What Is a KPI? (All your questions answered)
A Key Performance Indicator or KPI is a numeric value that indicates whether your team/company is reaching its targets. KPIs are used by teams and leaders to evaluate the quantifiable measure of performance of business processes and individuals, and it has proven to be a highly effective method. Monitoring metrics help you to evaluate your business performance and make data-driven decisions to grow faster.
If you’d like to find out what is a KPI and how to best use it, this guide will answer all your questions and more.
What is a KPI?
KPIs are also known as performance metrics, performance ratios or business indicators.
Some examples of KPIs:
- Net Profit Margin – Is used to calculate the percentage of profit a company produces for its total revenue.
- Monthly Recurring Revenue (MRR) – One of the most important metrics of any subscription business that measures the predictable and recurring revenue components.
- Sales Growth – Is used to measure the ability of your sales team to increase revenue over a fixed period of time.
If you’d like to learn about different performance indicators, here’s a complete list of 136 KPI examples.
Types of KPIs
Depending on your organization’s goals and objectives, you can track various Key Performance Indicators.
Selecting the right KPIs right at the beginning is crucial for getting actionable and helpful information about your company’s performance.
Each business department measures different KPIs because they all have different tasks and goals.
There are five main types of KPIs:
- Business KPIs
- Financial KPIs
- Sales KPIs
- Marketing KPIs
- Project Management KPIs
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Business KPIs help to measure the achievement of long-term business goals. By tracking business metrics, companies are able to navigate between important business processes and identify the areas of slow growth.
Examples of popular business KPIs:
- Revenue Growth Rate
- Churn Rate
- Acquisition Rate
- Relative Market Share
- Return on Equity
Financial KPIs are usually monitored by an organization’s leadership and the financial department. These financial metrics indicate how well a company is doing in terms of generating revenue and profits.
Examples of financial KPIs:
- MRR (Monthly Recurring Revenue)
- Net profit margin
- Operating cash flow (OCF)
- Working Capital
- Current Ratio
- Budget Variance
Sales KPIs are measurable values used by the sales team to monitor the achievement of their key objectives and goals. Sales metrics help to keep track of month-over-month results and attain sustainable sales growth.
Popular sales KPIs:
- Monthly New Leads/Sales
- Lead-to-Customer Conversion Rate
- Cost per Acquisition
- Sales Qualified Leads (SQL)
- Customer Lifetime Value (LTV)
Sales KPIs can be tracked on a Sales Dashboard.
Marketing KPIs help marketing teams to monitor their success across all marketing channels. A quick overview of marketing metrics shows how well the marketing team’s doing in terms of acquiring new leads.
Examples of marketing KPIs:
- Website Traffic Per Source
- Cost Per Acquisition CPA
- Marketing Qualified Leads (MQL)
- Net Promoter Score
- Conversion Rate
Want more? See the complete guide to 37 popular marketing KPIs.
Project management KPIs
Project management KPIs are used by project managers to monitor project progress and the attainment of goals. Organizations use project metrics to identify successful projects and meet important deadlines.
Popular Project management KPIs:
- Planned Value (PV)
- Actual Cost (AC)
- Earned Value (EV)
- Cost Variance (CV)
- Schedule Variance (SV)
Read on: Best KPI Dashboard Software & Tools. Reviewed.
High-level vs. low-level KPIs
High-level KPIs demonstrate the company’s overall performance. Examples of high-level KPIs include Annual Growth, Annual Recurring Revenue (ARR), and Relative Market Share.
Single individuals have no impact on these performance indicators as they’re the result of teamwork across multiple departments.
Low-level KPIs indicate the performance of specific departments or individuals. Low-level business metrics are tied to people’s day-to-day work and more actionable.
How to use KPIs?
KPIs can be used to monitor your company’s performance across all departments.
Add your metrics to a KPI dashboard for a quick overview of each important goal.
KPI dashboard is a real-time reporting tool that collects, groups, organizes, and visualizes the company’s important metrics. You can set up multiple KPI dashboards to track the achievement of each department’s goals.
The greatest value of modern business dashboards lies in the ability to provide real-time information about a company’s performance. As a result, business leaders and teams can make informed and goal-oriented decisions, acting on actual data instead of a gut feeling.
A real-time comprehensive business dashboard helps to instantly notice problem areas and find solutions to important issues.
Here are the five essential questions everyone should answer before creating a KPI dashboard:
- What are my desired business results (goals)?
- How can the KPI values be improved by taking action?
- Do we have all the relevant data needed to monitor the KPIs?
- Who is going to use the KPI report and what do they need to know (i.e. which KPIs and metrics should be included)?
- How to visualize specific KPIs (graphs, metrics, diagrams, etc.)?
Read more: What Is a KPI Tracking Dashboard? The Complete Guide
How to choose the right KPIs?
To choose the right KPIs, you need to define your business goals. Each KPI you track should be measurable and tied to the achievement of specific goals.
It is better to focus on a few key metrics instead of many irrelevant ones.
Only monitor the Key Performance Indicators that are relevant to your organization. Ensure that every single one of your business metrics meets the SMART criteria:
SMART KPIs are:
Understand that Key Performance Indicators are different for each industry, growth stage, and project phase.
Follow the industry standards only if they match with your goals and objectives.
Also, remember that the metrics you measure will change as your company grows and scales.
Use the examples mentioned above to identify the right KPIs for your business and team.
Leading a successful business is easier when you use KPIs that provide a graphical overview of where you stand. You’ll get insight into historical trends, current progress, and problem areas; and can use this information to maintain sustainable growth.
Read on: KPI Reporting – 62 Tips, Hacks, and Tools to Succeed
- A KPI (Key Performance Indicator) is a measurable value that indicates whether a team/company is reaching its targets (benchmarks).
- The five main types of KPIs are business KPIs, financial KPIs, sales KPIs, marketing KPIs, and project management KPIs.
- KPIs are frequently monitored with a real-time reporting tool – KPI dashboard.
- Each KPI your monitor should meet the SMART criteria, i.e. be Specific, Measurable, Attainable, Relevant, and Time-Bound.
- Only track the metrics that are relevant to your organization and business goals.
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