5 Super Simple Steps to Build Smart KPIs WITH PRACTICAL EXAMPLES

Build smart kpi in just 5 super simple steps: 1. build specific KPIs, 2. build KPIs linked to measurable factors, 3. consider the feasibility of the KPI, 4. consider the relevance of the KPI, 5. link the KPI to a time limit. Follow the article below for detailed instructions!

I. What is a Smart KPI?

KPI stands for Key Performance Indicator. This term is used to refer to the activity of evaluating and measuring the work efficiency of an individual or organization. KPIs are often expressed through quantitative criteria and specific data to ensure authenticity.

The Smart principle is a set of specific criteria established with the following 5 main factors:  

• S – Specific
• M – Measurable
• A – Achievable
• R – Relevant
• T – Time-Bound

A smart kpi is a kpi that ensures the factors of being specific, measurable, achievable, relevant, and time-bound. Through Key Performance Indicators (KPIs) built according to the criteria of the Smart principle, businesses can accurately assess the performance and quality of that work.

>> See more: What is the Smart model? How to effectively apply SMART goals in business

II. 5 Steps to Build KPIs According to the Smart Principle

As you can see, building KPIs according to the Smart principle helps businesses improve the accuracy and effectiveness of their set goals. Here’s how to build KPIs according to the Smart principle in just 5 steps:

Step 1 – Build Specific KPIs

First, businesses need to establish specific KPIs for their personnel. The specificity of a KPI is demonstrated by how the business sets the goal with characteristics such as: numbers, responsible parties, deadlines, responsibilities, etc.

The KPIs set must be clear and specific to ensure that team members can understand them and accurately identify the goals to be completed. It also makes it easier for managers to evaluate and measure work performance against the initial KPI.

The KPI set must be achievable with maximum effort, as employees may not otherwise understand the threshold that leadership expects. 

Example: When setting a Smart KPI for the sales department, simply stating “increase sales revenue” is not enough. The manager needs to provide specific measurement indicators for personnel to follow, such as “achieve 1 billion in sales revenue in August.” 

Step 2 – Build KPIs Linked to Measurable Factors

Measuring KPIs is a crucial activity when building and implementing them. The level of importance for each party is as follows: 

• For the KPI setter: To measure and calculate KPIs that align with reality and resources. 
• For the KPI performer: A basis for evaluating and measuring performance. 

In this step, the manager can explain to relevant parties why that specific KPI was set. It clarifies the feasibility of the goal, proving that the KPI is achievable and not just a vague number imposed by superiors. All team members will understand the capabilities required and the difficulty of the KPI.

Example: The Smart KPI for the sales department is to achieve 1 billion in sales, equivalent to a 10% increase compared to the previous month. 

>> See more: Standard KPI Template for the Controller Position in a Business

Step 3 – Consider the Feasibility of the KPI

<spanConsidering the relevance of a KPI means defining the relationship between individual and organizational goals. Individual and organizational goals must be linked, coordinating to achieve a common objective. Essentially, KPIs are complementary to each other in achieving the final goal. KPIs will be assigned to each individual to complete team KPIs, and team KPIs are linked to complete departmental KPIs, and so on.

Larger KPIs will consist of a series of smaller KPIs. Defining each KPI specifically and in detail will help the business visualize the overall picture and understand the relationships between KPIs. 

Example: A business sets an overall SMART KPI to achieve 4 billion in revenue in August. Of this, 3 billion will come from online sales channels and 1 billion from direct sales channels.

Step 5 – Assign a Time Limit to the KPI

Each KPI needs to be associated with a specific time limit. This timeframe specifies the period for implementing and completing that KPI. It also indicates the urgency of implementing the KPIs. This ensures the implementation process stays on schedule and does not affect other departments and personnel. In case of resource shortages, the business will take additional measures to ensure the KPI is completed on time. 

Example: Product A from company X is being finalized for market launch on August 10, 2023, with a sales target of 100 million. To best prepare for the launch, the production department for product A at company X must finalize the product before July 10, 2023. In the remaining month, from July 11 to August 10, the marketing and sales departments will continue their implementation for the launch day.

>> See more: 6+ comprehensive and detailed 2023 KPI-based employee evaluation forms for all departments

III. Practical Examples for Businesses When Building KPIs According to the SMART Principle

In the content below, 1Office provides 5 detailed examples of how to set SMART KPIs for various departments such as Marketing, Sales, Customer Service, HR, etc. Find out now! 

Example 1: SMART KPI for the Marketing Department

Increase interactions (likes, shares, comments) on the company’s main Fanpage by 1,000 in July (a 30% increase in interactions compared to June)

• Specific: Increase interactions on the company’s main Fanpage by 1,000
• Measurable: Increase total interactions, including likes, shares, and comments, by 30%.
• Achievable: The KPI is suitable for the company’s resources and personnel capabilities.
• Relevant: Increased Fanpage interaction creates positive engagement with customers and helps build the company’s brand.
• Time-Bound: 1 month (only in July).

Example 2: SMART KPI for the Sales Department

Achieve over 800 million in sales revenue on TikTok Shop within July. 

