If you've ever wondered how to navigate the world of OKRs and KPIs, you're in the right place. This page serves as Customer Marketing Alliance’s ultimate guide to these metrics. It houses all the articles we’ve written on the topic, all in one place.
Specifically, we’ll be answering:
- What OKR stands for,
- What an OKR structure is,
- What the difference between OKRs and KPIs are,
- An example of an OKR
- Can OKRs replace KPIs?
- Advantages and Disadvantages of OKRs
- Alternatives to OKRs
What does OKR stand for?
Besides SMART goals and KPIs, OKRs are a way to structure your and your teams’ goals. Its aim is to help monitor your performance and set and focus your tasks to achieve reaching goals. OKR stands for:
O - Objectives
K - Key
R - Results
But what does this actually mean? How are these words applied and put into practice?
So let’s begin by going through what each letter means and an example of how to set out this type of goal:
Objectives: This is the goal you want to achieve and they should be designed to be ambitious for your team to achieve; the objective is there to provide direction and drive. They should provide a measurable challenge for your team, without being completely impossible.
- Increase customer satisfaction and loyalty by 15-20%.
Key Results: These are the specific, measurable, and time-bound outcomes that indicate progress toward your objective. They answer the question, "How will we know when we've achieved our objective?" They should be placed as milestones along your work timeline, be it for a month, a quarter, or a whole year.
- Achieve a Net Promoter Score (NPS) of 75 or higher by the end of the quarter.
- Reduce customer support response time to under 2 hours on average.
- Increase repeat customer rate by 20% in the next six months.
The aim of OKRs is to help broaden the perspective of your team. They increase the concept of what is achievable and put in place the idea that a team’s goals are a part of achieving an overarching company goal.
Plus, they're adaptable – as mentioned, you can set them for a specific time frame within your work progress, typically quarterly or annually. This should allow you to regularly evaluate your progress and adjust as needed.
Remember, OKRs aren’t about micromanaging tasks but rather about focusing teams and individuals to achieve a shared target; they provide the purpose behind, and drive to achieve, completing tasks.
What is a KPI?
KPIs are not goal metrics but are specific pieces of data, and a measurable metric that is used to tell you how effectively you're achieving your goals and objectives. The acronym itself stands for:
K - Key
P - Performance
I - Indicators
So, what does this actually look like?
Key Performance Indicator: Customer Retention Rate (CRR)
- Key: Customer retention is a critical factor for long-term business success and profitability.
- Performance: This KPI measures how well your customer marketing efforts are retaining existing customers over a specific period.
- Indicators: It is indicated by the percentage of customers who continue to do business with your company compared to the total number of customers at the beginning of the period. A high CRR indicates you have been successful in your customer marketing strategies, while a declining CRR may signal the need for improvements in this area.
Now, here are some other common examples of KPIs for customer marketers:
- Revenue Growth Rate: This KPI tracks the percentage increase in your revenue over a specific period, helping you gauge your business's financial health.
- Net Promoter Score (NPS): It's the golden standard for measuring customer satisfaction and loyalty. The higher, the better!
- Customer Churn Rate: This KPI tracks the percentage of customers who stop doing business with you over a given time period. Lower is usually better here.
- Conversion Rate: When it comes to your website or marketing campaigns, this KPI tells you how effectively you're turning visitors into customers.
- Click-Through Rate (CTR): For online ads and email campaigns, CTR measures the percentage of people who click on your content.
The difference between OKRs and KPI
OKRs and KPIs tend to be easily confused. While both are important for measuring progress and success, they serve different purposes and have distinct characteristics.
In fact, their purposes are such that they can work to complement each other when both are put into practice together. First, their defining characteristics:
OKRs (Objectives and Key Results)
OKRs are more qualitative in origin and prioritize the act of goal setting. They’ll describe what you want to accomplish, but your chosen key results can include a quantitative benchmark to aim for as a way of measuring success.
OKRs are typically given a specific time frame but are set up in such a way as to allow you to adjust these aims depending on your circumstances.
