What is a KPI? Complete Guide to Key Performance Indicators

Are you struggling to achieve your business goals? Do you feel like you're working hard but not seeing the results you want? It might be time to start using key performance indicators (KPIs). KPIs are measurable values that help businesses track and evaluate their progress towards specific objectives. By setting clear, targeted KPIs, businesses can focus their efforts and resources on the most important tasks, leading to greater efficiency and success. In this article, we'll explore the world of KPIs and show you how to use them to drive your business towards success. So, let's dive in and discover the power of KPIs!

What is a KPI?

Every organization measures things. A clothing store tracks how many shirts they sell every day. A parts manufacturer knows the number of days since there was an injury. A painting company could measure the average number of overtime hours every week. These metrics allow people to make decisions based on real data rather than hunches.

KPIs are the metrics that are most important. They're the measurements that tell you if you're accomplishing your most important business objectives. An organization may have hundreds or thousands of metrics, but you're only going to talk about a few of them during your quarterly performance review meeting. Those are your key performance indicators.

All KPIs are metrics, but you're going to choose only some of your metrics as KPIs.

A Variety of Metrics Used to Measure Business Performance

There are many different types of KPIs. Some are used to track monthly progress against a goal. Others may measure performance over a quarter or an entire fiscal year. However, all KPIs are tied to strategic outcomes. Generally, KPIs can be organized into these broad categories:

• Strategic KPIs: These KPIs give a big-picture overview of your company’s performance. An example might be your overall market share.
• Operational KPIs: These KPIs focus more on specific processes or efficiencies and tend to measure performance over a shorter time frame. An example of an operational measure might be your average monthly sales by region.
• Functional Unit or Project KPIs: This type of KPI is tied to a specific function, department (such as HR), or project (such as a new product launch). One example of a functional unit KPI could be the average time to resolve a customer query.
• Risk KPIs: These KPIs focus on minimizing internal and external risk factors. For example, a KPI might be the cost of risk management programs or the number of risks identified.
• Employee KPIs: This category of KPIs focuses on human behavior and employee performance. An example of an employee measure might be staff retention rates.

Within each of these categories, it’s a good idea to track a mix of “leading” and “lagging” KPIs. Leading KPIs can help predict changes or trends, while lagging KPIs track the results of work that has already happened. For example, if a leading KPI tracks the number of employees trained on a new software platform, a corresponding lagging KPI might be the number IT support requests.

Most Popular Examples

While your KPIs should be tailored to your organization’s specific needs, some common indicators include:

Customer Service KPIs

• Customer retention rate
• Average query resolution time
• Query escalation rate
• View All Customer Service KPIs

Finance KPIs

• Gross profit margin
• Net profit margin
• Working capital ratio
• View All Finance KPIs

Information Technology KPIs

• Network downtime
• Total support tickets
• Average threat resolution time
• View All Information Technology KPIs

Marketing KPIs

• Return on ad spend
• Marketing qualified leads
• Customer acquisition cost
• View All Marketing KPIs

Sales KPIs

• New inbound leads
• Sales volume by location
• Monthly recurring revenue growth rate
• View All Sales KPIs

Human Resources KPIs

• Overtime hours
• Training costs
• Talent satisfication
• View All Human Resources KPIs

To get you started, we've compiled an extensive list of KPI Examples by both department and industry.

How to Choose the Right KPIs for Your Business

A KPI shouldn’t just be arbitrarily measuring something. Each one should align with your business’s objectives. Otherwise, you run the risk of wasting valuable employee time tracking metrics with no clear goal.

Start by reviewing your business objectives and taking a fresh look at your current performance. Where are you succeeding, and where do you need to improve? Once you have a good understanding of where you’re at, you can define where you want to go. Your KPIs should be tied to “SMARTER” goals: Specific, Measurable, Attainable, Relevant, Time-Bound, Explainable, and Relative.

As you define your short- and long-term KPI targets, make sure you’re reviewing them with your team. Getting feedback from your team can help you define more precise and realistic measures and ensures buy-in from the whole group.

Once you’ve implemented a set of KPIs, remember that they’re not static. Be sure to check your performance against your goals regularly, and keep in mind that you may need to adjust as you go. That’s not an indication that your KPIs were wrong – it simply means that business conditions change, and adjusting your targets accordingly is an excellent way to stay nimble and responsive to outside factors.

Why are KPIs important?

KPIs are important because they give employees a goal to work toward. Everyone is aligned and accountable. You define your company’s values and goals by setting specific KPIs. When everyone is working towards the same set of KPIs, you’re helping ensure better teamwork. And with clear KPIs, employees at every level can understand the organization’s progress and performance. You’ll have a realistic picture of your organization across every department. Finally, KPIs help you communicate where you’re succeeding – and where you might need to improve.

How to Determine What KPIs to Use

While it may seem simple, make sure you’re selecting the KPIs that matter most. Ideally, you’ll want a balance of leading and lagging indicators, but be careful to avoid KPI overload. This can lead employees to feel confused or overwhelmed. Start with a small set of your most important indicators. You can always add more KPIs as you go.

It’s also helpful to look at areas where you’ve prioritized improved performance – whether it’s social media presence or reducing overhead – and create tailored KPIs accordingly. And remember that how you communicate your KPIs is just as important as what you measure. If your employees don’t know what your KPIs are or how to track or measure them, you’re setting yourself up for failure. Set aside time to educate and train your team.

How to Develop a Strategy

To create and implement your KPI strategy, utilize the SMARTER System:

• Specific: What exactly do you want to measure?
• Measurable: Can this KPI be easily quantified?
• Attainable: Is it realistic to meet this KPI in the time frame you’ve set?
• Relevant: How does this KPI relate to your work?
• Time-Bound: What is the timeline for meeting this KPI?
• Explainable: Is the definition clear to all the stakeholders involved?
• Relative: Does this KPI move in relation to your business goals?

Reporting

The most effective way to report on your measures is with a KPI dashboard. While there are many different platforms for tracking and reporting on KPIs, the best dashboards will allow you to see your performance in real-time and export your data into visualizations and reports. You can capture a point-in-time snapshot of your progress and analyze performance over time.

Track Key Performance Indicators With KPI Software

To streamline the process of KPI monitoring and reporting, turn to Spider Strategies. Our purpose-built platform, Spider Impact, allows you to create, manage, and continuously improve your company’s strategy. We’ve designed Spider Impact to monitor your critical data so you can assess your progress at a glance or easily create interactive presentations for executive briefings.

Designed to work at organizations of any size and in any industry, our KPI software makes it easy to set and track your goals. See how Spider Impact helps you define, measure, manage and report on all of your KPIs. Click for a free test drive or demo.