The ABCs of KPIs: Defining Key Performance Indicators

Zdjęcie współautora – Julia MartinsJulia Martins15 listopada 202212 min czytania
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Summary

KPIs, or key performance indicators, are metrics that measure the progress of a specific project toward your defined goals. KPIs need to be quantifiable and relevant, and should provide concrete evidence to make project decisions going forward.

A key performance indicator (KPI) is a quantitative metric of how your team or organization is progressing toward important business objectives. Organizations use KPIs at multiple levels—you can set an organization-wide, team-specific, or even individual KPIs, depending on which metrics you want to track. A good KPI can give you a sense of whether you’re on track to achieve your strategic goals. 

If this is your first time choosing key performance indicators, this article will walk you through how KPIs differ from other goal-setting methodologies, how to identify key metrics for your KPIs, and how to choose great key performance indicators.

What are KPIs?

KPIs are the units used to measure progress toward a particular goal. Effective KPIs follow the SMART goal framework, meaning that they’re Specific, Measurable, Attainable, Realistic, and Time-bound. KPIs are the measuring units you’ll use to check off the “M” in your SMART goal.

[Przeczytaj] Twórz lepsze cele SMART korzystając z tych wskazówek i przykładów

Every project will have a list of KPIs that you can track. A social media manager could measure impressions, shares, likes, follows, replies, mentions, and comments, but they shouldn’t try to track all of the KPIs available to them. Tracking every KPI available is like highlighting every sentence in a textbook—it defeats the purpose, since the important things get buried in the clutter of less useful information. After you’ve set your goal, you’ll want to select three to five KPIs that will be most effective in measuring progress.

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Why are key performance indicators important?

Key performance indicators are important because they keep teams focused on what matters most to an organization's success. They act like a report card showing how well a team is doing in key areas, which helps everyone understand where they stand. If things are going well, you keep going. If not, you know it's time to change things up.

For example, a customer service team might use KPIs to track how fast they respond to support tickets. By setting a target response time and monitoring their actual performance, they might find that quick responses lead to happier customers. With this insight, they could focus on improving response times and, as a result, see better customer satisfaction scores. This kind of focus can really make a difference in how a team performs.

Types of KPIs

When it comes to measuring success, not all key performance indicators are the same. Each type of KPI plays a unique role in how it sheds light on performance and success. Understanding the differences will help any organization use key performance indicators effectively.

Quantitative indicators

Quantitative indicators are the hard numbers. They are measurable and can be expressed in figures. Think of them as numerical evidence of performance. For example, a common quantitative KPI is monthly sales revenue. It's a straightforward metric that shows exactly how much money was brought in from sales in a month. A sales team might use other similar indicators to help paint a more complete portrait of its operations.

  • Monthly sales growth: Measures the month-over-month percentage increase in sales.

  • Average profit margin: Calculates the average profit made from each sale.

  • Annual recurring revenue: The predictable revenue generated each year, which is especially relevant for businesses with subscription models.

  • Revenue per customer: Shows the average revenue earned from each customer, which can help in understanding customer value.

Qualitative indicators

Qualitative indicators are more about the quality of something and are often subjective. They're not always represented by numbers, and sometimes they're captured through observations, surveys, and feedback. 

A good example is customer satisfaction. This can be measured through customer surveys asking how happy people are with your service, giving you a qualitative view of how you're doing. Here are a few KPIs that also show how customers view a brand:

  • Brand reputation: Measures how likely customers are to recommend your brand, gained through customer reviews or social media sentiment analysis.

  • Customer satisfaction index: This can be derived from surveys that ask customers to rate their satisfaction with your products or services.

  • Customer complaints and resolution rates: Tracks the number of complaints received and how effectively they are resolved.

  • Customer loyalty and retention rates: Measure how often customers return to make additional purchases and how long they stay with the brand.

Leading indicators

Leading indicators are a bit like a weather forecast for your business—they give you a heads-up on future performance. They can predict changes and trends before they happen, allowing companies to adjust their strategies proactively.

