What Is a Key Performance Indicator (KPI)?

What is a Key Performance Indicator (KPI)?

Key performance indicators (KPIs) are measured values used to track how efficiently an organization is moving toward its business objectives. KPIs help teams gauge their progress, provide goals to aim for, and offer insights that help leaders make better decisions. From HR to sales, KPIs help companies move ahead more strategically.

Characteristics of KPIs

Companies rely on KPIs to determine how well they’re meeting their goals. While different industries measure different KPIs, they typically share the same three characteristics. KPIs are:

  • Quantitative. KPIs are presented as numbers and percentages.
  • Practical. KPIs work together with existing processes.
  • Actionable. KPIs can be used in practical ways to bring about change.

KPIs vs. metrics

KPIs and metrics are similar, and they often get used interchangeably, but they are not the same.

  • KPIs are the targets that organizations track that make significant impacts on business outcomes. They help you focus on what affects those outcomes and support your overall strategy.

  • Metrics measure how successful your regular business activities are, and while they impact outcomes and support key performance indicators, they are less critical measures than KPIs.

A KPI would be something like the number of new customers targeted each month, and a metric would be the number of monthly store visits.

The importance of KPIs

KPI tracking is a crucial way for enterprises to ensure that their efforts support their overall goals. Here’s why they’re so important:

  • KPIs provide a health check. Key performance indicators act as a scorecard for an organization’s overall health and can give you insights into everything from risk factors to financial benchmarks.
  • KPIs keep teams organized. No matter what KPIs you’re tracking—from employee performance to conversion rates—these indicators help keep your team aligned and moving forward together.
  • KPIs ensure accountability. Using key performance indicators makes it easier to ensure that everyone is providing value by helping track overall project and employee progress.
  • KPIs facilitate positive changes. KPIs give organizations a better view of their successes and failures. Tracking these indicators lets you focus more on making positive, impactful changes.

The different types of KPIs

From long-term focus to short-term progress, there are various types of KPIs that organizations can choose to measure. Here are the two most common ones:

  • Operational KPIs typically look at short-term performance that focuses on business efficiency. An example of an operational KPI is an organization’s monthly transportation costs.
  • Strategic KPIs measure long-term business goals and give insights into the overall performance of an organization. An example of a strategic KPI is a company’s market share.

Organizations also track leading and lagging KPIs, which are used to predict outcomes and track historical progress, respectively. Businesses typically monitor both of these to ensure that the KPIs they’re tracking are ones that actually have an impact.

KPI examples by industry

Every organization defines its own KPIs to measure and help them track the progress toward their goals. Let’s look at some common KPI examples in different departments.

Sales

Sales teams use KPIs to ensure they’re meeting targets by reviewing indicators from leads to closed sales. Typical sales KPIs to track are:

  • New inbound leads
  • New qualified opportunities
  • Total pipeline value
  • Total sales volume
  • Average order value

IT

IT departments track KPIs for everything from support ticket metrics to server-related issues. Some KPIs that IT teams typically target are:

  • Total support tickets
  • Open support tickets
  • Reopened support tickets
  • Problem resolution times
  • Server downtime
  • IT costs vs. revenue

Marketing

Marketing KPIs often focus on indicators that monitor the success of campaigns and how they align with an organization’s goals. These KPIs include:

  • Marketing qualified leads
  • Sales qualified leads
  • Conversion rates
  • Return on ad spend
  • Social program ROI

Finance

There is a wide range of KPIs that finance departments tend to track to monitor an organization’s financial progress. Popular finance KPIs include:

  • Gross profit margin
  • Net profit margin
  • Operating profit margin
  • Operating expense ratio
  • Working capital ratio

Customer service

Customer service teams usually track KPIs related to customers and finances over both the short and long term. Typical customer service KPIs to monitor are:

  • First contact resolution rates
  • Average response times
  • Support agent activity
  • Customer effort scores
  • Cost per conversation

SaaS companies

Most SaaS KPIs boil down to either money coming in or money going out. Paying attention to the numbers, especially the right numbers, helps make sure you’re on the right path towards growing a successful company. Typical SaaS KPIs to monitor are:

  • Monthly Recurring Revenue (MRR)
  • Annual Recurring Revenue (ARR)
  • Average Revenue Per User (ARPA)
  • Churn
  • Customer Acquisition Cost (CAC) + Payback
  • Lifetime Value (LTV)

Building or growing a SaaS company? Check out these early SaaS KPIs to track.

How to develop a stronger KPI strategy

Here are three tips to help you use KPIs to make data-driven decisions that help push your business to meet its goals:

  • Choose the right KPIs. You want to measure what matters, which means including both leading and lagging indicators. Lagging KPIs show your recent results while leading KPIs help you make adjustments based on predictive outcomes.
  • Educate employees. KPIs are more effective if everyone in your organization understands what they are and how to use them. Assign relevant KPIs to employees and make them part of the process of decision-making that moves your business forward.
  • Make adjustments. Review your KPIs regularly and keep them current by making revisions based on market and business changes. When you make adjustments, be sure to publish the changes to keep your team up to date.

To learn more about implementing and tracking KPIs and how a digital product agency can help streamline the process, get in touch with the VeryCreatives team today.

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Máté Várkonyi

Máté Várkonyi

Co-founder of VeryCreatives

VeryCreatives

VeryCreatives

Digital Product Agency

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