What is a KPI?

A KPI, or a Key Performance Indicator, is a measurable, quantifiable value which can be used to demonstrate how a company achieves its key business objectives.

KPIs can span across departments, divisions or even industries, and are typically evaluated over a specific period and held up in comparison against previous performance metrics, measures or standards.

To better understand, imagine taking a trip to the doctor for a regular health check-up. If your business is the body, then the KPIs are the methods your GP uses to ascertain wellbeing and identify areas of improvement – but instead of measuring blood pressure, pulse rates and temperatures, you’ll be looking at conversions, call-times and customer satisfaction.

The importance of Key Performance Indicators

If a company or organisation fails to establish and track its key performance indicators, it ends up being left in the dark in terms of how it is performing, and loses sight of what it could do to improve.

Even if it feels like your company is performing well, it’s imperative for you to establish just how successful things are going at the moment, and what sort of successes your business is enjoying – for example, are sales up? Are gross profit margins at healthy levels? Are your customers returning? Each of these examples is a Key Performance Indicator.

KPIs allow you to set goals, and – perhaps crucially – develop tailored strategies in order to achieve these goals, whilst providing you with the quantifiable, comparable data needed to track and evaluate your progress while developing a detailed history of your performance. This provides you with a clear picture of how your business measures up day-to-day, week-by-week and month after month.

Getting SMART with KPIs

Still struggling to understand what a Key Performance Indicator is? There’s a simple acronym which can help you to grasp the concept: SMART.

A KPI should be:

• Specific – concentrating on a particular area of a business (for example, sales)
• Measurable – meaning it’s possible to collect numeric information on performance (for example, number of sales)
• Attainable – the objective can be realistically collected
• Relevant – relating to your business goals (for example, a restaurant keeping track of pizza sales)
• Timed – concentrating on a specific time period, allowing you to compare performance over days/weeks/months

KPI examples by department

While KPIs can be as general or specific as your business requires, there are many constants across a wide variety of industries which serve as great starting points for performance measurement, which we’ll take a look at below:

Customer service operative KPIs

• Average inbound call length
• Number of calls handled per hour/day/week
• Average post-call administration time
• Number of emails responded to
• Number of transferred calls

Finance KPIs

• Accounts payable
• Accounts receivable
• Expenses
• Percentage of bad debts vs invoiced revenue

Sales KPIs

• Average sale figures
• Number of conversions per contact
• Customer loyalty
• Gross profit margin per sale
• Sales per department

Marketing KPIs

• Lead generation
• Ad click-through rates
• Brand awareness metrics
• Return on investment

Developing meaningful Key Performance Indicators

One thing all successful companies have in common is that they understand that every aspect of a business is measurable. In order to improve, it’s important not to be limited to linear metrics. By learning How to develop meaningful KPIs, your business can improve in virtually every single aspect of performance.  You can also take a look at our useful What is a KPI infographic

Wikipedia Definition: What is a KPI?