For example, let’s say you’re choosing KPIs for a blog marketing project. Some leading KPIs you might consider include:

  • Number of relevant keywords per post

  • Number of hours logged per asset created

  • Number of links within each post to other content on your site

  • Number of links to each post from other content on your site

These are all metrics that can predict how each post will perform. Articles that hit your minimum number of relevant keywords and link to and from other content on the site are more likely to be successful. On the other hand, a design asset that only took half the normal amount of time to create is likely to be below average quality and not perform as well as a result. Leading KPIs provide guidance ahead of time that maximize the project's likelihood of success after it's published.

Lagging indicators

Lagging indicators confirm what has already happened. They’re like looking in the rearview mirror to understand past performance. They can be financial, such as quarterly profits, which tell you how much money was made after all sales are done and expenses are paid.

When choosing your KPIs, you should make sure you have a good balance between leading and lagging indicators. For that same blog marketing campaign above, some lagging KPIs you might consider include:

  • Search engine rankings

  • Traffic to each post

  • Value of traffic to each post

  • Bounce rate (how quickly readers leave your site)

  • Conversions (how many readers end up purchasing your product)

These KPIs measure metrics that come after the post is published—or, put another way, they “lag” behind the project’s launch. Whereas leading KPIs help predict likely success, lagging KPIs measure actual success. Comparing the data from each will give you information about how accurate your predictions were and why actual performance may have deviated from predicted performance.

[inline illustration] Leading indicators vs. lagging indicators (infographic)

What makes a good KPI?

There are a ton of KPI options for almost every project, but not every measurable metric is a high-quality KPI. For example, tracking the number of words per post in your blog campaign wouldn’t be very useful, since the “best” post length for an article changes from topic to topic.

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Similarly, some KPIs are great in one context but not in another. For example, financial KPIs, like labor cost per design project, are very helpful to the accounting department, but not very useful for design managers.

A good KPI:

  • Is quantifiable

  • Provides evidence of progress (or lack thereof)

  • Tracks something that is responsive to changes

  • Offers useful data for decision-making

  • Tracks something you can control and influence

  • Is easy to understand and work with

  • Can be reliably verified

How to set up effective KPIs

Choosing the best KPIs for the job is a process with specific (but simple!) steps. Follow these four steps to get started.

1. Define your business objective

You can’t choose KPIs unless you know what you’re trying to measure. Start the process by defining your business objective. Make sure that your project is in alignment with the rest of your organization by consulting with company leaders and referring to other company-wide documents like your organization’s mission, overarching strategic plan, and department-wide goals.

Depending on what level you’re working from—team manager, department head, director, VP, or company leader—you may be in a position to set both short-term and long-term KPIs. When planning at the executive level, you can set KPIs by the month, quarter, or year.

[Przeczytaj] Dopiero zaczynasz planowanie strategiczne? Rozpocznij tutaj.

2. Identify important business metrics

Once you’ve defined your business objective, you need to decide which metrics are relevant to that objective. The metrics you choose for your KPIs should be indicators that directly relate to whether or not you achieve your objective.

Remember: KPI stands for key performance indicators. There may be a variety of metrics or indicators that impact your ultimate goal. Creating the right KPI is about capturing the most important details and making sure you’re tracking those metrics. Not every task or project needs to have an associated KPI. 

If you’re not sure where to start, check out some relevant metrics for each department in your organization.

Example financial metrics

  • Annual recurring revenue (ARR)

  • Net revenue retention (NRR)

  • Net profit margin (NPM)

  • Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

  • Operating capital

  • Cash flow

Example customer metrics

  • Net promoter score (NPS)

  • Customer acquisition cost (CAC)

  • Customer satisfaction (CSAT)

  • Customer retention

  • Customer churn

  • Number of total paying customers

  • Number of new customers

Example process and operations metrics

  • Throughput time, or total lead time

  • Number of complaint or bug tickets filed

  • Supply chain metrics, like days sales outstanding (DSO)

Example people or human resources metrics

  • Employee retention rate

  • Employee satisfaction

  • Salary competitiveness ratio (SCR)

Example sales metrics

  • Revenue growth

  • Market penetration

  • Customer lifetime value

  • Gross profit margin

Example marketing metrics

  • Number of qualified leads

  • Lead conversion rate

  • Social media followers 

  • Content downloads

  • Email click-through rate (CTR)

Read: 16 social media metrics you should be tracking

3. Set up a tracking system

When you’re working on more than one project with more than one team, the number of KPIs you’re tracking can start to add up quickly. It’s important to have a tracking system in place that ensures your data is recorded consistently and at regular intervals. You won’t be able to draw accurate conclusions if you forgot to track some weeks or if you lost the data in a messy file folder.

