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Intro to key performance indicators (KPIs)
Business Basics

Intro to key performance indicators (KPIs)

10 min read

Highlights

  • KPIs (key performance indicators) measure success in various aspects of your business. 
  • A KPI can be high level (focusing on overall business success), or it can be low level (specifically related to a single department). 
  • Evaluating KPIs can provide insight into your business decisions and overall business direction. 

What is a KPI? 

KPIs are a way to measure business success, and they can vary depending on the industry and the company itself. But what does KPI stand for? It’s short for key performance indicator. This can be a target you are trying to hit, or an evaluation of how you compare to similar companies. 

Relevant KPIs take into consideration your industry, your competitors, and a reasonable expectation of progress over time. Your source of data needs to be clearly defined, so everyone can agree on where you stand. 

KPIs in business need to be adaptable, because performance measures for a company with two employees will be radically different when it has 200 employees. However, previous performance can offer a baseline of information as your KPIs change. 

Examples of KPIs

So what is a good KPI? The answer depends on your industry, what you are trying to achieve and what part of your business you want to evaluate. Take a look at the types of KPIs below to see if these examples would help set useful expectations in your company. 

Finance focused:

  • Year over year (YOY) revenue growth
  • Net or gross profit margin 
  • Revenue per client (RPC)
  • Operational cash flow
  • Liquidity 

Customer focused: 

  • Customer or client retention rate
  • Customer of client satisfaction
  • Net promoter score (NPS) 

Process focused: 

  • Throughput time
  • Output quality
  • Order fulfillment time

Marketing focused: 

  • Number of qualified leads
  • Conversion rate
  • SEO rankings

How to choose the right KPI

Follow these steps to write KPIs that make the most sense for your organization: 

  1. Decide what you need to evaluate, and why

Are you looking for indicators of growth? Measurements of business capital? Customer satisfaction? Or something else? Make sure you know what you’re looking for so that you choose the right metrics. You’ll want it to be aligned with a clear business objective, so the KPI can actually make an impact.  

  1. Select an actionable KPI

The right KPI will provide insight that you can respond to. If you find that your profit margin is lower than you want, what will your company do to meet the ideal goal? What changes can you make to increase the chances of success?

  1. Reevaluate KPIs over time

Business success requires thinking long term, and the goals you had in mind years ago might not apply today. It’s okay to reevaluate and use different KPIs as your strategies change. 

Once you have determined the right KPIs, you should share them with all stakeholders. Strategic goals are easier to achieve when all relevant team members know the metrics you’re using to evaluate success.

SMART KPIs

The SMART framework is a popular method for creating useful KPIs. This stands for: 

Specific—the goal is clear. 

Measurable—don’t be vague; use hard numbers to gauge success.

Attainable—be realistic about what your organization can do. 

Relevant—it should keep in mind your industry and competitor performance.

Time bound—the timeline should be clear and achievable. 

With these guidelines in mind, you can feel more confident in the strategic objectives you’re setting for the organization. 

How to track KPIs

One way to measure performance is with a balanced scorecard, a tool that tracks KPIs and keeps teams across your organization focused on business objectives. Scorecards help businesses measure progress by highlighting the relationship between target goals and drivers.

A balanced scorecard allows business owners and leaders a chance to look at their business through different perspectives to better understand where the business is going and how to get there. 

You can also use a KPI dashboard to track KPIs on a regular basis. A good dashboard provides information about all indicators at a glance and measures progress over time.

Why KPIs matter

The right KPIs can show you where your business is succeeding and where you might fall short  in terms of strategic goals. They are useful for organizations at every stage of growth, and can help you evaluate important metrics at every level in your company. 

KPIs aren’t everything—they can tell you if your revenue hasn’t met expectations, but they can’t tell you how to actually increase that revenue. But self assessment is a critical part of the improvement process, and KPIs can offer valuable insights about where you stand and where you’re heading.

Want more insight into KPIs about company spending? Divvy can automatically manage your expense reports and show you exactly where your money is going—and the software is completely free to use. Get started today

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

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