Key Performance Indicators (KPI): Everything You Need To Know

By Samantha Goddiess - Mar. 8, 2021
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Most people have heard the term key performance indicators, or KPIs, floating around the office. If you are a team manager, there’s a very good chance you’re familiar with this term. They are a commonly used management tool.

Thousands of key performance indicators can help your organization, or your department, reach its goals. As your company or department sketches out their plans for the fiscal year — or quarter or month or project — management will need to determine which KPIs to include based on their impact on the preferred outcome.

Choosing correctly will guide your organization, or department, toward success. Choosing incorrectly will leave you with KPIs that don’t align with your goals.

The wrong KPIs won’t help you measure performance; instead, they may turn into a target you’re endlessly chasing without ever reaching the desired result.

What Is a Key Performance Indicator (KPI)?

Key performance indicators (KPIs) are quantifiable, outcome-based performance measurements that monitor and measure how effectively an organization or department, is meeting its key objectives.

Every KPI should include:

  1. A measure. There must be a way for you to measure each key performance indicator. The more descriptive the measure, the better. Measures can be divided into four categories:

    1. Activity. This measures activity through percentages, currency, numbers, processes.

    2. Outcome. This measures the progress based on a defined outcome.

    3. Project. This measures the progress of a project.

    4. Target. This measure is a bit different; it focuses on reaching a specific numeric goal by a certain date.

  2. A target. Each KPI must have a target. Typically defined as a numeric value, it should measure both the measurement type and objective due date.

  3. A data source. Every selected KPI needs to have a clear, defined data source. There should be no confusion on where the data is being pulled from, how it is being measured, and where/how it is being tracked.

  4. An owner. Each KPI should be owned by a specific person or persons who are in charge of tracking and monitoring.

  5. A reporting frequency. The owner(s) should have a clearly defined reporting process. The data should be pulled and added to the tracking at least monthly.

KPIs will be set at an organizational level as well as a departmental level. The chosen KPIs should align with the operational and strategic goals. If strategies and key objectives are unclear, it will often lead to KPIs that are out of alignment with organizational goals.

The process of selecting the key performance indicators should not be taken lightly. This is an important step towards measuring performance and seeing where to make adjustments. A solid plan will require an analysis of goals and strategies that include several KPIs for each objective.

Setting SMART KPIs

To ensure that a KPI will offer meaningful data, it should be checked against the SMART goal checklist. SMART goals are:

  • Specific. Each KPI should have a specific, clearly defined objective. KPIs that are specific will lead to a greater chance of success. To help you clearly define your KPI, ask the five “W” questions: who, what, where, when, and why.

  • Measurable. As mentioned above, all KPIs should have some form of measure. There should be a clearly defined way to measure and track the progress.

  • Achievable. The KPI should be attainable. Setting unrealistic KPIs will lead to more damage than progress. You want your KPIs to measure performance, not create an unrealistic target.

  • Relevant. Organizational KPIs should be relevant to the business. Departmental KPIs should be relevant to the department. The sales team would have no use for a KPI tracking the click-through-rate of the pay-per-click campaigns.

  • Timely. Each KPI should have a start date and an end date that makes sense to the company.

Types of Key Performance Indicators (KPIs)

There are several types of KPIs to choose from. Some will argue that each objective should include one of each type of KPI, but others find this excessive and unnecessary.

The types of KPIs you choose to include in your strategy should be chosen based on their relevance to the objective. That said, you want a well-rounded approach and should include more than one type.

There are 11 types of key performance indicators (KPIs):

  1. Quantitative indicators. These are numerical indicators. These indicators are either continuous or discrete.

    Continuous quantitative indicators can take any value (including decimals) over a range; they will always be measured with specific units — inches, pounds, kilograms, hours, dollars.

    Discrete quantitative indicators are counts of anything that takes an integer value, including rating scales.

  2. Qualitative indicators. These will not be measured numerically. While still a KPI, these are technically not performance measures. These KPIs focus more on the “why” than the “how.”

  3. Leading indicators. These are forward-looking, “precursors of future success.” Leading indicators are used to make predictions of future outcomes and confirm trends.

    While they may not indicate success, a leading indicator can be indicative of the result for another KPI. It should be kept in mind, though, that predictions do not always come to fruition.

  4. Lagging indicators. These are backward-looking. Lagging indicators will tell you about previous results or successes. These are typically used to measure against. They do provide insight, as leading indicators do, but are instead retrospective and may come too late to impact future results.

    Lagging indicators can highlight failures and allow you to make the necessary adjustments to objectives or KPI measurements to steer the company back in the right direction.

  5. Input indicators. These are used to measure the number of resources used during value creation. Input indicators are used to track efficiency and waste.

