In today’s business world, it seems everyone is solely focused on KPIs… Tracking every single aspect of our work lives and overloading employees with numbers and targets. But focusing on too many KPIs at once can be just as detrimental as choosing none at all. And poorly managed KPIs can easily lead to unintended behaviors, loss of profit, and a disorganized workplace.
To achieve your organizational goals more successfully, it’s vital to understand what a KPI is, how to use KPIs effectively, and how to ensure everyone from employees to shareholders know how each KPI works towards your overarching business objectives.
What are key performance indicators (KPIs)?
Before we get into detailed examples and ideas on how to use KPIs effectively, it’s worth taking a moment to understand what KPIs are. After all, you can’t successfully use something you can’t define.
KPI stands for Key Performance Indicator. They can be witnessed in almost every business worldwide and help measure the success of any activity an organization, department, or employee engages in against the desired results of that action.
In other words, a KPI measures and monitors whether what you’re doing is achieving the desired results and business goals.
Often, KPIs will be separated into high and low levels. High-level performance indicators relate to the performance of an entire business. In contrast, low-level key performance indicators will look at the smaller picture, monitoring departmental or even individual performance.
KPI definition
When defining key performance indicators, there are a few different sources we like to use:
- Oxford Dictionary KPI definition: “A quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting key objectives for performance.”
- Investopedia KPI meaning: “Key performance indicators (KPI) gauge a company’s output against a set of targets, objectives, or industry peers.”
- Macmillan Dictionary KPI definition: “A way of measuring the effectiveness of an organization and its progress towards achieving its goals.”
Whichever KPI definition you prefer, one thing is clear: key performance indicators are vital for monitoring and tracking the success and health of your business.
Types of KPIs
Although most KPIs are numerical, accurate monitoring of your business goals can often go beyond this. For example, it can be tricky to monitor employee satisfaction or customer experience using just a number.
For this reason, it’s crucial to understand that different types of KPIs exist, enabling you to track anything from profit margins to complaint resolution success. Every KPI can provide valuable insight into your organization’s overall performance and help establish whether you’re on track to achieve your business goals.
1. Quantitative
When you think of KPIs, chances are you’re thinking of quantitative performance indicators… AKA targets that can be measured by numbers. For example, the average order value of your customers’ carts, your business’s gross profit margin, or how many new customers you’ve acquired in a set period.
Quantitative KPIs can be broken down into two further categories: continuous and discrete.
- Continuous KPIs will track any value over a set range and can incorporate decimal places. An example could include a set measure like miles traveled for a shipping business or time per call for a call center or help desk.
- Discrete KPIs are always whole numbers and are valuable for tracking things like the number of complaints, accidents, or customer acquisition rates.
2. Qualitative
As mentioned above, although quantitative KPIs are useful and easy to measure, they don’t always provide a complete picture of your business’s overall performance. So, it’s essential to incorporate qualitative indicators as part of your strategic goals.
Some good qualitative performance measures examples might include an employee or customer satisfaction survey. Although this may incorporate some quantitative measures, the overall results are dependent on feelings and opinions, making the results inherently qualitative.
3. Leading
Leading indicators are forward-thinking and used to predict the outcome of a business incentive or decision. They can also be used to confirm long-term data trends.
A leading KPI example could be predicting a certain number of new customers will be acquired following an overhaul of your marketing campaigns and strategies. Or an improvement to brand perception following a new product launch.
Once you’ve established your leading KPI, you can use real-time data to monitor performance and see how it aligns with your predictions.
4. Lagging
Where leading indicators focus on the future, lagging indicators look to the past to measure the success of an action or initiative that’s already taken place. Examples of lagging KPIs could include monitoring month-on-month or quarter-on-quarter performance.
These KPIs are usually used to gauge the historical performance of an organization and can also be helpful when analyzing the impact of a business decision.
The downside to lagging performance metrics is that they only provide a historical view, so they are limited in their usefulness. With lagging metrics, it may also be too late to correct shortfalls.
