What is a Key Performance Indicator (KPI)?
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. It is a tool used to track and evaluate the success of a specific business goal or objective. For example, a retail company may use a KPI such as "sales per square foot" to track the performance and efficiency of their stores.
Examples of KPIs:
- Sales revenue
- Customer acquisition cost
- Employee turnover rate
- Website traffic
- Net Promoter Score (NPS)
What is a Service Level Agreement (SLA)?
A Service Level Agreement (SLA) is a contract between a service provider and a customer that specifies the level of service that the service provider is committed to providing. It outlines the expectations and responsibilities of both parties, and includes metrics for measuring the performance of the service.
For example, an internet service provider might have an SLA that guarantees a certain level of uptime, and if it falls below that level, the customer may be entitled to a credit on their bill.
Examples of SLA metrics:
- Availability of the service (usually measured as a percentage)
- Response time to customer requests
- Resolution time for service issues
- Service uptime
What's the Difference Between an SLA and a KPI?
The main difference between a KPI and an SLA is that KPI's are internal metrics used to measure performance and progress, while SLA's are legally binding agreements between a service provider and customer that set service level expectations.
Here are 4 key difference between an SLA and a KPI:
1. SLA's are legally binding, KPI's are not - An SLA is a legally binding agreement between a service provider and a customer. This means that the service provider is obligated to meet the agreed upon service level, and if they don't, there may be penalties or remedies for the customer. A KPI, on the other hand, is not legally binding and is only used for internal management and performance evaluation.
2. SLA's set service expectations, KPI's measure performance - An SLA sets clear expectations for the level of service that a customer can expect from a service provider. It helps ensure that the service provider is held accountable for meeting these expectations. A KPI, however, is used to measure the performance of an organization, business unit, or individual, and is not as focused on setting service expectations.
3. SLA's are service-industry specific, KPI's are used in all industries - SLA's are mainly used in the service industry to set the quality of service and level of expectations. For example, a company that provides hosting services may have an SLA that guarantees 99.9% uptime. A KPI, on the other hand, can be used in any industry to measure performance.
4. SLA's may have penalties, KPI's do not. - SLA's can have penalties if the service level is not met. For example, if an SLA guarantees 99.9% uptime, and the service provider only achieves 99% uptime, the customer may be entitled to a refund or credit. KPI's do not have penalties, they are simply used to track progress and identify areas for improvement.