A KPI dashboard is the best place to keep track of all of your KPIs. Having a central shared dashboard:

  • Ensures everyone is looking at the same information

  • Makes KPI data accessible to the entire team, no matter where they are

  • Eliminates the need to manually notify stakeholders every time something is updated

  • Can track metrics automatically, so there’s no chance of forgetting

  • Reduces the likelihood of human error

4. Track and share real-time progress

KPI data isn’t something you neglect until it’s time for your quarterly report. Rather, stakeholders should use KPI reports to make minor and major decisions throughout a project’s lifecycle. That’s why it’s important to keep your KPI data up to date and make it accessible to everyone at any time.

The best way to keep your data up to date is to use a dashboard that tracks and updates in real time. That way, stakeholders won’t need to wait until the next update to get the most recent information—they can just check the dashboard.

If you do track your KPIs manually, make sure you update at regular intervals that make sense for your project. For fast-moving projects, consider sharing updates weekly so everyone is tuned in to any changes. For longer-term, slower-moving projects, consider reporting biweekly or monthly to ensure each update includes enough information to be useful.

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If possible, track and share progress in the same place you manage work so your team understands how their individual work contributes to the KPI and, as a result, to your broader company goals. At Asana, we use goal management software to connect our company goals to the work that supports them. With Goals, team members can prioritize projects to get their highest-impact work done.

Examples of KPIs

Key performance indicators are the compass that guides organizations towards their goals. Here are some typical examples of KPIs for different areas.

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Financial KPI examples

When it comes to the financial health of a business, key performance indicators act as vital signs. For example, return on investment (ROI) is a common financial KPI. It measures the profitability of an initiative against its cost. To put it simply, if a company spends $1,000 on a marketing campaign and generates $5,000 in sales, the ROI KPI indicates a successful outcome.

When exploring financial metrics, you'll frequently find these examples of KPIs in use.

  • Net profit margin: Shows what percentage of your sales is actual profit.

  • Gross profit margin: Tells you how much you're making after covering the cost to make or buy your products.

  • Operating cash flow: Measures the cash your business makes from normal business operations.

Customer KPI examples

Customer-related KPIs show how well a company is performing from the standpoint of its clientele. Support tickets are a common key performance indicator here. They reflect the number of queries or issues customers report. If a new product launch sees a spike in support tickets within a short period of time, this KPI might signal the need for product improvements or better customer education.

It’s not uncommon for those working in the customer service industry to see the following examples of KPIs.

  • Customer satisfaction score: A quick way to see how happy people are with what you sell.

  • Net promoter score: Tells you if your customers like your product enough to tell their friends.

  • Customer retention rate: Measures how well you're keeping your customers over time.

Process KPI examples

To streamline operations, organizations can track process KPIs. An example is the employee turnover rate. This helps teams understand how often they have to replace staff. A high turnover rate over a six-month period of time could point to deeper issues within the work environment that need addressing.

Here are a few other common examples of KPIs you'll see in process tracking.

  • Efficiency ratio: Used to check if you're making good use of what you own to make money.

  • Cycle time: Measures how long it takes to get something done from start to finish.

  • First-time right: Shows how often you get things right the first time without any do-overs.

Marketing KPI examples

Marketing efforts can be gauged using website traffic as a key performance indicator. This metric helps businesses optimize their online presence. For example, if a new blog post aimed at explaining the different types of KPIs sees a 50% increase in visitors, the content can be considered effective in attracting more interest.

In the marketing department, it's common to come across the following examples of KPIs.

  • Cost per lead: Helps you figure out how much you're spending to get someone interested in what you're selling.

  • Conversion rate: Tells you what percentage of your website visitors are doing what you want them to do.

  • Click-through rate: Shows how often people click on a link you've given them.

Project management KPI examples

Project managers often use a "balanced scorecard," a strategic KPI framework that evaluates initiatives from various perspectives—financial, customer, process, and growth. 

Let's say a sales team is tasked with improving customer outreach. Their scorecard may reflect how well they're meeting this organizational goal across different performance measures, like sales KPIs, over a quarterly time frame.