5. Input
Input metrics look at the resources required for a business project. These are likely to be most relevant when dealing with a product launch, new marketing campaigns, or other events that may boost customer engagement, as these are the moments your business is most likely to require additional resources.
Examples of input KPIs can include overtime payments for staff, marketing expenses such as billboards, hiring freelancers, paying for pop-up premises, extra materials for a new product, etc.
Input metrics will help you establish cost efficiency and keep your budget under control.
6. Process
Process indicators are all about how streamlined, efficient, and effective your business processes are. Probably the most common process KPI example would be customer support ticket resolution:
- Number of customer support tickets opened,
- Number of customer support tickets resolved,
- Average resolution times.
These are all examples of process-focused KPIs that might be relevant to customer support tickets. But these are by no means the only process indicators you might come up with in your organization.
7. Output
Output indicators are among the most used KPI types and measure the success or failure of a business activity or process. They can be qualitative or quantitative and measure results such as profits, revenue, customer acquisition rates, etc.
8. Practical
Similar to output indicators, practical indicators measure the effects of a business process or strategy. The main distinction is that a practical KPI will focus on existing company processes to see how they affect the broader business goals and whether they can be improved upon.
Because of the practical nature of this type of KPI, these examples can be entirely unique to your business or even your department.
9. Directional
Directional metrics (as the name suggests) look at business trends to uncover patterns. This could involve figuring out whether a specific metric is improving, declining, or staying the same.
An excellent directional KPI example could be Facebook ad clickthrough rates. This would measure the number of customers who have accessed your site via your Facebook marketing campaigns and enable you to see whether more, less, or the same number of customers are being reached through these campaigns. If the numbers aren’t improving in line with your directional KPIs, you need to ask why.
10. Actionable
Actional KPIs reflect and measure a company’s commitment to implementing changes and how effective these changes have been. There’s no limit to what these actionable metrics might be: They could include a change to an internal business process, a commitment to taking political action, a focus on improving company culture, or an ethical promise such as donating X% of profits to charity.
Your actionable metrics would measure whether the changes have been implemented within the specified timeframe and the overall success of the transition.
11. Financial
Finally, we have financial indicators. These are more common, quantitative KPIs that you’re likely to find in most business settings.
Financial metrics measure everything from economic stability, business viability, and financial growth. More specifically, financial KPI examples could include:
- Gross profit margin
- Net profit margin
- Customer acquisition cost
- Asset ratios
- Etc.
Financial indicators are brilliant for establishing the financial viability, success, and health of a business. But it’s important not to solely focus on financial aspects when selecting the best KPIs for your business. Instead, a balance of different types of KPIs should be used to help you see the bigger picture.
How do I create a good KPI example?
Knowing what KPI stands for and the different types of performance indicators your business can use is one thing… But creating a good KPI list is another thing entirely! Many businesses make the mistake of only including key performance indicators for employees or just looking at financial performance indicators. But doing this means you could be missing out on vital information that will give you a far superior overview on whether you’re achieving your business objectives.
Because of this, it’s vital to select key performance indicators for managers, employees, processes, customers, and more. Having a few KPIs in each vital area will help provide you with a broader view of your business operations.
Once you’ve identified the areas your business will monitor, the next step is to actually create your key performance indicators. KPIs, like any other target, should be well-defined, clear, and measurable. And there are a series of questions you should be asking to develop better key performance indicators.
Anatomy of a KPI
The first thing you need to do when creating a KPI template is to understand the anatomy of a KPI. In other words, there are four key aspects any good KPI template should incorporate…
If nothing else, every key performance indicator should include a:
Measure:
Every key performance needs to measure something and clearly outline how it will measure that thing. For example, if your KPI looks at average purchase value, your measure will be how much money each customer spends in one transaction.
Target:
Each KPI measure then needs a target or date by which you hope to achieve the desired outcome being measured. For example, if you’re trying to increase website traffic by X%, you should also include a date by which you expect to achieve your goal.
