What is a KPI?

KPI stands for key performance indicator, a quantifiable measure of performance over
time for a specific objective. KPIs provide targets for teams to shoot for, milestones to
gauge progress, and insights that help people across the organization make better
decisions. From finance and HR to marketing and sales, key performance indicators
help every area of the business move forward at the strategic level.

KPI Meaning vs Metrics Meaning

While key performance indicators and metrics are related, they’re not the
same. Here’s a quick explanation:

 KPIs are the key targets you should track to make the most impact on your
strategic business outcomes. KPIs support your strategy and help your teams focus
on what’s important. An example of a key performance indicator is, “targeted new
customers per month”.
 Metrics measure the success of everyday business activities that support your
KPIs. While they impact your outcomes, they’re not the most critical measures.
Some examples include “monthly store visits” or “white paper downloads”.
To build business intelligence, you should track both strategic key performance
indicators and tactical metrics. You’ll need to know your supporting metrics to
get a better understanding of your KPI performance.

Why Are KPIs Important?

KPIs are an important way to ensure your teams are supporting the overall goals of
the organization. Here are some of the biggest reasons why you need key performance
indicators.

 Keep your teams aligned: Whether measuring project success or employee

performance, KPIs keep teams moving in the same direction.
 Provide a health check: Key performance indicators give you a realistic look at the
health of your organization, from risk factors to financial indicators.
 Make adjustments: KPIs help you clearly see your successes and failures so you can do
more of what’s working, and less of what’s not.
 Hold your teams accountable: Make sure everyone provides value with key
performance indicators that help employees track their progress and help managers move
things along.
Types of KPIs
Key performance indicators come in many flavors. While some are used to measure
monthly progress against a goal, others have a longer-term focus. The one thing all
KPIs have in common is that they’re tied to strategic goals. Here’s an overview of
some of the most common types of KPIs.

 Strategic: These big-picture key performance indicators monitor

organizational goals. Executives typically look to one or two strategic KPIs to find
out how the organization is doing at any given time. Examples include return on
investment, revenue and market share.
 Operational: These KPIs typically measure performance in a shorter time
frame, and are focused on organizational processes and efficiencies. Some
examples include sales by region, average monthly transportation costs and cost per
acquisition (CPA).
 Functional Unit: Many key performance indicators are tied to specific
functions, such finance or IT. While IT might track time to resolution or average
uptime, finance KPIs track gross profit margin or return on assets. These functional
KPIs can also be classified as strategic or operational.
 Leading vs Lagging: Regardless of the type of key performance indicator you
define, you should know the difference between leading indicators and lagging
indicators. While leading KPIs can help predict outcomes, lagging KPIs track what
has already happened. Organizations use a mix of both to ensure they’re tracking
what’s most important.
 How to Develop KPIs

With so much data, it can be tempting to measure everything—or at least things

that are easiest to measure. However, you need to be sure you’re measuring only
the key performance indicators that will help you reach your business goals. The
strategic focus is one of the most important aspects of the KPI definition. Here are
some best practices for developing the right KPIs.

1- Define how KPIs will be used: Talk to people who will be using the KPI report to find
out what they want to achieve and how they’ll use them. This will help you define KPIs
that are relevant and valuable to business users.
2- Tie them to strategic goals: If your KPIs don’t relate to what you’re trying to achieve in
your business, you’re wasting time. While they may be related to a specific business
function like HR or marketing, every key performance indicator should tie directly back
to your overall business goals.
3- Write SMART KPIs: The most effective KPIs follow the proven SMART formula.
Make sure they’re Specific, Measurable, Attainable, Realistic and Time-Bound. Some
examples include “Grow sales by 5% per quarter” or “Increase Net Promoter Score 25%
over the next three years.”
4- Keep them clear-cut: Everyone in the organization should understand your KPIs so they
can act on them. This is why data literacy is so important. When people understand how
to work with data, they can make decisions that will move the needle in the right
direction.
5- Plan to iterate: As your business and customers change, you may need to revise your key
performance indicators. Perhaps certain ones are no longer relevant, or you need to adjust
based on performance. Be sure you have a plan in place to evaluate and make changes to
key performance indicators when necessary.
6- Avoid KPI overload: Business intelligence has given organizations access to mounds of
data and interactive data visualization, making it easy to measure anything and
everything. Keep in mind that the key performance indicator definition refers to the most
important targets. Steer clear of KPI overload by focusing on the most impactful
measures.

