews, then HR will strive for this result at all costs. Instead of quality screening at the resume stage, they will invite more non-target people for interviews. Instead of deeply onboarding talented newcomers, HR will spend time on online calls with people who might not even have been invited. The mechanism is working, people are trying, meeting the goals for the number of interviews. And at this time the company is losing money because they have not been able to find a manager for a burning project for 2 months. By the way, the project became a disaster precisely because of the lack of the right person.

Did you notice what's wrong? The established KPI stimulates activity for the sake of activity. Instead of focusing efforts on getting results—recruiting and hiring the right person—the focus is on actions that are just a fragment of creating results for the company.

So what should I do? Obviously, it's worth checking how each KPI relates to the company's goals and impact on revenue. If you are interested in more detailed reasoning, write in the comments, we’ll look into it.

NPS Trap

We go to the sales department and see another trap. We're not talking about cheese and mice, of course. And about the one that many founders fall into when choosing the customer satisfaction index as a KPI for the sales department.

We predict that the comments will be heated, because how can we encroach on the sacred NPS. But let's think about how this indicator is related to the manager's efforts to grow sales? Are your customers happy and will they come back and buy something again? Okay, so the goal is repeat sales. Then why not set the corresponding KPI?

We also hear that NPS supposedly encourages sales people not to engage in aggressive sales and try to squeeze everything out of the client here and now. That is, it is a certain indicator that prevents sales from going wild. Firstly, it’s worth paying attention to whether everything is the same in a recruitment company if werewolves are included in it. Secondly, wouldn’t the repeat sales rate motivate the salesperson to build long-term relationships with the client?

Overall, our thesis is that NPS is not the most appropriate KPI for a sales team. It has virtually nothing to do with the company’s financial performance – a satisfied customer will not necessarily buy more. In addition, this indicator does not motivate salespeople to make repeat sales or increase the average check. But this is a suitable KPI, for example, for a product, because it will highlight low-quality areas in the user experience.

Therefore, we recommend (but do not insist) that you often ask yourself the question “Are the established KPIs accurately related to financial indicators?” And choose those KPIs whose impact on profits is transparent and indisputable.

But there are creative professions…

Oh yeah. The effectiveness and efficiency of such employees is really difficult to measure. Designers, for example. Or developers. Stop though. Is it difficult or we just don’t understand how? Therefore, we set the number of lines of code as a KPI. And for the copywriter – the number of characters. Here are the “quantitative” indicators.

Such an indicator of efficiency and effectiveness will say a lot about the graphomania of the developer and copywriter, but how does it reflect the impact of employees on the company’s income? Why this indicator even exists if it does not reflect what we need is unclear.

In fact, the performance of creative employees can and should be measured.

Here we allow ourselves to interrupt the material so that you can suggest your KPI options for professions such as developer and designer in the comments. And let's discuss them together.

And next week in your Telegram channel We will publish a white paper on how to set KPIs that affect profits where this seems impossible.