KPIs: What Are Key Performance Indicators? Types and Examples (2024)

What Are Key Performance Indicators (KPIs)?

Key performance indicators (KPIs) are quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector. They can also be used to judge progress or achievements against a set of benchmarks or past performance.

Understanding Key Performance Indicators (KPIs)

Key performance indicators are used in business to judge performance and progress toward specific, measurable goals. They may be compared to:

• A predetermined benchmark
• Other competitors within the industry
• The performance of the business over time

Also referredto as key success indicators (KSIs), KPIs vary between companies and between industries, depending on performance criteria. For example, a software company striving to attain the fastest growth in its industry may consider year-over-year (YOY) revenue growth as its chief performance indicator. Conversely, a retail chain might place more value on same-store sales as the best KPI metric for gauging growth.

At the heart of KPIs lie data collection, storage, cleaning, and synthesizing. The KPI data is gathered and compared to whatever target has been set. The results of that comparison then are analyzed and used to draw conclusions about how well current systems, or recent changes to those systems, are working to achieve the department or business's goals. This lets management know whether the current systems are effective or whether to make changes to improve those outcomes and meet future goals.

The goal of KPIs is to communicate results succinctly to allow management to make more informed strategic decisions. They are often measured using analytics software and reporting tools.

Companies can use KPIs across three broad levels.

Company

Company-wide KPIs focus on the overall business health and performance. These types of KPIs are useful for informing management of how operations stand in the company as a whole. However, they are often not granular enough to make decisions. Company-wide KPIs often kick off conversations on why certain departments are performing well or poorly.

Department

Department-level KPIs are more specific than company-wide KPIs and often provide information on why specific outcomes are occurring. Companies often dig into department-level KPIs to better understand the results of company-wide KPIs. For example, if overall revenue is down, a company may want to look at customer conversion or satisfaction rates in specific departments.

Project or Sub-Department

If a company chooses to dig even deeper, it may engage with project-level or subdepartment-level KPIs. These KPIs often must be requested by management as they may require very specific data sets that may not be readily available. For example, management may want to ask a control group about a potential product rollout.

Common Types of of Key Performance Indicators

Most KPIs fall into four broad categories. Each category has its own characteristics, time frame, and level of business that is likely to use it. Different KPIs may also be used by different departments within the same business.

Strategic

Strategic KPIs are usually the most high-level. These types of KPIs may indicate how a company is doing, although they don't provide much information beyond a high-level snapshot.

Executives are most likely to use strategic KPIs. Examples include return on investment, profit margin, and total company revenue.

Operational

Operational KPIs are focused on a tight time frame. These KPIs measure how a company is doing month over month, or sometimes day over day, by analyzing different processes, segments, or geographical locations.

Operational KPIs are often used by managing staff and to analyze questions that are derived from analyzing strategic KPIs. For example, if an executive notices that company-wide revenue has decreased, they may investigate which product lines are struggling.

Functional

Functional KPIs hone in on specific departments or functions within a company. For example, a finance department may keep track of how many new vendors they register within their accounting information system each month. A marketing department measures how many clicks each email distribution receives.

These types of KPIs may be strategic or operational. What sets them apart is that they provide the greatest value to one specific set of users.

Leading/Lagging

Leading/lagging KPIs describe the nature of the data being analyzed and whether it is signaling something to come or something that has already occurred. Leading KPIs indicate a change that is coming in the future. Lagging KPIs indicate a change that has already happened.

Examples of these are the number of overtime hours worked and the profit margin for a flagship product. The number of overtime hours worked may be a leading KPI should the company begin to notice poorer manufacturing quality. Alternatively, profit margins are a result of operations and are considered a lagging indicator.

Frequently Used KPIs

Financial Metrics

Key performance indicators tied to the financials typically focus on revenue and profit margins. Net profit, the most tried and true of profit-based measurements, represents the amount of revenue that remains, as profit for a given period, after accounting for all of the company’s expenses, taxes, and interest payments for the same period.

Financial metrics may be drawn from a company’s financial statements. However, internal management may find it more useful to analyze different numbers that are more specific to analyzing the problems or aspects of the company that management wants to analyze. For example, a company may leverage variable costing to recalculate certain account balances for internal analysis only.

Examples of financial KPIs include:

• Liquidity ratios: KPIs that measure how well a company will manage short-term debt obligations based on the short-term assets it has on hand. Also known as current ratios, which divide current assets by current liabilities.
• Profitability ratios: KPIs that measure how well a company is performing in generating sales while keeping expenses low. An example is the net profit margin.
• Solvency ratios: KPIs that measure the long-term financial health of a company by evaluating how well a company will be able to pay long-term debt. An example is the total debt-to-total-assets ratio.
• Turnover ratios: KPIs that measure how quickly a company can perform a certain task. For example, inventory turnover measures how quickly a company can convert an item from inventory to a sale. Companies strive to increase turnover to generate faster churn of spending cash to later recover that cash through revenue.

