What is a Key Performance Indicator (KPI)? Guide & examples

Key performance indicators (KPIs) are essential for tracking progress toward business goals. This guide covers the types of KPIs and methods for developing effective performance metrics.

By Brad Nakase, Attorney

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Table of Contents

1. What is KPI?

2. Metrics Meaning vs. KPI Meaning

3. What Makes Key Performance Indicators Important?

4. Key Performance Indicators Types

5. Methods for Developing KPIs

6. Three Steps to a More Robust KPI Plan

7. Examples of KPI

8. FAQs

What is KPI?

Key performance indicators, or KPIs, are quantitative measurements of one’s progress over time toward a specific goal. KPIs offer objectives for businesses to strive towards, standards to assess advancement, and perspectives to assist people throughout the company in making more informed decisions. Key performance indicators (KPIs) support corporate growth at the organizational level in all areas, from sales and marketing to finance and human resources.

Metrics Meaning vs. KPI Meaning

Metrics and key performance indicators are not the same, despite their relationship. To give you a brief explanation:

To maximize the influence on your business strategy’s results, you should monitor key performance indicators or KPIs. KPIs reinforce your plan and assist your personnel in concentrating on crucial tasks. “Targeted prospective customers each month” is an illustration of a KPI.
Metrics track the effectiveness of routine company operations that help you achieve your KPIs. Even while they affect your results, they are not the most important ones. “Market research report downloads” and “monthly retail visits” are a couple of examples.

What Makes Key Performance Indicators Important?

Using KPIs can help you make sure that your teams are working toward the organization’s overall objectives. The following represent a few of the main justifications for using key performance indicators.

Maintain your teams in sync: KPIs help teams stay on the same path by tracking both project progress and personnel performance.
Give a health examination: From risk concerns to financial metrics, key performance indicators provide you with a true picture of the state of your company.
Make changes: KPIs let you efficiently see your accomplishments and shortcomings so you can focus more on what’s performing and less on what isn’t.
Ensure that your teams are responsible: Utilize key performance indicators to ensure that each person adds value and to assist managers in moving things along by enabling staff to monitor their own development.

Key Performance Indicators Types

There is diversity in key performance indicators. Some focus on monthly progress toward a goal, while others are more long-term in nature. All KPIs share the trait of being linked to strategic objectives. This is a summary of a few of the most popular KPI categories.

Strategic: These broad-spectrum KPIs track the objectives of the company. To determine how the company is performing at any particular moment, executives usually look to a few strategic KPIs. Market share, revenue, and return on investment are a few examples.
Operational: These key performance indicators (KPIs) are usually more time-sensitive and concentrate on the effectiveness and operations of the company. CPA (Cost per acquisition), average monthly transport expenditures, and sales by location are a few examples.
Functional Unit: Numerous critical performance metrics are associated with particular departments, such as IT or finance. Finance KPIs monitor return on capital or gross profit margin, whereas IT may track average availability or time to remedy. It is also possible to categorize such functional KPIs as operational or strategic.
Lagging vs Leading: You should understand the distinction between leading and lagging indicators, irrespective of the kind of KPI you choose to define. Lagging KPIs monitor past events, whereas leading KPIs assist in forecasting future events. To make sure they’re monitoring the most critical things, organizations combine the two.

Methods for Developing KPIs

Measuring everything, or preferably the things that are simplest to measure, can be appealing given the abundance of data. To assist you achieve your business objectives, you must, however, ensure that you are only tracking the critical performance metrics. Among the key components of the KPI development is the strategic objective. The best methods for creating the appropriate KPIs are shown below.

Indicate the intended application of the KPIs: To figure out the goals they hope to accomplish and how they plan to utilize the KPI study, speak with the individuals who are planning on utilizing it. Defining KPIs that are pertinent and useful for the users will be made easier with this assistance.
Connect them with strategic objectives: You’re wasting your energy if your KPIs have no bearing on the objectives you have set for your company. All key performance indicators should be clearly linked to your company’s general goals, even though they could be linked to a particular business department like marketing or HR.
Create SMART KPIs: KPIs that are most successful adhere to the tried-and-true SMART approach. Specific, Measurable, Attainable, Realistic, and Time-Bound are what you want to be sure of. “Grow revenue by five percent per quarter” and “Boost the net promoter rating by twenty-five percent over the subsequent three years” are a couple of examples.
Keep them simple: In order for everyone in the company to take action based on your KPIs, they need all be aware of them. For this reason, data literacy is crucial. People who are proficient with data can make judgments that will influence change for the better.
Prepare to iterate: You might have to modify your KPIs as your company and your clientele evolve. Maybe some of them have become obsolete, or performance calls for a change. Ensure that you have a strategy in place for assessing key performance metrics and making adjustments as needed.
Prevent KPI overload: Businesses can now easily measure everything and anything thanks to business intelligence, which has provided them with access to mountains of information and interactive visualizations of data. Remember that the concept of a key performance indicator relates to the most significant goals. Avoid overemphasizing KPIs by concentrating on the most significant metrics.

