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Every business has goals and objectives that they want to achieve. KPIs are a way to put these down on paper and measure progress toward them. It can also be used to assess employee performance and the performance of the company in general. In short, KPIs are a way to track improvements, changes, and progress toward a goal.<\/p>\n
Key Takeaways:<\/b><\/p>\n KPIs are a way to measure performance, both of employees and of departments. It can even be used to measure the progress of the company at large.<\/p>\n<\/li>\n To be effective, KPIs need to be measurable, clear, aimed towards the business goals, communicated effectively, and achievable.<\/p>\n<\/li>\n KPIs can be used to measure different aspects of a company\u2019s performance. For instance, they can be used for tracking operations, profits, employee engagement, and customer satisfaction.<\/p>\n<\/li>\n<\/ul>\n A key performance indicator, often shortened to KPI, is a measurable value in employees\u2019 performance. The idea behind KPIs is that they\u2019re a way to determine if employees are hitting goals and moving the company forward. In order to serve this purpose, KPIs have to have certain attributes. They must be:<\/p>\n Quantitative.<\/b> In order for a KPI to have meaning, it has to be measurable. Otherwise, it\u2019s going to be impossible to determine if the goals are even being met in the first place or if striving toward the KPI is having any results.<\/p>\n<\/li>\n Easy to understand.<\/b> For the same reason, they have to be measurable, and they can\u2019t be obscure. The management and rank-and-file employees have to understand what it is they\u2019re supposed to work towards in order to be able to achieve it.<\/p>\n<\/li>\n Instrumental in achieving the business\u2019s goals.<\/b> A KPI that isn\u2019t relevant to what your business is doing isn\u2019t a very good indicator. Your staff may be able to achieve it, but will that help to move your company forward? If the answer is no or I\u2019m not sure, then it\u2019s not a good KPI for your business.<\/p>\n<\/li>\n Known throughout the organization.<\/b> Having measurable, clear, and achievable KPIs is excellent \u2013 but it won\u2019t accomplish much if your employees aren\u2019t aware of them. If no one knows what the KPIs are, then they won\u2019t be able to prioritize meeting them.<\/p>\n<\/li>\n Achievable.<\/b> If people are given KPIs that are impossible to meet, then it\u2019s not only going to be a bad indicator of performance, it\u2019ll likely lower morale. If every goal is obviously out of reach, then the employees are going to either think that the management<\/a> is ignorant of how things work or feel as if they\u2019re set up to fail.<\/p>\n<\/li>\n<\/ul>\n As with most metrics, KPIs can fit into several different categories. This is going to depend on what your business is and what goals you choose to prioritize. Not every KPI is going to be relevant to every type of business, but many have the ability to cross over. Here are some examples of KPIs.<\/p>\n Financial.<\/b> This metric is going to measure how well you are doing in terms of profitability and budgeting. KPIs in this category include:<\/p>\n Revenue.<\/b> It\u2019s a good idea to measure your revenue<\/a>. Is it hitting the expected numbers? If it isn\u2019t, why not?<\/p>\n Is it costly?<\/b> Is what you\u2019re producing too expensive? If so, you may need to raise prices. Or try to supply parts more cheaply.<\/p>\n<\/li>\n Is it profits?<\/b> This can also tie into costs \u2013 if the item you\u2019re selling is too expensive to produce, you may not make much profit<\/a>. But it can also be a matter of not selling enough of them or having to sell too many of them at a discount.<\/p>\n<\/li>\n Is it efficiency?<\/b> Is whatever you\u2019re doing taking too long? Salaries are expensive, especially if what you\u2019re doing is taking more labor than expected. It can also be a matter of taking too long and therefore losing customers due to frustration.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Budget.<\/b> Making sure that you stay within budget is another measurement. It\u2019s possible to look at different departments and see if they go over budget, how often, and for what reason.<\/p>\n Going over deadlines.<\/b> This is a way to go over budget quickly. Budgets are set to only include the salaries for the amount of time the project is expected to take. It likely also means there was an issue, and that might take more money to correct.<\/p>\n<\/li>\n Needing extra equipment.