Defining a KPI Precisely
Rohan's marketing report says March conversion was 2.5%, right on target. Meera's board slide says 2%, well short. Both were labelled "conversion rate", both used March, and both used the same 1,000 orders. One of them was built on a different bottom line. Until a KPI's definition is written down, the same name can hide two different numbers.
The rule
Define the top, the bottom, the filters and the window.
Most KPIs are a ratio or a count, and four choices decide the value:
- Top (numerator): what you count as a success. Orders placed? Orders delivered?
- Bottom (denominator): what you count as the chances. Sessions, unique visitors, delivered orders?
- Filters: what is left out. Test orders placed by staff, cancelled orders, visits from the office network.
- Window: which period, and which date decides it. Order date or delivery date? Midnight in which time zone?
Weftwise had 50,000 sessions in March from 40,000 unique visitors. Rohan divided 1,000 orders by 40,000 visitors and got 2.5%. The slide divided the same orders by 50,000 sessions and got 2%. Neither is wrong; they are two different KPIs wearing one name. The fix is a written definition that everyone uses:
name: Conversion rate
question: Of the visits to our site, what share end in an order?
numerator: orders placed, excluding staff test orders
denominator: sessions, excluding visits from the office network
window: calendar month by order date, Indian time
target: 2.5%
owner: Rohan, marketingThe bottom must match the top: the bottom should hold every case that could end up on top, and nothing that could not. Returns are a good example: an order that was cancelled before dispatch can never be returned, so it does not belong in the bottom of a return rate.
The shortcut
Before building any KPI, ask four quick questions: what is on top, what is below, what is left out, and when? Answer them out loud and write the answers into the definition.
What is on top?
Orders with at least one item sent back: 48 in March.
Drills
Answer fast — trust the rule.
Rohan reported 2.5% conversion and the slide said 2%. Both used 1,000 March orders. What differs?
An order is placed at 11:40 pm on 31 March and delivered on 3 April. For the KPI "orders placed", which month does it count in?
Which rule belongs in the filters of Weftwise's revenue KPI?
Remember
- Define the top, the bottom, the filters and the window.
- Four quick questions: on top, below, left out, when? Then write the answers down.
- Trap: a bottom that does not match the top, such as returns divided by all orders placed.