Key Performance Indicators(KPIs)- All you need to know
Key Performance Indicators(KPIs), are vital to assess how well your company does. After all, you want to succeed, and to do that, you need to know what’s going on with your company: how well you’re doing if you need to change something, and if it’s for the better. Of course, this isn’t about embracing bad news or anything like that; it’s just about making your business work better.
Table of contents
- What are Key Performance Indicators(KPIs)?
- Why are Key performance indicators(KPIs) so important?
- Types of Key Performance Indicators(KPIs)
- What is a good or bad Key performance indicator(KPI)?
- How to pick the right Key performance indicators(KPIs)?
- Key performance indicator(KPI) Best Practices
- OKR vs. KPI
- How to start measuring your performance using KPIs?
What are Key Performance Indicators(KPIs)?
Key Performance Indicators (KPIs) are a standard way to evaluate performance in an organization.
KPIs are used by organizations to measure their progress toward achieving goals, along with their capability to achieve those goals. The concept is simple: KPIs are a series of quantifiable metrics that help assess how well an organization is doing at what it does. They can be used to gauge the success of any number of different areas, including sales, customer service, and quality control.
The key to using KPIs effectively is knowing what information you need to track in order to make informed decisions about your business. For example, if you’re selling a product or service directly to customers (rather than through an intermediary), then tracking sales data like the number of units sold or total revenue is important because it’ll tell you how much money your company is bringing in from its main line of business.
But if you’re running a manufacturing operation where quality control is paramount—and good quality control means producing products that meet specific standards—then quality ratings may be more important than sales volume figures when evaluating performance over time (or even just on a day-to-day basis).
Why are Key performance indicators(KPIs) so important?
Key Performance Indicators (KPIs) are critical to the success of a business. They help you understand what is going on in your company, and how your company is performing. KPIs help you identify potential problems before they happen so that you can fix them before they become an issue.
Without KPIs, it would be nearly impossible for any business to run smoothly. KPIs allow companies to understand the current state of their business and where they need to go next. Without KPIs, companies would not be able to determine if their marketing strategies are working or not, if employees are happy with their jobs or not, or even if customers like their product or not!
KPIs also allow businesses to measure progress over time by comparing current results against historical data. This gives companies valuable insight into how much progress they have made since last year’s results were recorded, which allows them to adjust their strategy accordingly if necessary!
Types of Key Performance Indicators(KPIs)
There are many different types of Key Performance Indicators, but the most common ones are:
- Financial KPIs – These are used to measure the financial performance of a business or organization. Some examples include Return on Investment and Gross Profit Margin.
- Customer KPIs – These are used to measure how well a company is meeting customer needs and expectations. Some examples include the Net Promoter Score and Customer Satisfaction Index.
- Operational KPIs – These are used to measure operational efficiency and effectiveness. Some examples include Cycle Time and Inventory Turns.
- Strategic KPIs – are used to measure the success of a business strategy. They help you evaluate how well you’re achieving your goals and make decisions based on that evaluation.
- Tactical KPIs – are used to measure short-term goals that contribute to achieving strategic objectives, like increasing sales revenue by 10% over the next year.
What is a good or bad Key performance indicator(KPI)?
A good KPI is one that helps you measure your progress.
It’s a number, sure—but it’s also a way to understand what you’re doing, why it’s working or not working, and where the next steps in your business should go.
A bad KPI is one that is vague or unclear.
It’s like having a goal without knowing how to get there. It feels like you’ve accomplished something, but really all you did was move the goal post.
A bad KPI is also one that doesn’t help you understand what’s going on in your business—like tracking sales without considering whether they’re profitable or even relevant to your company’s goals.
How to pick the right Key performance indicators(KPIs)?
The best KPIs are the ones that are going to help you achieve your goals.
That means they should be focused on what you’re trying to accomplish, not just what’s easy to track.
If you want to increase revenue by 20%, don’t just measure revenue—measure the number of customers or the amount each customer spends. You might need different metrics depending on the stage of your product: if your business is new and you’re still focused on building awareness, then measuring traffic and conversion rates may be more helpful than measuring customer retention or repeat purchases. Once you’ve established a solid base of customers who love your product and come back again and again, then it will make sense to focus on loyalty metrics like repeat purchase rates.
To figure out which KPI will most effectively help you accomplish your goal, consider these things:
-What is my goal? What am I trying to accomplish? Why do I want to accomplish this goal? What’s in it for me? Why should anyone else care about this goal?
-How can I measure progress toward reaching that goal? What data points should we track? How many are enough? How much detail do we need? What would happen if we added more detail?
-Can any other team members use
Key performance indicator(KPI) Best Practices
This is a list of KPI best practices to help you get the most out of your KPIs.
- Make sure your KPIs are measurable.
- Set goals for each KPI that are attainable, but also challenging enough to be meaningful.
- Use data from other sources to inform the decisions you make with your KPIs—and make sure it’s accurate!
- Be consistent across your organization when measuring the same things so that everyone is working off the same baseline when making decisions about their work or company direction.
OKR vs. KPI
KPIs and OKRs are both ways to measure performance. But they’re not the same thing.
The main difference between the two is that an OKR is a long-term goal, while a KPI is a metric that measures how well you’re doing toward achieving your goal. For example, let’s say your company has set an OKR to increase revenue by 20% over the next three years. That’s going to take a lot of work, so you’ll want to track metrics like new customer acquisition rates or customer retention rates to make sure your team is on track.
A KPI could be something like “increase customer retention rate by 5%,” which is a specific number that will help you measure how well you’re doing toward increasing revenue by 20%.
How to start measuring your performance using KPIs?
You probably know that you need to measure your performance, but how do you get started? Here are some tips:
-Start with the basics. The first step is to figure out what you need to measure and why. How will this information help you achieve your goals? What metrics make sense for your organization?
-Set a goal. Once you have a good idea of what you want to measure, set a goal for each metric. This will help keep everyone on track and ensure that everyone knows what’s expected of them.
-Be realistic about the time required. It can take time for new processes or systems to be implemented and become fully functional, so don’t expect immediate results when it comes to measuring performance.
Because financial success is commonly measured by the bottom line, it is important to review the performance of a product or service from a financial perspective and determine how it is performing. By tracking key performance indicators over time, business owners/managers will be in a stronger position to predict when it might be time for a change to be made to the product or service.