What is a KPI (Key Performance Indicator)? [2023 Update]
In this article we cover what a KPI is, how they differ to metrics, the different types of KPI, how to build effective KPIs for your business and kpi examples from different industries.
What is a KPI?
A KPI, or key performance indicator, is a way to measure how well a company is doing in a specific area. For example, a company may track how many sales they make each month as a KPI for their sales team or "monthly website traffic" as a KPI to track the success of their digital marketing efforts.
What’s the Difference Between a KPI and a Metric?
A KPI is a specific metric that is chosen to measure the success or progress towards a particular goal or objective.
A metric, on the other hand, is any measurable value that can be used to track performance.
For example, a company may use the metric of website traffic to track the overall performance of their online presence. However, they may choose website conversions as a KPI, since it specifically measures the success of turning website visitors into customers.
Another example would be a company that tracks the number of social media followers as a metric, but chooses engagement rate (number of likes, comments, shares etc) as a KPI, as it specifically measures how actively engaged their followers are.
So, not all metrics can be KPIs, only the metrics that are chosen to measure specific goals or objectives are known as a KPI.
Why are KPIs Important?
KPIs are important for measuring progress and success in different areas of your business. Here are four reasons why KPIs are crucial:
Setting Targets: KPIs provide clear targets for teams to work towards, giving them specific goals to focus on.
Measuring Progress: KPIs serve as milestones to gauge progress and see how far a company has come. They provide a way to track success over time.
Making Better Decisions: KPIs provide insights that help people across the organization make better decisions. They can inform strategy and help identify areas for improvement.
Aligning Efforts: KPIs align the efforts of different teams and departments towards a common goal. They ensure that everyone is working towards the same objectives and that progress is being made in the right areas.
Different Types of KPIs
There are several different types of KPIs, each with its own characteristics and purpose.
Strategic KPIs: These are usually the most high-level and indicate how a company is doing overall. Examples include return on investment, profit margin, and total company revenue.
Operational KPIs: These focus on a tighter timeframe, measuring how a company is doing month-over-month or day-over-day. They analyze different processes, segments, or geographical locations. Examples include monthly store visits or white paper downloads.
Functional KPIs: These hone in on specific departments or functions within a company. For example, the finance department may keep track of new vendors registered each month, while the marketing department measures email distribution clicks.
Leading/Lagging KPIs: These describe the nature of the data being analyzed and whether it is signaling something to come or signaling that something has already occurred. Leading KPIs can help predict outcomes, while lagging KPIs track what has already happened.
How to Create KPIs
Creating an effective KPI strategy can be a complex task, but by following these best practices, you can ensure that you are measuring the right things to help reach your business goals.
Determine the Purpose of the KPIs: The first step in creating a KPI strategy is to understand how the KPIs will be used. Talk to the people who will be using the KPI report to find out what they want to achieve and how they will use the data. This will help you define KPIs that are relevant and valuable to business users.
Align with Strategic Goals: Every KPI should tie directly back to your overall business goals. Make sure that your KPIs align with your company's mission and objectives. This will ensure that you are measuring the things that truly matter for your organization's success.
Use the SMART Criteria: The most effective KPIs follow the proven SMART formula. Make sure they are Specific, Measurable, Attainable, Relevant, and Time-Bound. This will help ensure that your KPIs are clear, actionable, and easy to understand.
Keep it Simple: Make sure that everyone in the organization can understand your KPIs so they can act on them. Keep your KPIs simple, clear, and easy to understand. This will help ensure that the data is accessible and actionable for all employees.
Regularly Review and Update: As your business and customers change, you may need to revise your KPIs. Be sure you have a plan in place to evaluate and make changes to KPIs when necessary. Regularly review and update your KPIs to ensure that they are still aligned with your business goals.
Avoid Focusing on Too Many KPIs: With so much data available, it can be tempting to measure everything. However, you need to be sure you are measuring only the KPIs that will help you reach your business goals. Avoid KPI overload by focusing on the most impactful measures.
KPI Examples
Marketing
Measuring the success of marketing campaigns is essential for optimizing budget allocations and getting the most out of your efforts. Here are some key performance indicators to consider for tracking the effectiveness of your marketing initiatives.
- Return on Ad Spend (ROAS)
- Cost per Acquisition (CPA)
- Conversion Rate (CR)
- Customer Lifetime Value (CLV)
- Click-Through Rate (CTR)
- Engagement Rate
Customer Service
Customer service KPIs are essential for understanding and improving customer satisfaction, employee performance, and financial success. Here are some key performance indicators to consider for measuring and optimizing short and long-term objectives, such as support response times, customer satisfaction, and more.
- Cost per conversation
- Customer satisfaction score
- Average response time
- First contact resolution rate
- Net promoter score
- Customer retention rate
Sales
Sales KPIs are essential for understanding and optimizing the performance of your sales team. Here are a few examples to consider when creating your own KPIs for sales performance tracking.
- Customer lifetime value
- Average order value
- Cost per lead
- Lead conversion rate
- Revenue per sale
- Cost of acquisition
Human Resources
Managing the performance of your employees is key to creating a successful and productive workforce. Here are some key performance indicators that can be used to evaluate the performance of your human resources team.
- Employee turnover rate
- Job satisfaction score
- Time to hire
- Cost per hire
- Absenteeism rate
- Retention rate
Project Management
Project management KPIs help to measure the success of projects, their individual components, and the success of project managers. Here are some examples to consider when defining your own KPIs for project management.
- Project completion rate
- On-time delivery rate
- Time to market
- Scope creep percentage
- Cost performance index
- Customer satisfaction score
FAQS
What Does KPI Mean?
KPI stands for Key Performance Indicator.
What is the Definition of KPI?
A KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives. For example, a company's "customer retention rate" KPI would measure the percentage of customers that continue to do business with the company over a certain period of time.
What are Some KPI Examples?
Some examples of KPIs include: sales revenue, customer acquisition cost, and employee turnover rate.
What are the Different KPI Types?
There are several different types of KPIs, including financial, customer, internal process, and learning and growth.
What are KPI Metrics?
KPI metrics are specific measurements used to evaluate the success of a KPI. Examples of KPI metrics include revenue, profit margin, and customer satisfaction rate.