KPIs vs Metrics
What’s the difference between a KPI and a metric?

 KPIs represent how you’re performing against strategic goals. And by goals,
we mean specific business outcomes, such as targeted quarterly revenue or targeted
new customers per month.
 Metrics support KPIs by representing the tactical processes or actions necessary
to achieve the KPIs. Metrics track and measure the success against targets for
specific actions such as monthly brochure downloads or store visits.
KPI Overload
The vast majority of enterprises rely on KPIs. But now that modern data
analytics and data visualization have brought easy access to massive datasets, there’s
a new problem: KPI overload. It’s easier than ever to fall into the trap of measurement
for measurement’s sake. Managers everywhere are learning the hard way that just
because they can measure something doesn’t mean that they should.

Why should I use KPIs?

Quite simply, KPIs will tell you whether your business is moving forward or
backward. The use of them will be invaluable in the decision-making process and help
to drive forward the growth of your business.You plough time, effort and money into
the running of your business, surely it makes sense to measure the performance or
‘health’ of that business on a continuous basis.

Key benefits:
 Clarification – KPIs help to clarify the current business position and performance
expectations
 Benchmarking – KPIs provide a point of reference for making future or past
comparisons
 Focus – KPIs outline the important aspects for attention within the business
 Consistency – KPIs enable a consistent approach to achieving business goals
 Motivation – KPIs engage employees with company goals
 Accountability – KPIs will highlight both good performance and under performance

 Elimination of waste – KPIs help identify inefficiencies within the business

How to implement KPIs

Modern businesses churn out huge volumes of data, known as ‘metrics’. Business
metrics range from sales and productivity figures to web traffic and social media
followers, they may be financial or non-financial. The challenge is working out which
metrics to monitor, and how to monitor them, which is where KPIs come in.

KPIs are individual to every business. Think about where you are now and where you
want to be in the future. Which figures must you track to ensure you reach your goal?

Select metrics that are relevant to your business type. For example, a commercial
vehicle dealer such as myself will measure the number of vans sold per month and
average profit per unit, a call centre would follow the number of outbound calls made
in a certain timeframe and number of those that converted to sales.

It is likely that without realising it, you are already tracking important metrics – and
possibly just within your own headspace. Start by setting some base KPIs initially,
and once you become comfortable with the process move on to some more complex
metrics.

Select the area of business you want to measure – typically within finance, growth,
marketing

Set a target – make it S M A R T (Simple, Measurable, Achievable, Relevant,

Timebound)

Review progress regularly or in real time – look at previous data and compare with
current figures and future target

Example of KPI for manufacturing :

Overall equipment effectiveness is a set of broadly accepted nonfinancial metrics that
reflect manufacturing success.

 OEE = availability x performance x quality .

 Availability = run time / total time, by definition this is the percentage of the
actual amount of production time the machine is running to the production time
the machine is available.

 Performance = total count / target counter, by definition this is the percentage

of total parts produced on the machine to the production rate of machine.

 Quality = good count / total count, by definition, this is the percentage of good
parts out of the total parts produced on the machine.

 Cycle time ratio (CTR) = standard cycle time / real cycle time.

 Capacity utilization.

 Rejection rate.
Conclusion:
KPIs are designed to monitor sectors and activities in organizations. They help to
evaluate what actions are successful and where there is potential for optimization and
saving money. The metrics most useful as key performance indicators will depend on
the company.

Regular assessment of process performance in companies is not only important for

management and regulation; it is also used in content marketing. Regularly review
activities and outcomes in accordance with content objectives, using clearly defined
metrics.

The KPIs used to measure content marketing performance always depends on the
respective content and the goals being measured. Many possible KPIs can be used
depending on the business model, planned targets and type of content.