<\/b> If the company didn\u2019t have the proper equipment or needed to replace some, that could be a financial setback. It may be a one-time expense, but if it isn\u2019t, then it\u2019s something that needs to be corrected.<\/p>\n<\/li>\n Having setbacks.<\/b> Hitting roadblocks can cause a project to quickly be over budget and behind schedule. The nature of the problems can be unexpected, at which point it\u2019s hard to prepare for them.<\/p>\n But if they weren’t, then there may need to be some alterations in future planning.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Sales.<\/b> This is a major part of profits. But there are several different aspects of sales.<\/p>\n Number.<\/b> How many items or services you\u2019re selling can be a big indicator. If one product is selling better than another, it may be time to look into why \u2013 or scale back on the less profitable one.<\/p>\n<\/li>\n Price.<\/b> Are you making a profit with what you sell? If it\u2019s a service or product that has a variable price, how many do you sell at each price? Is it better to make the pricing more consistent?<\/p>\n<\/li>\n Repeat customers.<\/b> Do customers come back to buy from you again? If so, do they tend to return to certain employees and not others? If you aren\u2019t getting repeat customers, then it\u2019s time to look into why.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n Operations.<\/b> Measuring day-to-day operations can help you see how well employees are performing and how effective company directives and policies are. Examples of metrics for operations includes:<\/p>\n Meeting deadlines.<\/b> If teams are repeatedly failing to meet deadlines, then there\u2019s an issue. The cause can vary and should be determined by comparing their performance against other teams, determining shortfalls, and reviewing the expected timeline to make sure it\u2019s achievable.<\/p>\n<\/li>\n Number of defects.<\/b> This is especially important in manufacturing. The number of defective products is a measure of attention to detail<\/a>, materials, and general efficiency. Changes in this number, good or bad, should be looked at for an explanation.<\/p>\n<\/li>\n Customer support tickets.<\/b> If your business is in customer service or in selling products to the public, it\u2019s a good idea to keep track of your support system. You can review the number of tickets, whether the issue gets resolved, and, if so, how quickly.<\/p>\n<\/li>\n Efficiency.<\/b> While meeting deadlines is a part of this, efficiency is a broad metric. Depending on your business, there will be different metrics for it. In manufacturing, it may be how many products are made per day.<\/p>\n It could also be how many hours are required to complete a project or how cost-effective building something was.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Customer service.<\/b> Every business has customers, even if those customers are other businesses. In order to be successful<\/a>, you\u2019re going to have to have, if not repeat customers, then at least ones who recommend your services to others. Some metrics to consider are:<\/p>\n Number of customers.<\/b> Generally speaking, the more customers, the better. However, you should also take into account your customer support staff and whether or not you have the personnel to deal with a certain number of customers.<\/p>\n<\/li>\n Customer retention.<\/b> How many customers do you have on average? Is it going up or down? If it\u2019s the latter, you may have a problem with customer attrition. As a rule, the loss of customers isn\u2019t a good sign and should be analyzed and rectified.<\/p>\n Some businesses use this metric differently, however, as the cost of acquiring a new customer is less than keeping an existing one. So, if they lose a customer but then gain one, it\u2019s not considered a loss \u2013 perhaps even a gain. For many businesses, however, this isn\u2019t the case.<\/p>\n<\/li>\n New customer acquisition.<\/b> Getting new customers is considered a plus as it adds to your number of customers and, hopefully, profits. However, you should also consider the cost of acquiring new customers. This can be advertising and marketing, or it can be the process of wooing clients.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Personnel.<\/b> Taking care of your employees is another important metric. It isn\u2019t just a matter of how well they perform but whether or not they choose to remain with the company. Hiring and training<\/a> are expensive, making employee retention important.<\/p>\n\n
What Is a Key Performance Indicator?<\/h2>\n
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Examples of Key Performance Indicators in the Workplace<\/h2>\n
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