  6. Output indicators. These are used to measure the success or failure of a process or business activity. These are some of the most commonly used types of KPIs. Revenue, customer acquisition, and profits are output indicators.

  7. Process indicators. These are used specifically to gauge the efficiency or productivity of a process. Support teams will often use process indicators to measure results and improve performance.

  8. Practical indicators. These are often unique to the specific company versus measurable against other companies. Practical indicators look at existing company processes.

  9. Directional indicators. These can help identify specific trends within the company. They determine whether a company is improving, declining, or maintaining. These are often used to measure results against competitors.

  10. Actionable indicators. These indicate whether or not a company is successful at implementing changes in their business — business processes, company culture, etc.

  11. Financial indicators. These measure the financial health of a company. One of the biggest mistakes often made when choosing KPIs is focusing too much on the financial indicators. These should always be mixed with other KPI types to provide a more holistic picture of performance.

Key Performance Indicators (KPIs)

As mentioned previously, there will be KPIs at the organizational and departmental levels. Some performance indicators are universal, while others are very specific to certain teams within a company. Some KPIs will be unique to each company as well.

Below, we’ve broken down commonly used KPIs by department:

  • Key performance indicators (KPIs) for sales teams:

    • Number of qualified leads

    • Call-show rate

    • Monthly sales growth

    • Monthly sales/new customers

    • Customer lifetime value

    • Lead to sale conversion rate

    • Average conversion time

    • Customer turnover rate

    • Average purchase value

    • Average order value

    • Sales per representative

    • Sales by lead source

    • Lead response time

    • Conversion drip

    • Leads to opportunities

    • Competitor pricing

    • Duration per stage

    • Pipeline velocity

    • Client acquisition rate

    • Close rate percentage

    • Cannibalization rate

    • Total sales volume

    • Opportunity to win ratio

  • Key performance indicators (KPIs) for customer service teams:

    • Customer satisfaction score

    • Number of support tickets

    • First contact resolution

    • Abandon rates of calls chats

    • Average resolution time

    • Wait time for callers

    • Customer retention rate

    • Cost per conversation

    • Average conversion rate

    • Customer effort score

    • Number of up-sells

    • Number of acquired reviews

  • Key performance indicators (KPIs) for finance departments:

    • Net profit margin

    • Gross profit margin

    • Working capital

    • Current accounts receivable

    • Current accounts payable

    • Budget variance

    • Vendor expenses

    • Debt to equity ratio

    • Return on equity

    • Monthly recurring revenue

    • Current ratio

    • Revenue per FTE

    • Revenue per customer

    • Revenue growth rate

    • Operating cash flow

    • Burn rate

    • Accounts payable turnover

    • Accounts receivable turnover

    • Inventory turnover

    • Line items in the budget

    • Payroll headcount ratio

    • Vendor expenses

  • Key performance indicators (KPIs) for marketing teams:

    • Qualified leads per month

    • Cost per lead generated

    • Sales qualified leads (SQL)

    • Retention rate

    • Monthly website traffic

    • Visits per channel

    • Google page rank

    • Pay-per-click (PPC) click-through rate (CTR)

    • Social media mentions

    • Social media ROI

    • ROI per content-type

    • Traffic to lead ratio

    • Cost per lead

    • Brand recall

    • Page conversion rate

    • Time on site

    • New user to returning user ratio

    • Sales growth

    • Marketing qualified leads (MQL)

    • Cost of customer acquisition

    • MQL to SQL ratio

    • Social media reach

    • Social media engagement

    • Email open rate

    • Email conversion rate

    • Landing page conversions

  • Key performance indicators (KPIs) for human resources departments:

    • Absenteeism

    • Turnover rate of high performers

    • Overtime hours

    • Training costs

    • Cost per hire

    • Employee turnover rate

    • Internal to external hiring ratio

    • Revenue per employee

    • 3-Month failure rate

    • Dismissal rate

    • Female to male ratio

    • Part-time employees

  • Key performance indicators (KPIs) for management teams:

    • Planned value

    • Earned value

    • Schedule variance

    • Missed milestones

    • Percentage of canceled projects

    • Percentage of projects completed on time

  • Key performance indicators (KPIs) for IT teams:

    • Quality assurance

    • Total tickets vs open tickets

    • Projects delivered on budget

    • Average handle time

    • Number of critical bugs

    • Server downtime

    • Unsolved tickets per employee

    • Reopened tickets

    • IT ROI

    • IT costs vs revenue

    • Compliance cycle time

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Author

Samantha Goddiess

Samantha is a lifelong writer who has been writing professionally for the last six years. After graduating with honors from Greensboro College with a degree in English & Communications, she went on to find work as an in-house copywriter for several companies including Costume Supercenter, and Blueprint Education.

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