What are KPIs?

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 is a KPI?

KPIs are the units used to measure progress toward a particular goal. Effective KPIs follow theSMART 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.

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.

Leading indicators vs. lagging indicators

There are two major types of KPIs, called leading indicators and lagging indicators.

A leading indicator is a metric that predicts success, while a lagging indicator provides evidence of success after the fact. When choosing your KPIs, you should make sure you have a good balance between leading and lagging indicators.

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.

For that same blog marketing campaign, 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.

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 function in a similar way to KPIs. In fact, in many cases, the KPIs and OKRs for a project could overlap.

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.

OKR and 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.

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.

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.

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)

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 liklihood 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.

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.

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.