What are KPIs?
Key performance indicators, also known as KPIs, gauge performance or advancement in light of particular corporate goals and objectives. The word “key” is a crucial consideration because it denotes that they only track information that is pertinent to the company’s strategic decisions.
A solid KPI should assist you and your team in determining whether you are making the best choices. They serve as a road map to business results and are the key strategic indicators that will advance the business. Sales growth, client retention, or customer lifetime value are a few examples of KPIs. Companies typically use interactive KPI reports to see various measures together.
|Professional Service KPIs||SaaS KPIs||Retail KPIs||Online Media / Publishing KPIs||eCommerce KPIs|
|Bookings||PQLs (Product Qualified Leads)||Capital expenditure||Unique visitors||Users|
|Utilization||MRR (Monthly Recurring Revenue)||Customer satisfaction||Page views||Conversion Rate|
|Backlog||Churn||Sales per square foot||Share ratio||Cart abandonment rate|
|Revenue leakage||Cost per acquisition||Average customer spend||Social referral growth||Cost per acquisition|
|Effective billable rate||ARPU (Average Revenue Per User)||Stock turnover||Time on site||AOV (Average Order Value)|
As you can see, KPIs vary based on the business model and industry, although they all have a direct impact on a specific business objective.
What are performance metrics?
Metrics are numerical metrics used to monitor the effectiveness of particular business operations at the tactical and operational levels. A metric is, to put it simply, a group of quantifiable data that is pertinent to the success of an organization.
Related: Metrics for performance
They aid in contextualizing the achievement of important business goals but do not play a crucial role in their success like KPIs do. Metrics are not the most crucial indications for keeping track of strategic actions, even though some of them may be closely tied to objectives. They are still useful for informing firms about the status of their various activities, nevertheless. The Lead-to-Conversion-Ratio, Return Rate, and Acquisition Costs by Marketing Channel are a few examples of metrics.
Related: Types of performance metrics for employees
For instance, the airline sector uses measures to gauge both fuel efficiency and passenger happiness. Hospitals utilize metrics to gauge infection rates and patient satisfaction. In the business world, companies utilize metrics to gauge staff productivity and sales growth.
Related: Types of performance metrics for businesses
Several instances of business metrics are as follows:
- Gain margin
Now that we have a fundamental grasp of how both indicators are defined, let’s explore the differences between KPIs and metrics in more detail.
Differences between KPIs and performance metrics
As was already established, KPIs are strategic indicators that are only meant to convey how your business goals are progressing. On the other hand, metrics are utilized to monitor particular regions or procedures that may be contributing to that objective. Your primary KPI would be the quantity of products or subscriptions sold thus far if, for instance, you wanted to increase sales by 20% over the course of the following year.
The amount of website visitors, top-performing sales channels, sales agent performance, and any other metrics that assist you understand which activities are contributing to accomplishing your goals and what could be improved must all be tracked in order to monitor the development of that goal in detail. In conclusion, a KPI can be seen as a collection of metrics that have an impact on your journey to achieving your goals.
A good KPI is always closely tied to an outcome; you anticipate it to increase or decrease in order to hit its goal. The influence of daily performance in various business areas is measured by metrics, but as the sales example shows, only a few of them can be used to monitor the success of your strategic efforts.
The key lesson here is that measurements and KPIs are not mutually exclusive, which is why they are frequently confused. You just need to make sure you are using the correct metrics to track it. A KPI will need a collection of metrics to track its success. Though all KPIs are metrics, not all measurements are KPIs, so keep that in mind.
The degree of focus between measures and KPIs is another significant distinction. KPIs are measured from a broad perspective. They stand for important corporate objectives that affect numerous departments. Metrics, on the other hand, are viewed as lower-level indicators and track actions or procedures unique to a division or business unit. Using a 20% increase in sales as an example, it is likely that each department will contribute to accomplishing that objective.
For instance, the marketing department may need to concentrate on boosting online sales, the sales team may need to concentrate on creating plans to effectively convert leads into paying customers, the logistics team may need to concentrate on enhancing the shipping experience, and the product team may need to concentrate on identifying strengths and weaknesses in production. Consequently, each department will need to track different metrics that work towards that general business goal.