Customer Experience Metrics

Customer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention. These metrics are used by customer service teams to better understand the service that customers have been receiving.

Examples of customer-centric metrics include:

• Number of new ticket requests: Counts customer service requests and measures how many new and open issues customers are having.
• Number of resolved tickets: Counts the number of requests that have been successfully taken care of. By comparing the number of requests to the number of resolutions, a company can assess its success rate in getting through customer requests.
• Average resolution time: The average amount of time needed to help a customer with an issue. Companies may choose to segment average resolution time across different requests (i.e., technical issue requests vs. new account requests).
• Average response time: The average amount of time needed for a customer service agent to first connect with a customer after the customer has submitted a request. Though the initial agent may not have the knowledge or expertise to provide a solution, a company may value decreasing the time that a customer is waiting for any help.
• Top customer service agent: A combination of any metric above cross-referenced by customer service representatives. For example, in addition to analyzing company-wide average response time, a company can determine the three fastest and slowest responders.
• Type of request: A count of the different types of requests. This KPI can help a company better understand the problems a customer may have (i.e., the company’s website gave incorrect or inaccurate directions) that need to be resolved by the company.
• Customer satisfaction rating: Many companies may perform surveys or post-interaction questionnaires to gather additional information on the customer’s experience, though this is a vague and imprecise measurement.
  

Process Performance Metrics

Process metrics aim to measure and monitor operational performance across the organization. These KPIs analyze how tasks are performed and whether there are process, quality, or performance issues or improvements to be made.

These types of metrics are most useful for companies with repetitive processes, such as manufacturing firms or companies in cyclical industries. Examples of process performance metrics include:

• Production efficiency: Often measured as the production time for each stage divided by the total processing time. For example, a company may strive to spend only 2% of its time soliciting raw materials. If it discovers it takes 5% of the total process, the company knows that area needs to be improved.
• Total cycle time: The total amount of time needed to complete a process from start to finish. This may be converted to average cycle time if management wishes to analyze a process over an extended period.
• Throughput: The number of units produced divided by the production time per unit, measuring how fast the manufacturing process is.
• Error rate: The total number of errors divided by the total number of units produced. A company striving to reduce waste can use this metric to understand the number of items that are failing quality control testing.
• Quality rate: A measure of the items produced that pass quality control checks. By dividing the successful units completed by the total number of units produced, this percentage informs management of its success rate in meeting quality standards.

Marketing Metrics

Marketing KPIs attempt to gain a better understanding of how effective marketing and promotional campaigns have been. These metrics often measure conversation rates, or how often prospective customers perform certain actions in response to a given marketing medium. Examples of marketing KPIs include:

• Website traffic: The number of people who visit certain pages of a company’s website. Management can use this KPI to better understand whether online traffic is being pushed down potential sales channels and whether or not customers are being funneled appropriately.
• Social media traffic: Tracks the views, follows, likes, retweets, shares, engagement, and other measurable interactions between customers and the company’s social media profiles.
• Conversion rate on call-to-action content: Measures how well promotional programs convert customers to perform certain actions, such as a campaign to encourage purchases during a sale. A company can divide the number of successful engagements by the total number of content distributions to understand what percentage of customers answered the call to action.
• Articles published: The number of blog posts or print articles a company publishes in a given timeframe, such as a month or a quarter.
• Click-through rates: The number of specific clicks that are performed on email distributions. Programs may track how many customers opened an email, how many opened the email and clicked on a link, and how many clicked on the link and followed through with a sale.

IT Metrics

Any department within a company can be improved to increase efficiency and employee satisfaction. This includes how the internal technology (IT) department is operating. These KPIs can indicate whether the IT department is adequately staffed. Examples of IT KPIs include:

• Total system downtime: The amount of time that various systems must be taken offline for system updates or repairs. While systems are down, customers may be unable to place orders or employees may be unable to perform certain duties, which can slow operations and harm customer service.
• Number of tickets/resolutions: The resolution of tickets related to internal staff requests such as hardware or software needs, network problems, or other internal technology problems. This is similar to customer service KPIs.
• Number of developed features: Quantifying the number of product changes to internal software or systems in order to measure internal product development.
• Count of critical bugs: The number of critical problems within systems or programs. A company will need to have internal standards for what constitutes a minor vs. major bug.
• Back-up frequency: How often critical data is duplicated and stored in a safe location. Management may set different targets for different bits of information depending on record retention requirements.
  