Data Source:
To avoid confusion about how data is being measured and tracked, you need to be clear when defining KPIs where the information is coming from. For average order value KPIs, this could be looking specifically at customers who have checked out on your website or the average purchase value for customers at a specific store. Figuring out what will count towards the KPI or not will ensure the metric can be appropriately tracked.
Owner and reporting frequency:
Once you’ve established what you’re tracking with your KPI, you need to give it an owner to enhance accountability. You will also need to set a specific reporting frequency – i.e., how often the KPI owner will update the records and monitor progress. This can be any frequency you deem appropriate, but a good rule is to ensure at least a monthly reporting frequency.
Let’s look at an anatomy of a KPI example to make this clearer:
Say my KPI is to gain 1,000 new customers by the end of this financial year. I will monitor this by checking my CRM system monthly and inputting the number of new customers I’ve acquired to check my progress.
The measure is how many new customers I’ve gained. The target is the end of the financial year. My data source will be my CRM system, and the reporting frequency will be monthly. And the owner of the task is going to be my VP of sales.
Questions to ask when finding the best KPI for your company
Once you understand the anatomy of a KPI and have tried writing your own, you need to check that the KPI stands up to scrutiny and is clear enough for everyone it affects to understand what’s being measured and expected of them.
To do this, ask yourself (and your team) the following questions:
- What is the desired outcome of the KPI?
- How will this outcome help achieve your company mission or vision of success?
- How will you know when you’ve achieved the desired outcome?
- Is this a leading or lagging indicator of performance?
- Is the measure and target for each KPI clear enough to stand alone?
- Can each KPI be measured/tracked at least monthly?
If you or your team can’t answer any of these questions, you need to go back and redraft the KPI.
The 6 As of KPIs
Drafting a good business KPI is one thing… But picking the right metrics to measure can be another thing entirely. It’s certainly not unheard of for businesses to pick a KPI to measure, only to realize that they’ve wasted time, resources, and money tracking indicators that really aren’t key to the business objectives.
So, once you’ve selected a key performance indicator to measure, check it against the 6 As of KPIs to ensure you’ve chosen the metrics that matter most…
1. Aligned
KPIs are probably the best way to ensure you’re achieving your business objectives with every process, procedure, and piece of marketing you put in place. But when you have various short, medium, and long-term goals, it can be tricky to figure out which to prioritize when setting your key performance metrics.
To overcome this challenge, it’s a good idea to align your KPIs with different management levels:
- Set long-term KPIs for executives
- Medium key performance indicators for managers
- And short-term key performance indicators for employees and associates.
You can also take this a step further by setting up KPIs for different personas. This avoids the “mass marketing” effect: just like one marketing campaign will not work for every customer, it might not be possible for everyone to contribute to a single KPI equally. Be sure you’ve taken this into account when aligning your KPIs.
It’s also vital that your KPIs align with your business goals, values, and mission statement. If your KPI does not clearly work towards the broader business objectives, it’s not a key indicator, and you’ll be better off focusing your attention elsewhere.
2. Attainable
It’s great to have high hopes for your small business and to aim for the stars… But setting KPIs that are simply impossible to achieve isn’t going to win you any prizes! In fact, one of the leading causes of employee dissatisfaction is unrealistic expectations and key performance indicators for employees.
That doesn’t mean your team shouldn’t feel challenged… But setting targets and measures that are too difficult is likely to result in disengagement and deflation throughout the business.
From a business perspective, your KPIs also need to be financially attainable, measurable, and realistic. There’s no point in setting a business goal that you don’t have the resources to achieve or monitor. It’s OK to dream… But keep KPIs within your capabilities.
3. Acute
It’s essential when setting KPIs to be as specific as possible. Vague KPIs leave room for interpretation, leading to individuals taking different approaches to achieve success and the results becoming impossible to measure.
Remember, your KPIs help determine business decisions, directions, and success. If you’re not specific enough when setting key performance indicators, you’ll be setting yourself up for failure.
In addition to ensuring each KPI is as specific as possible, it’s also important not to have too many. While you might be tempted to create a KPI for every business activity, department, and campaign, overloading is entirely possible… And will make it much harder to monitor the measures that truly matter.
