KPI

What is a KPI?

"KPI" is an acronym for "key performance indicator".?KPI is a specific, measurable, and quantifiable performance metric used to track progress over time toward a particular objective or goal.?KPIs provide teams with targets to aim for, milestones to gauge progress, and insights to help guide decision-making throughout an organization. By monitoring KPIs, organizations can identify areas of strength and weakness, make data-driven decisions, and take actions to optimize performance.

Example of a KPI

In simple terms, a KPI is a goal that you work towards achieving. For the sake of simplicity, let’s look at this example: you own an apple stand and to be profitable this month, you have to sell 1,000 apples.

So, you set your KPI: sell 1,000 apples this month. Whether that’s 250 apples per week or you sell all 1,000 in the first 3 days, your KPI is to reach that 1K mark. When it’s the second week of September and you’ve sold 550 apples, you can look at your KPI and know that you’re on track to achieve your goal.

What is the definition of a key performance indicator (KPI)?

The?definition of a KPI, or a key performance indicator, is “a measurable value used to evaluate how successful a person or organization is at reaching a target.”

In businesses, key performance indicators can either be high-level or drill down to a specific department or individual. High-level KPIs typically look at the performance of your business as a whole, like achieving $1M in annual recurring revenue this fiscal year. When you drill down into processes that are specific to departments, teams, or individuals, those are low-level KPIs.?

What makes a good KPI?

A good KPI is realistic, straightforward, and easy to measure. Here are a few tips to keep in mind for setting good KPIs.

1. KPIs should be?aligned?with the overall business strategy and outcomes. The overarching business strategy should be what informs your KPIs. For example, let's say your business has a goal to increase?monthly recurring revenue (MRR)?by 20% by the end of the fiscal year (a high-level KPI). If you’re on the sales team, your KPI might be to increase inbound leads by 50% by the end of Q3 (a low-level KPI). Your KPI contributes to the overall business goal because new leads = revenue potential.?
3. KPIs should be?actionable. Once you’ve set your KPI, you need to outline the steps you’ll take to reach it and the metrics you’ll measure along the way. What good is a KPI if you have no way to meet it? If your goal is to increase inbound leads, you should have a plan in place to do that—like move more prospects from the?MQL to SQL stage. Actionable steps will set you up for success in reaching your KPIs. It’s also worth noting that KPIs shouldn’t spur additional questions, they should do just the opposite: inspire action.
5. KPIs should be?realistic.?Good advice is to start small. Big, lofty KPIs—while they might look good on paper—aren’t doing you or your team any favours if they’re unrealistic from the get-go.
7. KPIs should be?measurable. When you set KPIs, ask yourself: What are you trying to achieve? What is the desired end result? What’s the timeline? Remember to add:?How am I going to measure my KPIs??Oftentimes, a BI or analytics tool is a great way to track your progress against your KPIs. This way, you can build a metric (like?leads) and easily and quickly see your progress in a data visualization (and share it with others on your team or across your organization, too! We love a data-driven team!)?

What’s the difference between a KPI and a metric?

The?difference between a KPI and a metric?is nuanced. It is worth noting though that despite their subtle differences, you often need one to have the other.

Here’s a side-by-side comparison of a KPI and a metric:

Attribute KPI Metric

Timeframe Specific deadline Ongoing

Purpose Track towards targets and objectives Monitor ongoing

businessperformance

Example Increase MRR by $1M in Q1 Monthly Recurring Revenue

How to set KPIs for your team and company

Now that we have the definition of a KPI, let’s take a look at the basics of setting KPIs.

While you can take inspiration from industry-recognized KPIs, the KPIs you set should be unique to your business and your goals.?

It's important to remember that KPIs are a form of communication. When you write a KPI, keep in mind the basic rules of communication: succinct, clear, and relevant information is most effective.

Let’s take a look at a?KPI example?of a bad one versus a good one.?

Here’s a bad KPI: Make a lot of money this year.

Why is this a bad KPI? To start, it’s incredibly vague. Is “a lot of money” $10K or $1M? There’s no definitive actions that you can tie to your KPI if you don’t have a specific amount you’re working towards, there’s no ‘goal post’ (i.e. a defined amount) to know you’ve hit your target, and there’s no metric to attribute to it so you can track your progress.?

On the flip side, here’s an example of a good KPI: Increase monthly recurring revenue by $25K this month.

Why is this a good KPI? It’s specific in more ways than one: it outlines the dollar amount?and?the timeframe in which you hope to achieve it. With a detailed KPI like this, you have an associated metric (MRR) that you can track against your progress, and you can hone in on what specific action(s) you’re going to take to achieve your KPI, like going after expansion MRR for existing customers.?