Not reaching a specific OKR can tell you just as much about your current work as achieving it.
An ambitious goal can eke out the most important pain points in their first iteration, and can then be adjusted to focus on eliminating these pain points on the second go around.
OKRs are designed to align teams and individuals with the organization's overarching goals. Everyone's OKRs should weave into one another, and all exist to further the progress of achieving your company-wide goals.
KPIs (Key Performance Indicators)
KPIs are performance metrics used to measure specific parts of your work performance, often delving into the finer details rather than representing an ‘umbrella goal’ for your team.
They’re quantitative whereas OKRs are qualitative. They’ll be used to monitor ongoing activities and strategies, such as revenue, customer retention, upselling, or acts of advocacy.
Where OKRs are flexible and prone to change and adjustments, KPIs are typically stable and remain the same throughout their use. Rather than being reviewed every quarter, or annually, KPIs should be regularly monitored, as often as week to week if needed, to ensure targets are met.
KPIs aren’t necessarily tied to specific objectives. While they can support broader goals, they do not provide the same level of high-level alignment as OKRs.
In essence, KPIs are used continuously to help teams and leaders stay informed about the developing success of day-to-day work practices. OKRs can be brought in to improve a specific area of work over a set period of time.
If a KPI has dropped over the month, an OKR may be introduced to help direct the work in a way that supports and improves this KPI again.
An example of an OKR
So how does this metric work? Let's look at an example:
Objective: (The Objective is flexible and ambitious)
Improve customer retention and loyalty
Key Results: (The Key Results are specific, and have a time limit.)
- Increase customer retention rate: Achieve a 10% increase in customer retention rate by the end of the quarter.
- Boost net promoter score (NPS): Elevate the NPS score from 45 to 60 within six months. A higher NPS indicates increased customer satisfaction and willingness to recommend our product or service.
- Reduce customer churn rate: Decrease customer churn rate by 15% over the next quarter. Reducing churn means fewer customers leaving the platform, which is crucial for long-term growth.
- Increase upsell and cross-sell revenue: Achieve a 20% increase in upsell and cross-sell revenue within the fiscal year. This will help maximize the lifetime value of each customer.
Now these desired results have been set out, you and your team will have to prioritize certain actions that’ll help you achieve them. The actions taken may look something like this:
Retention rate actions:
- Implement a customer feedback program to gather insights on pain points and areas for improvement.
- Launch a personalized email marketing campaign targeting at-risk customers with tailored offers and content.
- Enhance the onboarding process to ensure customers are well-acquainted with our product's value.
Net Promoter Score actions:
- Conduct in-depth NPS surveys to identify specific areas where we can enhance the customer experience.
- Create a customer advocacy program to encourage satisfied customers to refer new clients.
- Provide additional training and resources to our support team to improve customer interactions.
Churn rate actions:
- Analyze the reasons behind customer churn through exit surveys and data analysis.
- Implement a dedicated customer success team to proactively address potential issues and provide personalized support.
- Develop a comprehensive knowledge base and self-service resources to empower customers.
Cross-sell and upsell actions:
- Conduct a comprehensive audit of current product offerings to identify upsell and cross-sell opportunities.
- Train the sales and customer success teams to effectively identify and present these opportunities to customers.
- Develop targeted marketing campaigns to promote complementary products or services to existing customers.
Each of these steps will aim to get you to those Key Results and consequently achieve your overall goal of increased retention and loyalty.
So, how do KPIs complement this?
Well, KPIs will be the data produced from these actions that you’ll use to monitor your progress. This will be on top of your normal month-on-month KPIs that monitor your general team's success. These KPIs will be better and worse and monitoring certain actions.
And this is also where the confusion commonly comes in. Letting KPIs and OKRs overlap does run the risk of confusing your data. If you’re looking at a general stat you use monthly, it’ll be difficult to say whether or not your OKR work has been responsible for any changes.