• Specific: Over 800 million in revenue.
• Measurable: Track the revenue metric updated on the TikTok Shop system for sellers.  
• Achievable: June’s revenue reached 700 million, and the trend of customers shopping on TikTok is increasing. This facilitates achieving the aforementioned KPI.
• Relevant: Increase the company’s overall revenue and profit.
• Time-Bound: 1 month (only in July).

Example 3: SMART KPI for the Customer Service Department

Increase the customer service renewal rate from 3% to 5% in Q3 of this year.  

• Specific: Increase the customer service renewal rate by 2%. 
• Measurable: The number of customers renewing the service compared to Q2 of this year. 
• Achievable: Feasible by implementing a strategy to improve service, increase customer interaction, and quickly resolve arising issues.
• Relevant: Retain customers and enhance service quality. 
• Time-Bound: Q3 of this year (July, August, September).

Example 4: SMART KPI for the HR department

Recruit 20 sales specialists with over 1 year of experience in August to expand the sales department, aiming to achieve a revenue of 12 billion in October.

• Specific: Recruit 20 sales specialists.
• Measurable: The number of sales specialists working at the company with over 1 year of experience.
• Achievable: Can be completed by implementing precise recruitment strategies and building an attractive environment to attract and retain talent.
• Relevant: Contributes to achieving the goal of 12 billion in revenue in October.
• Time-Bound: August.

Example 5: SMART KPI for the technical department

Complete 8 features of the ABC business management software within 7 days, from August 1st to August 7th.

• Specific: Complete 8 features of the ABC business management software.
• Measurable: The number of features and the requirement to complete them within 7 days, from August 1st to August 7th.
• Achievable: Requires coordination and efficiency in work.
• Relevant: Completing 8 features in the business management software will enhance product quality, improve user experience, and increase market competitiveness.
• Time-Bound: 7 days, from August 1st to August 7th.

>> See more: What are KPI evaluation criteria? Building effective KPI evaluation criteria for departments

IV. Things to note when building KPIs according to SMART principles

When building KPIs according to SMART principles, you need to note the following:

1. Setting KPIs too high or too low

Setting KPIs too high or too low is a common issue in many businesses, leading to two common situations:

• KPIs are too high: Employees cannot complete the KPIs, leading to a lack of motivation and discouragement. In other cases, personnel may resort to unethical behavior to achieve the target at all costs.
• KPIs are too low: Employees can easily achieve the KPIs, but this doesn’t motivate them to give their best effort and improve performance. KPIs that are too low can also lead to shirking responsibilities and not bringing real value to the business.

Therefore, KPIs should be set at a neutral level so that the business can both motivate personnel to develop and achieve its desired goals.

Example: In the past April, May, and June, company X’s revenue was consistently between 1.5 billion and 2 billion. If the company sets a SMART KPI of 1 billion for July, this KPI is too low, while 3 billion would be too high. Therefore, a neutral SMART KPI level the company could apply is between 1.8 billion and 2.2 billion, assuming environmental and resource factors do not change significantly.

2. Being rigid in KPI management

KPIs should be adjusted and updated regularly based on changes in the business environment and the company’s strategic goals. KPIs should not be rigid, allowing for flexible responses to changes during implementation.

Example: The sales department has a SMART KPI for July to achieve 1.8 billion in revenue, with no changes in the environment and resources. However, during implementation, the company’s product experienced a defect and supply was halted for 1 week for repairs and recovery. This affected product delivery to customers. The management then changed the SMART KPI for July, reducing it to 1.5 billion.

3. KPIs are not linked to the company’s strategic goals

Even if KPIs are effective, they bring no value to the business if they are not linked to its strategic goals. The success of KPIs should contribute to achieving the company’s strategic objectives. Therefore, KPIs need to reflect the company’s goals and strategy to ensure they contribute to the organization’s sustainable development.

Example: The company’s future strategy is to become a leading technology corporation in Vietnam. Therefore, the company cannot set KPIs for the product development department to develop garment or food products.

4. Lack of alignment between departments in the company 

Departments within an organization are closely related in building and developing the business. Therefore, the KPIs set must be linked between departments. This helps the activities of each department support the company’s overall goals and avoids conflicts of interest and overlapping work.

For example: The Marketing department has a Smart KPI to collect 100,000 quality customer data points in August with a budget of 200 million to serve the Sales department. Based on the Marketing department’s Smart KPI, the Sales department’s Smart KPI will need to achieve a corresponding revenue of 1.5 billion.

V. Conclusion

In general, building KPIs according to the SMART principle is a highly effective method for businesses. Based on this, the business can accurately assess the performance and quality of that work.

To build a Smart KPI, follow these 5 steps:

Step 1 – Make the KPI Specific

Step 2 – Make the KPI Measurable

Step 3 – Make the KPI Achievable

Step 4 – Make the KPI Relevant

Step 5 – Make the KPI Time-bound

Above are the 5 simplest and most detailed steps to build a Smart KPI. We hope this article helps you build KPIs for your business quickly and accurately. We wish you success!