What is a key performance indicator in business?

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Table of Contents

This guide provides examples, templates, and practical advice for defining key performance indicators for your organization and team.

What’s KPI?

KPIs measure performance over time for a specific goal. KPIs help teams set goals, measure progress, and make better decisions. Key performance indicators help finance, HR, marketing, and sales advance strategically.

What Do KPIs and Metrics Mean?

KPIs and metrics are related but different. Brief explanation:
To maximize strategic business results, track KPIs. KPIs support your strategy and help teams prioritize. “Targeted new customers per month” is a KPI.
Metrics evaluate daily business activities that support KPIs. They affect your results, but they’re not crucial. “Monthly store visits” and “white paper downloads” are examples.

What’s the point of KPIs?

KPIs help teams support company goals. Here are the main reasons you need KPIs.
KPIs align teams, whether measuring project success or employee performance.
Key performance indicators show your company’s health, from risk factors to finances.
Adjust: KPIs show you what’s working and what’s not so you can do more of what’s working.
Hold your teams accountable: Use key performance indicators to track progress and help managers progress.

ikmage of Different types of KPIs

Different types of KPIs

KPIs vary. Some are used to track monthly goals, while others are long-term. Strategic goals underlie all KPIs. Here are some common KPIs.
Strategic KPIs track organizational goals. Executives usually monitor one or two strategic KPIs. Revenue, market share, and ROI are examples.
Operational KPIs measure organizational processes and efficiencies in a shorter timeframe. Sales by region, CPA, and average monthly transportation costs are examples.
Functional Unit: Many KPIs relate to functions like finance or IT. Finance KPIs include gross profit margin and return on assets, while IT measures time to resolution and uptime. Functional KPIs are strategic or operational.
Leading vs. Lagging: Leading and lagging indicators should be understood regardless of the key performance indicator. Leading KPIs predict outcomes while lagging KPIs record them. To track what matters, companies use both.

How to Make KPIs?

With so much data, measuring everything—or at least the easiest can be tempting. You must measure only the KPIs that help you achieve your business goals. Strategic focus is crucial to the KPI definition. Best practices for KPI creation are here.

KPI usage: Find out what users want and how they’ll use the KPI report. This will help you create business-user-relevant KPIs.
Strategically align them: Irrelevant KPIs waste time. Every KPI should relate to your business goals, whether related to HR or marketing.
SMART KPIs SMART KPIs work best. Be specific, measurable, achievable, realistic, and time-bound. “Grow sales by 5% per quarter” or “Increase Net Promoter Score 25% over three years” are examples.
Be clear: To act on KPIs, everyone in the company should know them. Thus, data literacy is vital. Data-savvy people can make decisions that move the needle.
To repeat: Key performance indicators may change as your business and customers change. Depending on performance, some may be irrelevant. Be prepared to evaluate and adjust key performance indicators.
Limit KPIs: Business intelligence has given organizations massive amounts of data and interactive data visualization to measure everything. Key performance indicators are the most crucial goals. Focus on critical KPIs to avoid overload.

3 Ways to Improve KPI Strategy

If your KPIs aren’t performing, change your strategy. Here are three ways to make sure everyone in your company understands your KPIs and how to use them to make data-driven business decisions.

Select important KPIs: Use a mix of leading and lagging indicators to measure what matters. Sales over 30 days are a lagging indicator. Based on data, leading indicators help you predict and improve results.
KPI culture: Key performance indicators (KPIs) are only helpful if people don’t understand them. Data literacy helps employees achieve strategic goals. To keep employees making business-advancing decisions, educate, assign relevant KPIs, and use a top-tier BI platform.
Iterate: Adapt your KPIs to market, customer, and organizational changes. Review them regularly, assess performance, and publish any changes to keep teams informed.

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