5 Ways to Kill Your KPIs
With the wealth of data captured by the typical enterprise system, KPIs (or Key Performance Indicators) and the dashboards that display them are becoming very popular. Anybody who can’t monitor his metrics in real time just isn’t cool.
And, mostly, KPIs are a good thing, and the dashboard is a very appropriate tool. Some KPIs are like the speedometer in cars; they tell you when you need to press the pedal or when you can lighten up. MTD Revenue is an example of the speedometer KPI. Others are like the warning lights; they just tell you what you need to pay attention to, such as when inquiries fall below a defined threshold level.
Done right, Key Performance Indicators and dashboards can give dealership management better, more current information than they’ve ever had before.
Unfortunately, too often, they aren’t done right. Here are five ways that the best of measurement intentions can go bad.
1. Metrics and KPIs get confused.
It’s easy to confuse them because, while all KPIs are metrics, all metrics are not KPIs. A metric’s just a measure. A KPI measures success, and that means you have to know what success means. For each KPI, you should have an objective that not only indicates the metric, but defines success.
2. Too many things are measured.
The “key” in Key Performance Indicator means that the activity or results being measured has a significant impact on success. The rule of thumb is that you should have no fewer than four KPIs and no more than a dozen. Those who don’t choose carefully may get drowned in data. There are, of course, different sets of KPIs in a dealership. There will probably be a set for sales, one for service, one for marketing, one for F & I, as well as one that gives dealership management the big picture.
3. The wrong things are measured.
Often, we want to measure things that are just activity. For instance, we came across an article once suggesting one good KPI (among others) for a sales manager was the number of sales team meetings per month. Since what’s measured matters, this would probably ensure that the number of sales team meetings would increase. However, it wouldn’t ensure that they were useful. The better measurement would be the results of what was expected to come from the meetings: better conversion rates, higher customer satisfaction, etc.
4. The wrong metric is used.
Sometimes measurement is a matter of convenience. For instance, when dealerships buy time for television commercials, the metric is typically CPM or cost per thousand. That number doesn’t answer the more meaningful question: cost per thousand what? The short answer, of course, is viewers, but that still doesn’t tell us how they relate to our objective; it simply tells us that they watch TV. Similarly, advertising cost per car is not a good KPI. Simply dividing advertising expenditures by the number of units sold does provide a rough measure of effectiveness month over month, but it provides no help in rebalancing the marketing budget to favor more efficient media. A more meaningful measurement would be advertising cost per car per source; that is, the return on investment for each marketing medium. For any metric, the test is whether it correlates directly to the objective.
5. Action isn’t taken.
This one should have probably been first, since—if you don’t act on the information—it doesn’t matter how good it is. However, if the objectives are written properly, and the KPIs are good, the action—at least the first step—should be obvious.
KPIs can be a powerful management tool. They can tell you in real time what is going well and what is not going quite so well. But, like every other tool, they have to be used properly and with a good deal of skill.