Sales Metrics

The ultimate goal of a company is to generate revenue through sales. Though revenue is often measured through financial KPIs, sales KPIs take a more granular approach by leveraging nonfinancial data to better understand the sales process. Examples of sales KPIs include:

• Customer lifetime value (CLV): The total amount of money that a customer is expected to spend on your products over the entire business relationship.
• Customer acquisition cost (CAC): The total sales and marketing cost required to land a new customer. By comparing CAC to CLV, businesses can measure the effectiveness of their customer acquisition efforts.
• Average dollar value for new contracts: The average size of new agreements. A company may have a desired threshold for landing larger or smaller customers.
• Average conversion time: The amount of time from first contacting a prospective client to securing a signed contract to perform business.
• Number of engaged leads: How many potential leads have been contacted. This metric can be further divided into mediums such as visits, emails, phone calls, meetings, or other contacts with customers.
  

Human Resource and Staffing Metrics

Companies may also find it beneficial to analyze KPIs specific to their employees. Ranging from turnover to retention to satisfaction, a company generally has a wealth of information available about its staff. Examples of human resource or staffing KPIs include:

• Absenteeism rate: How many dates per year or specific period employees are calling out or missing shifts. This KPI may be a leading indicator for disengaged or unhappy employees. It can also help managers plan for seasonal staffing variation, such as times of year when employees are more likely to be sick.
• Number of overtime hours worked: The number of overtime hours worked to gauge whether employees are potentially facing burnout or if staffing levels are appropriate.
• Employee satisfaction: A gauge of how employees are feeling about various aspects of the company, often performed via survey. To get the best value from this KPI, companies should consider using the same survey questions every year to track changes from one year to the next.
• Employee turnover rate: How often and quickly employees are leaving their positions. Companies can further break down this KPI across departments or teams to determine why some positions may be leaving faster than others.
• Number of applicants: How many applications are submitted to open job positions. This KPI helps assess whether job listings are adequately reaching a wide enough audience to capture interest and lure strong candidates.

How to Create a KPI Report

It can be difficult to sort through the vast quantities of information collected by a company and determine which KPIs are most useful and impactful for decision-making. When beginning the process of pulling together KPI dashboards or reports, consider the following steps:

1. Establish goals and intentions. KPIs are only as useful as the users make them. Before pulling together any KPI reports, establish specific goals, then pick the KPIs that will inform achieving those goals.
2. Draft SMART KPI requirements. Vague, hard-to-ascertain, and unrealistic KPIs serve little to no value. Instead, focus on what information you have that is available and SMART (specific, measurable, attainable, realistic, and time-bound).
3. Be adaptable. As you pull together KPI reports, be prepared for new business problems to appear and for further attention to be given to other areas. As business and customer needs change, KPIs should also adapt, with numbers, metrics, and goals changing in line with operational evolutions.
4. Avoid overwhelming users. It may be tempting to overload report users with as many KPIs as you can fit on a report. At a certain point, KPIs start to become difficult to comprehend, and it may become more difficult to determine which metrics are important to focus on. Create separate reports if necessary, each focusing on a specific problem or goal.

Advantages of Key Performance Indicators

A company may wish to analyze KPIs for several reasons.

• Encourage actionable goals: Tracking and analyzing KPIs effectively requires knowing what you are trying to achieve. This can encourage businesses to set specific, actionable goals and create systems that help meet those goals, rather than creating systems without knowing what purpose they serve.
• Data-driven solutions: KPIs help inform management of specific problems and find solutions for them. The data-driven approach provides quantifiable information useful in strategic planning and ensuring operational excellence.
• Improve accountability: KPIs help hold employees accountable. Instead of relying on feelings or emotions, KPIs are statistically supported and cannot discriminate across employees. When used appropriately, KPIs may help encourage employees as they realize their numbers are being closely monitored.
• Measure progress: KPIs connect business goals to actual operations. A company may set targets, but without the ability to track progress toward those goals, there is little to no purpose in those plans. KPIs allow companies to set objectives, and then monitor progress toward those objectives.

Limitations of Key Performance Indicators

There are some downsides to consider when working with KPIs.

• Time commitment: There may be a long time frame required for KPIs to provide meaningful data. For example, a company may need to collect annual data from employees for years to better understand trends in satisfaction rates.
• Require regular follow-up: KPIs require constant monitoring and close follow-up to be useful. A KPI report that is prepared but never analyzed serves no purpose. In addition, KPIs that are not continuously monitored for accuracy and reasonableness do not encourage beneficial decision making.
• Subject to manipulation: KPIs open up the possibility for managers to “game” KPIs. Instead of focusing on actually improving processes or results, managers may feel incentivized to focus on improving KPIs tied to performance bonuses.
• Risk of incentivizing wrongly: If management seems to care more about numbers than actual results, quality may decrease as managers are hyper-focused on productivity KPIs. Employees also may feel pushed too hard to meet specific KPI measurements that may not be reasonable.

The Bottom Line

Key performance indicators are metrics that businesses track and analyze to understand performance and meet actionable goals. Commonly used KPIs include financial, customer service, process, sales, and marketing metrics.

By understanding exactly what KPIs are and how to implement them properly, managers are better able to optimize the business for long-term success.