Is This KPI a Vanity Metric?
It’s a good question to ask.
KPIs (Key Performance Indicators) are a double-edged sword. Most businesses have them. Some won’t make a single decision without them. Used to track performance in key areas of a business, the logic of KPIs is sound. As they say, what gets measured, gets managed.
And sure, under the right circumstances, KPIs can be helpful. But if you’re not careful, they can have disastrous consequences…
Unleash the Cobras
The problem with KPIs is that, by definition, they are very closely measured. But if you measure the wrong thing, you end up with a perverse incentive.
A perverse incentive occurs when a KPI inadvertently drives the exact opposite result it intended to create. And there’s perhaps no better example in history than the Cobra Effect.
First coined by German economist Horst Siebert, the Cobra Effect refers to the disastrous program run by the British government during its rule of India. At the time, the government was concerned about the number of venomous cobras living in Delhi. So, they began offering a cash bounty to anyone who turned in a dead cobra.
On the surface, dead cobras were a reasonable KPI to track. Each dead cobra meant one less snake on the streets of Delhi (or so they thought). But it didn’t take long before enterprising individuals started breeding cobras in captivity, because more snakes meant more money.
Upon discovery of these snake breeders, the British government suspended the bounty program. In response, many breeders let their entire collection of (now worthless) cobras out into the wild. When all was said and done, there were actually more cobras on the streets of Delhi than when the program began. By tracking the wrong KPI, the British government incentivized the wrong behavior.
And if it can happen to one of the most powerful empires on earth, it can happen to anyone.
When KPIs Turn into Vanity Metrics
Just like the British government’s poor choice of KPI drove snakes into the street, tracking the wrong KPIs in your business can drive employees to make bad decisions.
Say, for example, you hire a new Social Media Coordinator, and set their top KPI as “growing our Instagram followers”. On the surface, this seems like a reasonable thing to track. Increasing our followers is good for business, right?
Except this isn’t always true. Think of all the ways your Social Media Coordinator could quickly gain followers on social media (especially if their job/compensation depends on hitting their KPI). Followers can be bought for pennies via a click farm. They can be captured via cheesy giveaways. Or they can be acquired through spammy cross-promotions with other accounts.
All of the above would quickly allow a Social Media Coordinator to hit their KPI. But it’s missing a crucial component… quality. Followers are no good if they don’t actually care about your business. It’s just a vanity metric. One that doesn’t actually drive sales, customer retention, or results.
How to Tell Which KPI is Most Likely to Be a Vanity Metric
Pop quiz… which of the following KPIs is most likely to be considered a vanity metric?
- Return on Investment (ROI)
- Retention & Loyalty
If you answered Reach, you get a gold star.
How can you tell reach is the vanity metric? By asking a simple question: Does an improvement in this metric — on its own — correspond with a stronger business?
Looking at the four choices above, more engagement means more customers interested in what you have to say. Higher return on investment means money well spent for your business. And retention & loyalty means repeat business and higher revenue. Improvement in any of these metrics is unquestionably a good thing.
But like Instagram followers, “reach” doesn’t mean anything on its own. Who cares if your posts reach a billion people if none of them care enough to engage? You’d be better served reaching 100 people who care deeply about the message.
By evaluating each KPI on its own merit, it’s easy to determine which ones drive real business results, and which are pure vanity.
Setting KPIs That Matter
KPIs can be powerful tools. Which is why they deserve real thought and attention before implementation.
Had the British government really thought through its cobra program, it would have realized that a pile of dead snakes traded in for cash had no true correlation to the number of snakes on the streets of Delhi. They would have been better off incentivizing KPIs such as reducing the number of snake sightings or number of snake bites, and assigning a specific territory to would-be cobra catchers. If these brave hunters got paid more by snakes being seen less, the absolute last thing they would have done was breed more snakes.
So, the next time you’re contemplating KPIs to track for your business, be sure to stop and ask yourself: Am I killing cobras, or am I sending more snakes into the streets?
Looking for a space to track your KPIs? Consider keeping yourself organized with the all new Basecamp, and be sure you never lose sight of your key metrics.