Three Steps to a More Robust KPI Plan

Changes to your approach are necessary if the key performance indicators aren’t yielding the desired outcomes. These three actions will help to guarantee that everyone in the company understands the significance of your key performance indicators and the best ways to use them to support informed choices that have an influence on your profitability.

Choose the most important KPIs: You should use a mix of both lagging and leading indicators to make sure that you’re evaluating the right things. Sales over the previous 30 days are one example of a lagging indicator that can help you comprehend results as time goes on. With the use of data-driven predictions from leading indicators, you can improve results by making necessary modifications.
Establish a culture that is driven by KPIs: If employees don’t know what KPIs are and when to utilize them, not even the abbreviation for the measure means anything. Your organization should raise data literacy levels so that all employees are working toward strategic goals. Ensure that all staff members are making decisions that advance your company by educating them, assigning pertinent KPIs, and utilizing a top-tier BI platform.
Iterate: Update your KPIs in response to modifications in the company, the market, and your customers. Meet frequently to discuss them, closely examine performance to determine whether any modifications are necessary, and post any updates so that teams are always informed.

Examples of KPI

To monitor their progress, each business unit has its own set of KPIs. KPI dashboards are a popular tool used by numerous businesses to see, review, and evaluate their performance indicators centrally. These are some department-specific KPI examples, along with a dashboard perspective on each.

Sales
Marketing
Finance
Customer Service
IT

1. Finance

Finance managers have many options for monitoring financial development, ranging from margin & managing cash to spending and revenue monitoring. As you create your own KPIs, take into account the following examples.

Margin of Gross Profit (and percentage)
Margin of Operating Profit (and percentage)
Margin of Net Profit (and percentage)
Ratio of Operating Expenses
Ratio of Working Capital

2. Sales

By monitoring and routinely analyzing key performance indicators for sales, such as those for leads, closed sales, opportunities, & volume, you can make sure that your staff members are hitting their sales targets. Here are a few KPI suggestions for sales teams:

Fresh Inbound Leads
Fresh Opportunities That Qualify
Total Value of the Pipeline
Volume of Sales by Location
Value of an Average Order

3. Marketing

Establish specific key performance indicators and match them to the strategic objectives of your company to gain control over the marketing budget, rate of conversion, and other measures of marketing performance. In order to get you started, consider the following marketing KPIs.

MQLs (Marketing Qualified Leads)
SQLs (Sales Qualified Leads)
Conversion Rates (For Particular Objectives)
ROI of Social Programs by Platform
ROAS (return on advertising spend)

4. Key Performance Indicators in IT

IT KPIs can help hold teams accountable and notify them of any impending problems, from tickets (support) to server outages. IT teams may set goals similar to the following KPIs:

Total Tickets for Support
Get Support Tickets Opened
Time of Ticket Resolution
Downtime Related to Security
IT Expenses Compared to Revenue
Reopened Ticket Entries

5. Customer Service

Leaders in customer service should monitor client, staff, and financial outcomes. Furthermore, KPIs should include metrics for both long-term and short-term goals, such as customer happiness, support speed of response, and other factors that contribute to meeting service goals.

Resolution Rate of First Contact
Average Time to Answer
The Most Active Customer Service Representatives
Cost per Session
Client Effort Rating

FAQs

1. What is the meaning of KPI?

A key performance indicator is referred to as KPI.

2. Which KPI definition is the best?

KPIs (Key performance indicators) are benchmarks that assist you in tracking your progress toward your most important strategic goals. KPIs are objectives that are “critical” to your company’s success, even though firms might use a wide variety of measures.

3. Which KPI types are there?

Relevant to certain business units, KPIs can be operational or strategic. Marketing may check traffic-to-lead ratios and cost per lead, while customer service monitors the average solution and the Net Promoter Rating. Finance, on the other hand, watches revenue increase and the margin of net profit. Sales monitors net revenue and revenue by region. The order fulfillment and the time to market are examples of operational KPIs.

4. What is the best way to define key performance indicators?

You should take a lot of things into account when creating your KPIs. The following are some to remember: Provide a clear explanation of their intended purpose, link them to strategic objectives, maintain their SMART (specific, measurable, achievable, and time-bound) nature, make any necessary adjustments, and ensure that you are measuring the most crucial elements.

5. Which KPIs are the most useful to use?

There are several methods to develop high-performing KPIs, even though every organization is unique: combine both lagging and leading indicators in a balanced way; raise data literacy to foster a KPI-led culture; and periodically review and modify your KPIs in response to changes in your market, audience, and business.

Have a quick question? We answered nearly 2000 FAQs.

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