Key Performance Indicators (KPIs) are designed to measure how effectively a company is executing its vision. However, many businesses fall into common traps while establishing their KPIs both at a large scale and for individual employees. This leads to misaligned objectives, ineffective measurements, and ultimately, poor outcomes. By understanding and avoiding these common pitfalls, you can develop meaningful, worthwhile KPIs that drive genuine value for your business. 

1. Ignoring benchmarks in favor of KPIs

One of the biggest pitfalls when setting KPIs is thinking KPIs have everything covered and there’s no need to set benchmarks. The truth is, both are equally important and serve different purposes. While KPIs measure specific areas of performance within your business, benchmarks evaluate areas by comparison. For example, you might choose a competitor as a way to benchmark your company’s performance against the industry’s best. 

Benchmarks and KPIs work together in helping you achieve long-term business goals. Just because you have solid KPIs doesn’t mean you should eliminate benchmarks. 

2. Setting arbitrary KPIs

Many business owners fall into the trap of setting arbitrary KPIs that don’t actually measure anything meaningful. Employees often spend more time measuring their work than actually working. It’s become a huge issue in many industries in the last decade. 

An arbitrary KPI looks different in every company, but they’re essentially just numbers employees are expected or required to hit each week that don’t correlate to how well they’re doing their job. For example, many employees find that they do a fantastic job all week and move the company forward significantly, but miss all their KPI targets. In most organizations, this is the norm and employee voices go unheard. 

If you’re going to set KPIs for employees, involve them in the process and alter KPIs that don’t matter. On the surface, it may seem like you shouldn’t involve your team because you’re the boss, but you need to remember that they’re the ones doing the work and are in a position to help shape effective KPIs. 

3. Choosing vanity metrics

There are endless vanity metrics to track, and you may not realize what’s actually considered vanity. For instance, social media likes and comments are almost always vanity metrics because they don’t really influence your bottom line, and may not actually impact your brand image, either. 

Sometimes important metrics can also double as vanity metrics under certain circumstances. For example, website traffic is considered a vanity metric if you’re not concerned with driving targeted traffic. Assigning someone a KPI that measures monthly web traffic isn’t helpful. However, when that same KPI is connected to targeted traffic and considers the conversion rate, then it’s no longer a vanity metric. 

4. Assigning the wrong KPIs

Oftentimes, employers assign KPIs to employees that they have absolutely no control over. This isn’t fair and can cause some animosity, not to mention missed numbers. 

A common example is giving various marketing team members KPIs that should either belong to the website developer, the copywriter, or be shared. For instance, a marketing team member might be assigned a KPI related to new monthly email list signups, but that employee isn’t involved in creating the web pages or forms where people sign up for the list. 

Before assigning KPIs, make sure they’re appropriate for the person being assigned. Don’t hold people accountable for KPIs they can’t influence. If certain employees aren’t making decisions, they shouldn’t have their performance evaluated based on numbers outside of their control. 

5. Neglecting regular reviews

Market conditions are constantly shifting, and there’s a possibility your KPIs will become outdated or misaligned at some point. For instance, before the pandemic, retail shops had KPIs heavily focused on in-store purchases, but during the pandemic, there was a necessary shift to online metrics, even for stores that didn’t typically do many online sales. 

Treating KPIs as something that you set once and forget about is a huge pitfall. Like every other measurement, KPIs should be revisited and updated periodically to ensure they evolve with any changing business priorities. 

6. Ignoring links to action

All KPIs should be clearly connected to specific actions or initiatives for improvement. Each KPI you set should have an action plan and accountability measures in place. 

Drive meaningful performance with better metrics 

Creating effective KPIs requires careful attention to avoid the pitfalls outlined in this article. Your key performance measurement system is a tool designed to make your business more successful. When you develop and assign effective KPIs, you’ll not only measure performance, but it will become easier to achieve objectives and attain long-term success.