To develop a strategy for writing KPIs, start with the basics: understand what your organizational objectives are, how you plan to achieve them, and who can act on the information. As you iterate and develop, you will gain a better understanding of which business processes can be on a?KPI dashboard?and who you should share that dashboard with.

How to define KPIs

It can be easy to?confuse KPIs with business metrics. KPIs, or key performance indicators, should relate to a specific business outcome with a performance measure.

Let’s look at an example of how to set a KPI:

Your?business?objective is to increase your?monthly recurring revenue—so, your team sets a?sales growth KPI.

Using SMART framework to define company KPIs

You might be asking yourself: “How do I measure my company KPIs?” One way to measure the performance of your KPIs is using the?SMART framework.

What is the SMART framework?

Specific,?Measure,?Attainable,?Relevant,?Timeframe = SMART.

Let's break down the SMART acronym:

• Is your objective?specific?
• Can you?measure?progress towards your goal?
• Is the goal realistically?attainable?
• How?relevant?is the goal to your organization?
• What is the?timeframe?for achieving this goal?

If you want to expand the SMART framework, you can make it SMARTER by adding?evaluate?and?re-evaluate?to your measurement steps. KPIs shouldn't be one-and-done—you should constantly evaluate your KPIs to ensure they are attainable and on-track.

How to use KPIs with dashboard and reporting software

You might be asking yourself, “Why do I need KPI software when I can use a spreadsheet?”?

And while it’s true, spreadsheets have their limitations. Let’s take a look at the options for writing KPI dashboards or reports.?

• Spreadsheets?are a great place to start if you’re new to KPI reporting. Spreadsheets offer limited data visualizations (pie charts, bar charts, etc) and there is a lot of time and manual effort required to get your report set up. Spreadsheets require regular, manual maintenance to keep your data up to date, too. The plus side with spreadsheets is that they are accessible to everyone.
• Dashboard and reporting tools?automate your data retrieval right from your data source, so right away there is minimal manual effort. Dashboard and reporting tools often have data visualization customization and advanced capabilities, offering a large selection of visualization options. Lastly, while dashboard and reporting tools take some time to set up at the start, the end result is that you and your team can buy back?so much?time because everything is automated.
• BI and analytics software?adds an additional layer of data capabilities on top of dashboard and reporting tools, often allowing for advanced analysis that meets the needs of sophisticated data and reporting teams.?

Klipfolio lets you create real-time data visualizations of your KPIs. When you’re tracking your KPIs, you’re likely pulling in data from different data sources, like HubSpot or Google Analytics. In an analytics tool, you can?bring all of that data together?in just a few clicks, turn it into?stunning data visualizations, and?put them on a dashboard. From there, you can segment your data to look at channel types or countries, add dimensions, combine metrics and share customizable and insightful reports with your team.

What are the benefits of using KPI software?

KPIs serve as a guidepost to help you and your organization reach your goals. And the pursuit of your goals depends on focused and consistent delivery of results. When you track your KPIs using a dashboard and reporting tool, there are numerous benefits, including:?

KPIs engage employees

We've already mentioned it, but it's worth noting one more time:?KPIs unify employees to work towards a common goal.

Employee engagement, a topic that many organizations struggle with, can directly impact your bottom line. But KPIs can help. KPIs, whether individual or organizational, are a helpful mechanism to measure performance, which has a direct tie to employee engagement.

In fact, organizations with an?engaged workforce?see higher customer engagement, productivity, and 21% higher profitability.

On the flip side, disengaged employees cite the same issues: poor communication about strategy between management and individual contributors. KPIs help solve this problem.

KPIs connect your purpose and your culture

Your KPIs should be connected to your organization's mission. “Making money” isn't a mission and it's not something that employees will connect with on a deeper level, either. Your purpose should encourage employees to show up to work with a renewed sense of excitement every day. There should be a direct link between your mission and your KPIs so that employees feel like their work is purposeful in achieving both. Remove any ambiguity: ensure your KPIs work towards your end goal and employees clearly understand how and why they're working towards that.

KPIs make everyone accountable for performance

Traditionally, individual performance management frameworks are about setting objectives, measuring performance, and managing the related activities. So why not incorporate KPIs into performance management, too?

Performance KPIs will help employees measure their impact and how their daily activities, arguably the foundation of their role, play into the success of larger organizational goals. KPIs set everyone off in the same direction, making everyone a happy contributor to your success.