Limit yourself to 5-7 KPIs throughout the business. This will ensure sufficient attention can be paid to each one, including more time critically thinking about and adjusting the measures if necessary.
4. Accurate
It’s easy to think an acute, specific key performance indicator would tick the accuracy box, but KPIs should involve more than a single decision. The best KPIs are accurate and reliable, with continuous reporting required to monitor the measured aspect’s performance and success.
To make your KPIs as accurate as possible, you first need to ensure the KPI itself contains all the necessary and relevant information to the task. Failing to do this will lead to an incomplete picture that serves no one.
Next, look at the data you’ve included in your KPI monitoring. Is it accurate in reflecting and predicting your business’ performance? If it’s not providing an accurate reflection or the predictions are way off-base, your KPI likely needs adjusting.
5. Actionable
The best-sounding KPI in the world is, frankly, useless if not actionable. Remember, the purpose of a KPI is to monitor, track, and predict the success of your business over time, with answers that will help you make future business decisions.
One of the most common KPI mistakes is to try and track events that are outside the control of the business. For example, the number of calls a customer makes to your help center is not something you or your employees can control. Therefore, this would not be a good KPI.
An alternative option for an actionable KPI for a call center could be the number of calls answered within a set time frame. This way, your team isn’t being targeted on events outside of their control and would provide a superior indicator of productivity.
6. Alive
No matter whether you’re a new small business or Fortune 500 company… Your business goals, plans, and even employees will change over time. So, your KPIs must reflect this.
There’s no value in a KPI that’s measuring store-based cash flow when most of your profits are made from website traffic. Or monitoring turnover rate if you mostly hire freelancers.
In other words, as your business goals and processes evolve, your KPIs should evolve as well. Keep a continuous eye on your key performance indicators to check they’re still relevant and whether the data sources for these metrics are also updated as required.
What’s the difference between a key performance indicator and a key performance metric?
Key performance indicators and key performance metrics/measures are often used interchangeably. And while we might forgive organizations for misusing the terms, there are critical distinctions between the two that are important when creating and implementing any strategic business plan.
The main difference is that KPIs showcase business performance against strategic goals or outcomes. This could be anything from the business’s net profit margin to customer satisfaction.
On the other hand, metrics support KPIs by representing the processes or actions required to achieve the KPI. For example, if your KPI relates to customer lifetime value, metrics might include aspects such as acquisition cost per customer, average order value, customer retention rates, etc.
In other words, your key performance indicators define your organization’s strategy, create focus, and provide actionable targets. Your metrics are measurable components that add value to your business but aren’t crucial for success. This means that every KPI is a metric, but not every metric is a KPI.
20 KPI examples you can use:
Now you know what a KPI is, the anatomy of a KPI, questions to ask when building a KPI template, and the difference between a key performance indicator and KPI metrics, it’s time to look at some key performance indicators examples that you can use in your own business.
All these KPI examples will provide value and insight into your organization. However, it’s vital to be selective when picking the best KPIs and metrics. While reading this KPI list, think to yourself, what KPIs would you use in the real world? Which are most appropriate to your business goals? And how you can improve on common key performance indicators to make them more unique and specific to your brand.
There are numerous ways to categorize KPIs. For this list of key performance indicators, we’ve looked at different departments. KPIs for sales, finance, customers, internal organization, and marketing are all essential metrics to measure within your company. And picking the right KPIs across every department is the best way to grow a well-rounded picture of your company, employee, and customer health.
Sales KPI examples
- Number of sales qualified leads (SQL) generated
- The dollar value of new contracts signed in a given month.
- Average conversion rate.
- Cost per acquisition of sales qualified leads.
Financial KPI examples
- Gross or net profit margin
- Operational cash flow
- Current accounts payable or receivable
- Growth in revenue (GIR)
Customer KPI examples
- The number of existing customers retained.
- Net promoter score.
- Customer lifetime value.
- Customer churn rate.
Operational & performance management KPI examples
- Average time frame for order fulfillment.
