Most businesses and organizations set goals in order to achieve the right objectives and fulfill the needs of its stakeholders. Those goals start at the top and trickle down to every team within the organization, each performing unique functions to advance the business.
There are many different ways to set and measure goals. One popular way to measure an individual, team or company’s progress towards a goal is by using key performance indicators, or KPIs, which set a standard of success for a specific business objective.
In this article, we’ll define key performance indicators and offer specific examples with a step-by-step guide for creating KPIs for yourself, your team or your business.
What are key performance indicators?
Key performance indicators (KPIs) are measurable values that determine how effectively an individual, team or organization is achieving a business objective. Organizations use KPIs to help individuals at all levels focus their work towards achieving a common goal. KPIs also help businesses understand whether they’re spending utilizing their time, and budget and talent on the right strategies, tasks and tools in order to achieve its goals.
Professionals can also set personal KPIs to gauge their individual success, guide their decision-making efforts and improve performance over time. By tracking KPIs, both individuals and organizations can better understand their development and evolve with the market.
Examples of KPIs
Examples of common KPIs include:
- Net profit: Increase sales revenue by 15% this year
- Online traffic: Increase traffic to website by 10% this quarter
- Employee turnover: Decrease employee turnover by 25% this year
Types of KPIs
KPIs can be used in nearly any part of a business. Here are the two main types that may be used to account for the needs of the group using them
Lagging vs. leading KPIs
Lagging KPIs measure the current state of a business and its achievements towards a goal after a set period of time. For example, measuring how much traffic a website earned, how many people attended an event or how much revenue a program earned are all lagging indicators.
Leading KPIs measure and determine a business’ future state. For example, businesses may use indicators such as job growth, interest in new markets or unemployment levels to predict various outcomes for their organization.
High vs. low KPIs
Key performance indicators that target an entire organization’s goals are called high KPIs. These indicators measure the company’s success as a whole. KPIs that target smaller projects, such as departmental strategies, are called low KPIs
Ultimately, low KPIs must contribute toward the high KPIs or the organization’s overall goals. Both are critical to helping a company achieve its objectives and identify ways to improve.
Related: Guide to OKRs
What makes a good KPI?
A business’s ability to track its progress towards a goal is only effective as the quality of its KPIs. Using the “SMARTER” framework, a good KPI should have the following qualities:
- Specific: A KPI should be a detailed, simple and clear description of what exactly you want to achieve. For example, “Improve customer satisfaction” is too broad. A better KPI is, “Improve customer satisfaction ratings by 10% by the end of Q3.”
- Measureable: As demonstrated in the example above, KPIs should be quantifiable to establish an exact definition of success. When thinking about ways to measure, consider using dollar amounts, percentages or raw numbers.
- Achievable: It's best that your KPIs are ambitious yet attainable within reason. This ensures individuals working towards them are motivated and challenged but don’t burn out. It also helps set realistic expectations with stakeholders and company leadership.
- Relevant: Your KPI should help advance the larger key business objective(s) of the team above you. For example, if you are on a client success team that falls under the company’s marketing organization, your KPI should align with marketing objectives. All KPIs should align with a larger key business objective.
- Time-bound: Select an ambitious yet realistic amount of time in which you’ll measure your progress towards a KPI. For example, you might decide you want to achieve a certain amount of renewal sales by the end of a quarter, month or calendar year.
- Evaluate: Regularly examining your KPIs is a great way to ensure you’re still working towards the right objectives. During your evaluation you might ask questions like, Is my KPI still relevant? What are the main blockers to success? Do I have the right budget, tools, talent and support? After this KPI period is complete, what should be measured next?
- Reevaluate/Readjust: Consider reevaluating your KPIs at specific periods—perhaps halfway through your KPI timeframe and once again at the end. Take this time to determine whether it's necessary to make changes to your KPIs so they’re up to date, achievable, relevant and in line with company objectives.
Read more: SMART Goals: Definition and Examples
How to create KPIs
Follow these steps to choose and implement key performance indicators:
1. Determine your end goal
Create a clear vision of what you are trying to accomplish. Keep this objective simple and straightforward. Your KPI should be connected with a key business objective that is both strategic and impactful to the organization. Without a clear vision, you risk working towards something that ultimately wastes time, energy, money and resources. Consider meeting with your manager to ensure you’re setting good goals and having them review your KPIs after you’ve set them.
2. Ask key performance questions (KPQs)
Consider developing KPQs, or questions that determine whether you’ve met an objective. When crafting KPQs, try to avoid simple yes-or-no questions such as, “Have I met my sales quota?” Instead, ask open-ended, thought-provoking questions such as, “How might I market my product portfolio better?” The answers to your KPQs will give you good information to create useful KPIs.
Other examples of KPQs include:
- What result do I want to achieve?
- Why is that outcome important?
- How can I define progress?
- How can I affect the result?
- How will I know I’ve reached my end goal?
3. Identify what information you already have
Before assigning metrics to address your KPQs, see if another department or manager is already collecting that information. If so, you can simply adjust the equation and apply it to your business strategy. Collecting existing data also helps to set a realistic target for your KPI.
4. Collect supporting data
Take time to collect additional information to create a KPI. Depending on the objective, this information might be industry trends, demographics, traffic averages, email performance, conversion rates or competitor analysis. Use this information to inform your key performance indicators.
Avoid simply measuring the same KPIs as your competitors. Every business is unique and what works for one company might not work for another. Dedicate time to clearly pinpoint what metrics will benefit your company based on it's strengths, weaknesses, opportunities and threats.