For a closer look at project management metrics, consider these other examples of KPIs.

  • Return on investment: Measures whether the money you put into something is worth what you're getting out of it.

  • Earned value: Helps you see how much of your project you've gotten done at any point.

  • Critical path length: Measures the total time your project will take, based on the things you can't skip.

Keeping an eye on these key performance indicators helps you figure out how close you are to hitting your goals and what you might need to tweak to get there.

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Pros and cons: Key performance indicators

Key performance indicators can be extremely useful, but they also have their drawbacks. Let's take a closer look at both sides.

Benefits of KPIs

  • They help managers see specific issues through clear data, which is great for making plans and improving an organization.

  • They use hard numbers to show how employees are doing, which keeps everyone on the same page and removes guesswork.

  • They can actually motivate employees to do better when they see their performance is being analyzed.

  • They link day-to-day work with the company's bigger targets and show if the company is really getting to where it wants to go.

Disadvantages of KPIs

  • It can take a lot of time to collect KPI data, especially if you're looking at how things change over several years.

  • You have to keep an eye on your indicators and update them to make sure they're still useful.

  • There's a risk that managers might just focus on hitting KPI numbers instead of truly improving the business.

  • If the specific goals aren't set right, they can be too tough to meet, which can stress out team members.

KPIs vs. OKRs

KPIs aren’t the only way to track project performance. OKRs, or objectives and key results, are another type of measurement tool that functions in a similar way to KPIs. In fact, in many cases, the KPIs and OKRs for a project could overlap.

[inline illustration] KPIs vs. OKRs (infographic)

Here are the differences and commonalities between KPIs and OKRs:

Key performance indicator (KPI): Designed to measure performance over time, a good KPI should track one measurable value that can indicate the rate of progress toward a goal.

Objectives and key results (OKRs): OKRs use the template “I will [objective] as measured by [key result].”The objective is the goal you want to achieve and the key results are the metrics used to track progress toward that objective. You can have more than one key result for each objective.

KPIs often overlap with OKRs, but the difference is that OKRs don’t have to be quantifiable measures. For example, you could set an OKR to “Improve the workplace environment as measured by employee morale,” even though your OKR, employee morale, is intangible. If you wanted to set a KPI for the same objective, you’d have to find a way to quantify employee morale—say, number of HR complaints received or new hire turnover rate.

[Przeczytaj] Czym są cele i kluczowe rezultaty (OKR-y)?

OKR vs KPI examples

Here’s another example of potential OKRs and KPIs for a customer experience team.

Example KPI: Increase net promoter score (NPS) by 2 points in FY21.

Example OKRs: 

  • Objective: Surprise and delight our customers to increase customer satisfaction and loyalty.

  • Key result: Generate positive buzz through social media and virtual events.

  • Key result: Reduce churn to less than 2% per month.

  • Key result: Increase net promoter score (NPS) by 2 points in FY21.

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KPI FAQs

What does KPI stand for?

KPI is an acronym that stands for "key performance indicator." It's a term used widely across various industries to describe measurable values that organizations can track to gauge how effectively they are achieving key objectives.

What is the most important KPI?

The most important KPI often depends on the specific goals of an organization. For many, it could be related to financial performance, like net profit margin, which shows the amount of profit made as a percentage of revenue. However, what's most important is that the KPIs a team chooses should directly support their specific goals, ensuring that they are relevant and provide actionable insights.

What is a KPI in marketing?

A key performance indicator in marketing refers to a measurable metric that marketing teams use to assess the effectiveness of their campaigns and specific goals. For example, a marketing team may track the conversion rate of a campaign to determine how effectively it turns prospects into customers.

What is a KPI in business?

In a broader business context, a KPI serves as a numerical indicator that organizations use to measure their performance against their strategic goals. Teams can automate the collection and reporting of these metrics, thanks to integrations with business intelligence tools, which allows for real-time monitoring and more informed decision-making.

KPIs, OKRs, SMART goals, oh my!

KPIs are a great way to set quantifiable goals that connect to your strategic objectives. But if KPIs don’t feel right for you, th ere are a variety of other goal-setting methodologies you can try.

To get started, read our articles about how to set OKRs, write better SMART goals, or create great short-term goals.

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