- Employee satisfaction rating
- Employee churn rate
Marketing KPIs examples
- Monthly website traffic
- Number of marketing qualified leads (MQL)
- The conversion rate for social media marketing campaigns.
- Number of social media or blog posts generated
- Social media marketing / PPC return on investment (ROI)
Make your KPIs SMART+ER
By now, everyone should know that setting SMART (specific, measurable, attainable, relevant, time-based) goals is essential to excellent business management… But when it comes to developing the best KPIs, you can take it a step further with SMARTER goals:
- Specific: Is your KPI specific in the goals and processes it relates to?
- Measurable: Can you measure whether you’re on track to achieve the KPI?
- Attainable: Is the KPI realistic and attainable?
- Relevant: Is it relevant to your overarching business goals, mission, and brand?
- Time: Does the KPI have an average time frame in which it should be achieved, plus a set time to update and monitor?
- Evaluate: Evaluate your KPIs regularly to check whether they’re being met, exceeded, or missed and whether you need to make any adjustments.
- Reevaluate: After evaluating your KPIs, evaluate them. And keep revaluating them for the duration of your organization’s life.
Connecting employees, KPIs, and purpose
It’s important to remember that KPIs really are only as important as you make them. And they only work if everyone involved in meeting your key performance targets is on the same page about which metrics are being tracked and, most importantly, why.
Explaining to your employees why you’re measuring what you’re measuring is vital when it comes to making and meeting KPIs that matter. Whether you’re aiming to boost your net promoter score, want to focus your efforts on boosting social media engagement, trying to attract new customers, focusing on existing customer retention, or you’re all about sales growth… Letting your employees know how their efforts progress towards the broader goals is essential for successful KPIs.
But sharing your operational goals with your team isn’t just about getting everyone on the same page. Opening a dialogue can also lead to remarkable improvements in virtually every department KPI. So, give your team members a chance to share their thoughts and make improvements to the metrics they’re being measured against. You never know where the right KPIs might come from.
FAQ
What are the 5 key performance indicators?
Typical KPIs will usually fall into one of five categories. These are sales, financial, customer, operational, and marketing KPIs. You’ll likely have one or two KPIs from each category as part of your overall business goals to provide a clear, wide-reaching view of how your business is performing.
What are the most important KPIs for companies?
There are a few common KPIs and metrics that are used in companies in all sectors. These include financial KPIs such as accounts receivable and payable, profit margins, and others. It’s also worth considering aspects such as customer acquisition cost and return on investment (ROI) for marketing, sales qualified leads, and other aspects.
From a human resources perspective, you might also want to monitor more qualitative measures such as employee satisfaction, employee churn rate, and staff turnover rate to check your teams are as motivated, engaged, and productive as possible. After all, a happy employee is a productive employee!
What are the four types of performance indicators?
We’ve mentioned that common key performance indicators fall into five categories: sales, financial, customer, operational, and marketing. However, top KPI metrics can also be categorized into the following four types:
- Customer satisfaction: These metrics would look at aspects such as the net promoter score (NPS), customer lifetime value, customer retention, and may even incorporate some marketing KPIs.
- Internal process quality: This would look at how your internal processes make progress towards your overall goals. You might consider the expected time frame for a support ticket to be answered, whether your organization is producing products at an acceptable rate, or how the sales department communicates with the support team.
- Employee satisfaction: Having satisfied and engaged employees is about so much more than offering financial benefits or a foosball table in the breakroom… Monitoring KPIs like staff turnover rates can be a valuable insight into how happy your employees are in their work. You can even ask staff to fill out employee satisfaction surveys to uncover how to be a better employer.
- Financial performance index: Financial KPIs are among the most common corporate KPI examples. While they’re not always the most vital metric, keeping an eye on revenue and aiming for sales growth is obviously crucial for any successful organization.
What does KPI stand for?
KPI stands for Key Performance Indicator. It’s a way of monitoring progress towards business goals and can consider anything from financial growth to employee satisfaction to customer retention.
