A key performance indicator, more commonly known as a KPI, is used by business owners and entrepreneurs to quantitatively measure progress. Often, organizations measure multiple KIPs at once to determine business success.
Depending on the goals of your business, you might want to measure a certain set of KPIs. For example, if your main business goal is to increase your revenue and profits as much as possible, you’ll need to measure financial KPIs.
Tracking specific business metrics makes it easier to achieve your overarching goals and provides objective measurements of progress. You can use your KPI metrics to identify what’s working well in your business and what might need improving.
KPIs and Data
KPIs center around data. To effectively measure your metrics, you’ll need to constantly gather, store, and analyze your data sets. You also need to minimize the amount of bad data in your system.
Whether the information is financial or not, you can use high-quality data to determine your progress on a month-by-month or year-by-year basis. Your data sets will determine your future business strategy.
Most KPIs can be categorized into four different areas – strategic, operational, functional, and leading or lagging KPIs.
- Strategic KPIs make the most significant impact on your business and are most commonly used by business executives. Common strategic KPIs include profits, gross revenue, and ROI.
- Operational KPIs are used to measure month-by-month changes by monitoring the changes and improvements in a number of areas in the business. This type of KPI is usually used by managers to plan future business strategies.
- Functional KPIs are more specific and may be used to check financial progress or marketing metrics. They can be used across all areas of a business.
- Leading KPIs are used to predict changes or trends in datasets to manage a system and lagging KPIs measure performance after a period of time to identify trends.
Types of KPIs
There are several different types of KPIs. You don’t need to use all of them in your business. Instead, focus on the most relevant measurements for your business and those that will make the most significant impact on your success.
Here are the main types of KPIs:
- Financial metrics are tied to finances and budgets. Examples include total revenue, profit margins, and expenses.
- Marketing metrics are those required to measure the impacts of marketing campaigns and promotional strategies. They might include website traffic, ad clicks, revenue generated from paid ads, and blog views.
- Customer-centric KPIs focus on things like customer retention, customer acquisition, and customer satisfaction.
- Performance metrics measure operational performance. Examples include throughput, total cycle time, and quality standards.
- Sales KPIs measure the number of leads generated, sales created, or customer conversion costs.
- Information technology metrics are those centered around the IT department. This type of KPI might include measuring the number of IT tickets resolved, total IT downtime, or the number of cybersecurity threats within a given time period.