Here are some KPIs vs metrics examples made with a current KPI tool to help put these distinctions into perspective:
1) The sales growth KPI and metric
Let’s start by delving a little more into our hypothetical 20% increase in revenue by year’s end. A business’s management, sales, marketing, and manufacturing divisions can all benefit from a broad aim like increasing sales. To understand how their respective actions are advancing the overall objective, each of these departments will monitor its own KPIs. Here, we’ll concentrate on several sales examples.
KPI: Sales Growth
Our primary KPI, sales growth, is depicted in the graphic above. We can quickly determine whether or not targets are being fulfilled by looking at data such as the current period compared to the previous one, a percentage of sales based on a target, and sales income by a sales representative. However, we also need to know how the various operations are functioning in order to fine-tune the strategy, which can be done with the aid of various sales metrics.
Metric: Lead to conversion ratio
The lead to conversion ratio would be a terrific sales metric to track for this particular objective. It counts the number of potential consumers who actually convert to paying clients. It ultimately results in a rise in sales. This statistic is beneficial since it offers greater understanding to help with strategic decisions. If your lead conversion rate is low, you should consider other strategies to get potential customers to make a purchase. The lead-to-opportunity ratio and net profit margin, among others, are some additional measures that could be used to measure this objective.
2) Customer experience for metrics versus KPIs
According to studies, a 5% improvement in client retention might result in a 25% gain in revenue. Now imagine that you want to set a target to raise your retention rates by 10% by the end of the year keeping this information in mind. This objective, however, may also be applicable to several departments. For instance, the marketing team might have to concentrate on creating appealing campaigns to encourage repeat purchases, while the product team might have to concentrate on creating high-quality products.
KPI: Customer retention
Your revenue is directly impacted by customer retention. It’s likely that a satisfied customer will return to make additional purchases when your service or product meets his or her expectations. The graphic above would be your primary KPI because your objective is to raise your retention rates by 10%. Setting a target % based on industry benchmarks and practical business metrics is an excellent approach to gauge your progress. Let’s now examine some product-level indicators that are pertinent to this particular objective.
Measurement: Return Rate and Return Reasons
A great measure to monitor to comprehend customer retention is the rate of return. It’s likely that your customers won’t make another purchase from you if they return the items they’ve already purchased. The product team can monitor the return reasons statistic in order to draw deeper inferences from the rate of return.
This measure displays the primary justifications for product returns, as seen in the graphic above. Here, we can observe that defective items make up 28% of the total. Therefore, lowering this 28% should be a priority. Improving product quality can also increase retention rates. The proportion of repeat purchases or the rate of flawless orders are two additional crucial client retention indicators for production.
If you want to see more KPI examples like these, check out our library with examples from different industries, functions, and platforms.
The key lesson from this piece is to keep in mind that measurements and KPIs are both necessary to guarantee a good return on investment from your various business activities.
KPIs and metrics are crucial tools for tracking performance.
Distinguish metrics from KPIs
When you measure everything, you are actually measuring nothing. You must take into account what is most crucial for your company when deciding how to distinguish KPIs from measurements. Any kind of indicator can be a metric, but if it isn’t giving you any useful information to help you get better, you should get rid of it.
Pick the appropriate KPIs
Choosing the appropriate KPIs to track your strategies effectively is arguably the most crucial phase. There are numerous KPI tracking approaches that you can employ to aid achieve this goal. The SMARTER and Six A’s approaches are two of them, and we shall discuss them below.
- The acronym SMARTER stands for Specific, Measurable, Attainable, Relevant, Time-Bound, Evaluate, and Reevaluate in this KPI tracking approach. It functions as a list of criteria that your KPIs must satisfy in order to be deemed useful. They should be unique to your aims, reasonable in light of your company’s realities, and adaptable enough to evolve as new ideas emerge, as was described throughout this piece.
- Six A’s: Aligned, Attainable, Acute, Accurate, Actionable, and Alive are the initials for this strategy.Similar to the SMARTER criterion, this approach tries to assess the applicability of a KPI and is helpful for companies who have too many indicators and need to reduce the number to a select few.
- You should be able to reduce the list to 2–5 crucial KPIs per business goal by using these techniques. This assists you in maintaining the accuracy of your analytical process and avoiding inaccurate information that might influence how you perceive your data.
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