What is KPI (Key Performance Indicator)? How to set, track and improve?

Whether it’s a small coffee roasting firm or a billion-dollar e-commerce corporation, all organizations want to analyze their growth and figure out what works and what doesn’t. This is where Key Performance Indicators (KPIs) come in. Once you’ve set your strategic goals, using KPIs to track progress allows you to make more informed decisions and enhance outcomes. Continue reading to learn more about KPIs, how to select indicators, and how to use them effectively.

What is a Key Performance Indicator (KPI)?

A Key Performance Indicator (KPI) is a quantitative target that shows how individuals or corporations achieve their objectives. Reviewing and evaluating KPIs helps firms identify whether or not they are on track to meet their objectives.

Businesses can identify successes and failures by analyzing a variety of crucial indicators such as profitability, sales numbers, employee turnover, and average annual expenses. Analyzing KPIs on a regular basis provides a good overview of how well a firm is functioning, allowing people in control to determine whether to continue with present operations or to change strategy.

KPIs vs. Metrics

Although both are intended to assess performance, KPIs and metrics have distinct qualities and are utilized by businesses in various ways. Metrics are measurements used to assess development and achievement. At the same time, KPIs are measures that are associated with certain goals over a given time period.

KPIs are intended to align with company goals and targets, whereas metrics assess the performance of specific operations. Metrics are typically tailored to a particular individual or team, and they frequently correlate with industry standards or best practices.

What Makes a Good KPI?

The best plans include five to seven key performance indicators (KPIs) to monitor and manage development. The best designed KPI plans include each of the “SMART” criteria:

• Specific: Define what each KPI is intended to measure and why it is important
• Measurable: KPIs should include standards for measurement.
• Achievable: The KPI should be a realistic, attainable goal.
• Relevant: KPIs are intended to move a business forward, so they need to be applied to improve outcomes.
• Time-bound: Setting a realistic time frame based on past performance and ensuring the team sticks to the agreed-upon deadlines are essential.

Common Types of KPIs

KPIs for practically every business and category, including sales, marketing, customer service, information technology, human resources, and finance. Because these indicators are frequently responsible for driving performance objectives and outcomes, selecting the right ones for your company is critical. Choosing a fewer number of attainable KPIs per aim enables businesses to do the necessary assessments and align their personnel.

Here are some examples of common KPIs:

Examples of Sales KPIs:

• Monthly sales growth
• Monthly customers per sales rep
• Quarterly sales bookings
• Number of engaged leads in the sales funnel
• Average conversion time

Examples of Marketing KPIs:

• Monthly website traffic
• Page likes and comments
• Social media engagement rates
• Number of new monthly leads
• Click-through rate percentage

Examples of Human Resources KPIs:

• Monthly overtime hours
• Quarterly training costs
• Cost per new hire
• Employee productivity
• Monthly absenteeism rate

Examples of Customer Service KPIs:

• Customer satisfaction score
• Customer retention rate
• Monthly support ticket submissions
• Average resolution time
• Cost per resolution

How to Set KPIs

You cannot begin using KPIs until you have clearly defined strategic goals; these will serve as the starting point for determining which indicators will be most beneficial to your firm. Once your goals are established, the next step is to choose the proper analytical and reporting tools, which are often software applications created expressly for your sort of organization.

Once you begin adopting KPIs, you will have a better understanding of which indicators are useful and which require tweaking. Assume the KPI you’re using needs to deliver more information or the right type of information. In that situation, it’s time to consider a different method.

This will also be true if the firm develops or grows, and the KPIs must deliver varied insights. The most successful KPIs are those that improve performance, reflect a business’s success, and help you get closer to your objectives.

Steps for Setting a KPI:

KPIs should be established strategically, with clear objectives that match to a company’s desired outcomes and strategic goals. Remember to make KPIs measurable and explicit, with a time frame. Here are the steps to create a KPI:

1. Determine Key Objectives: Start by defining the key objectives, taking into account that KPIs should align teams with an organization’s goals.
2. Define Intended Results: Once the objectives have been determined, define the results needed to achieve success.
3. Use Lagging and Leading Indicators: Lagging indicators look at historical performance variables, such as sales and profit, to illustrate the effect of previous performance. Leading indicators outline the actions required to attain goals and overall objectives.
4. Set Targets and Thresholds: Setting targets and thresholds allows teams to see exactly where they are and where they are going on a KPI objective time frame.
5. Assess Progress and Readjust: KPIs will likely need to be adjusted as a project evolves, so assessing progress regularly illustrates any hiccups and helps keep the objective on track.

KPI Setting Steps

KPIs should be established strategically, with clear objectives that match to a company’s desired outcomes and strategic goals. Remember to make KPIs measurable and explicit, with a time frame. Here are the steps to create a KPI:

1. Determine Key Objectives: Start by defining the key objectives, taking into account that KPIs should align teams with an organization’s goals.
2. Define Desired Results: Once the objectives have been determined, define the results needed to achieve success.
3. Utilize Lagging and Leading Indicators: Lagging indicators look at past performance variables, such as revenue and profit, to show the outcome of past performance. Leading indicators define actions needed to achieve goals and meet overall objectives.
4. Set Targets and Thresholds: Setting targets and thresholds allows teams to see exactly where they are and where they are going on a KPI objective time frame.
5. Assess Progress and Readjust: KPIs will likely need to be adjusted as a project evolves, so assessing progress regularly illustrates any hiccups and helps keep the objective on track.

KPI Examples for E-Commerce Stores

Increase Sales

Improve Customer Satisfaction

Increase Profitability

KPI Best Practices

Using the wrong KPIs might result in anything from wasted effort to a substantial effect that affects your bottom line. For example, if you run a donut business and want to know how many dozen are sold each day with the intention of decreasing food waste, measuring a KPI like average customer wait time would not give you with the information you need to achieve your goal.

When selecting the KPIs to employ in your business, keep the following in mind:

• Select indicators that are directly relevant to your objectives.
• Think about lagging versus leading indicators.
• Opt for realistic measurements that are attainable.
• Pick a few specific indicators instead of too many.

Benefits of KPIs

There are numerous advantages to employing KPIs since they enable proper resource allocation and channeling, thus enhancing performance. Some of the benefits are:

• Real-time monitoring: KPIs allow managers to track team performance and progress throughout a project. This enables for modifications and the allocation of resources required to enhance output.
• Help avoid delays: The KPI framework helps teams stay on track and reduce delays by providing a clear view of task status on the timeline. This helps to reduce delays by allowing for revisions as needed, ensuring that the objectives are met.
• Easy to formulate: Simple KPIs make for easier development. Because generating KPIs is a simple process, any type and size of business may do it after their goals have been determined.
• Ensure equity and clarity: Using KPIs promotes equity, transparency, and increased team engagement. Empowering staff with the autonomy that KPIs enable ensures that everyone understands what is going on, who is responsible for what, and that success is shared.

In Summary

KPIs are an important tool for businesses to evaluate performance, identify difficulties, and address problems. These measurements, when taken on a regular basis, reveal the trends and patterns required to make the best selections possible. When the right types and amounts of KPIs are applied, these indicators provide data that can enhance an organization’s overall health.

Frequently Asked Questions About KPI