OKRs and KPIs usually work best in tandem if your OKR is set as a result of evidence produced from your KPIs.
For example: If you’ve noticed that traffic to your members' site has dropped during your monthly KPI update, your team may want to set up an OKR for the next quarter to address this.
Advantages of OKR
So what makes OKRs worth the change?
Can OKRs replace KPIs?
This is a common question for those looking to review and update their metrics. The answer isn’t all that simple as each team will have a unique way of working, ergo choosing metrics must be equally as specific to your team.
However, as we’ve laid out here, OKRs and KPIs present a good argument for working in tandem. While KPIs monitor the day-to-day, OKRs will direct and monitor overarching goals and ambitions for the team.
As they’re not a one-to-one comparison, neither would be suited to replace the other.
One thing they have in common though is that they shouldn’t be set in stone.
OKRs may work great for you, so keep them! But don’t be unwilling to change the OKRs as your team develops and grows. The OKR that worked for you at the beginning of the year is unlikely to work for you at the end of the year.
The same can be said for KPIs where technology is constantly updating, the data that worked to monitor your team’s success may not do so after one too many google updates (and more in that vein!). Again, allow for the flexibility to change these when and where they suit your team.
Don’t try to mold your team to fit your metric’s needs; fit your metrics to your team's needs – always.
Disadvantages of OKR
OKRs, like with any metric, aren’t perfect. Choosing metrics will depend on which ones will best suit your business, so it’s important to understand the advantages and disadvantages of each metric.
So what are the disadvantages of OKRs?
Overemphasis on short-term goals
OKRs tend to be set for relatively short timeframes (typically quarterly), which can sometimes lead to a focus on short-term results at the expense of long-term strategic planning.
The process of setting and reviewing OKRs can be time-consuming, taking employees away from their primary responsibilities. This can be especially problematic if not managed efficiently.
OKRs often rely heavily on quantitative metrics, which may not capture the full spectrum of an employee's contributions, particularly in roles that involve qualitative or creative work.
Risk of gaming
There is a risk that employees or teams may manipulate or "game" the system to achieve their Key Results without genuinely contributing to the organization's success.
Conflict and stress
Setting ambitious Key Results can sometimes create stress and competition among team members, potentially leading to conflicts if not managed properly.
As you may have become aware of while reading these disadvantages, many of them can be mitigated with thoughtful implementation and a continuous commitment to refining your OKR process.
The success of your OKRs really depends on your own leadership commitment, clear communication, and adaptability to your unique situation.
Alternatives to OKR
So there you have it; the ins and outs of OKRs. Hopefully, this hub page will give you a good idea of whether or not OKRs suit your organization. But if not, here are a few alternatives:
SMART goals are Specific, Measurable, Achievable, Relevant, and Time-bound. Like the OKR they’re made to achieve one priority goal.
Where OKRs are usually ambitious and flexible, SMART goals are usually rigidly structured and are set based on current performance to make them realistically achievable.
These SMART goals work best alongside a specific strategy or campaign in order to achieve a single success.
This approach monitors an organization's performance from multiple perspectives, including financial, customer, internal processes, and learning/growth.
This type of monitoring works if your team benefits from both quantitative and qualitative measuring systems. Unlike OKRs and SMART goals which are very specific, a scorecard does the opposite and takes a variety of perspectives into consideration. These goals are also not usually time-specific.
LEAN metrics are a specific type of KPIs, which employ a LEAN philosophy. This philosophy is one born of a desire to eliminate waste, increase efficiency, and improve overall value delivery to customers.
LEAN metrics focus on improving processes and eliminating non-value-added activities. Essentially they’re employed to make everything more efficient, than anything else.
North Star Metric
The North Star metric is almost as dreamy as it sounds! A North Star metric is one single KPI that’s used as the ‘guiding light’ to inform everything else going on in your business.
The idea is that this North Star reflects the most important core value that encompasses your organization. This metric simplified everything down to the most basic goal for your organization while keeping it customer-centric and long-term.