5. Determine how frequently you’ll measure each KPI
Next, identify a good cadence for checking in on progress towards the KPI. It's best to predetermine how and when you’ll measure, including which tool you’ll use to pull the data upfront.
Keep in mind that your KPIs can, and in most cases should, evolve and be updated. As businesses evolve, it’s important that KPIs are revisited and adjusted to reflect those changes. Monitor KPI status regularly to make sure it’s still useful and tracking the information you intended it to.
6. Set short- and long-term goals for the KPI
For example, if your KPI is to sell 2,400 memberships to your service over the course of a year, it's best to break it up into short-term milestones. In this scenario, you might set short-term goals to sell 200 new memberships per month. Then, you can use this rate to determine whether you need to change expectations or strategies as you go.
Failing to reach a goal doesn’t mean that selecting a certain KPI was a bad decision. On the contrary, you can use the data you collected and the information you learned to improve performance in the future. By identifying your shortcomings, you can make adjustments accordingly. Remember, KPIs are designed to help companies and individuals make sound business decisions and to continuously improve over time.
7. Delegate responsibility for KPIs
There are many moving factors when it comes to KPI development and maintenance. Make sure you have clearly assigned individuals or teams to specific tasks. The assessment, data collection and interpretation, monitoring and presenting of KPIs should all be accounted for.
8. Share KPIs with appropriate leadership and stakeholders
Contribute to your organization’s success by communicating strategies, progress and outcomes. Be transparent when discussing what you’re measuring and why. This can help employees and stakeholders feel invested or “bought-in” to the goals.
All team members must be aware of the objectives so they can work towards them and provide feedback as necessary. Key performance indicators aren’t static, and you must update them as your organization’s needs evolve.
When developing new or enhancing existing KPIs, it’s helpful to follow a basic formula. Here is an example of a completed template.
Customer satisfaction score
Goal: What strategy will the KPI measure?
The KPI measures how well we are boosting customer satisfaction.
Audience: Who will this data be presented to?
The data will be presented to the company’s board of directors.
Access: Who will be able to gather and access this data?
The digital marketing department will gather and access the data.
Key performance question: What question does this indicator answer?
It answers the question, “How happy are our customers with our service?”
KPI use: How do you intend to use the data collected?
We will use the data to evaluate our relationship with our customers.
Data collection source: How will you collect this data?
We will collect the data from online surveys emailed to existing customers.
Collection frequency: How often do you need to source KPI data?
We need to source the data monthly, from a random sampling of our customers.
Reporting frequency: How often will you report on findings to maintain current information?
We will report these findings monthly.
Responsible party: Whose job is it to collect and enter this data?
Digital marketing assistant, Jarrod Smith.
Assessment: How will you gauge your company’s performance in this area?
We will gauge performance on a 1 to 10 scale, with responses of 7 and higher considered positive.
Targets: What is your goal for this indicator?
Our goal is to increase customer satisfaction to 75 percent positive over the next two years.
Expense: How much will it cost to collect and analyze this data?
The cost of building the online survey and the hours the responsible party dedicates to this project.
Usefulness and limitations: Does this KPI answer the original KPQ well, and does it have any limitations?
We’ll receive an accurate score on the level of customer satisfaction but anticipate limited customer feedback on what we could improve.
Unintended consequences: How could people negatively influence this data?
Only unsatisfied customers may choose to complete the survey.
Expiration date: When will this KPI expire or need to be revised?
We will review the KPI every year to ensure it remains relevant.
Reporting on KPIs
Once you’ve measured a key performance indicator, you may want or be required to present your progress in a KPI report. This is typically useful for project leaders, team leaders, managers and supervisors to communicate with company management, department heads or other stakeholders.
There are four main KPI report categories you might create depending on the information your audience needs and your goals:
- Analytical report: This report details the KPI and works to explain what impacted your results most. This might include historic KPI data for comparison.
- Operational report: This report provides data about how KPIs measure an organization’s daily operations so management can make well-informed decisions.
- Strategic report: This report reflects the health of the organization and its progress so stakeholders can determine whether the company is meeting goals.
What to include in a KPI report
While your report should be written to address the needs of the audience in a way that appropriately reflects your goals or projects, there are a few key pieces of information that might be helpful to include.
Here are a few examples of key information you might include in your KPI report:
- Goal: Clearly identify which objective the KPI is evaluating.
- Metric: State the quantifiable, relevant and actionable key performance indicator you’re using for measurement purposes
- Rationale: Explain why you or your team chose this KPI and how the resulting data contributes to the company’s success.
- Frequency: State how often you measured your key performance indicator and at what frequency you’ll re-examine it.
- Source: Identify where you gathered the data and consider sharing a formula for calculating the data.
- Visuals: Use a chart, table or graph for easy comprehension. If applicable, compare it with previous visuals of the same type to track progress over time.
- Comments: Here you can briefly add any other relevant information or interpretation of the metrics you obtained.
KPI reporting tips
Here are a few additional tips for preparing your presentation:
- Be concise. Your report should be succinct and easy to understand. Consider refining your data to only the crucial takeaways.
- Use visuals. Charts and trend graphs can make results easier to retain.
- Simplify technical information. Be sure to explain technical terms using resources such as glossaries.
- Be truthful. Be honest, regardless of the results of the report. If a key performance indicator shows the company or department did not reach its goal, craft a plan for how you’ll achieve better outcomes in the future.
- Include historical data. If the company has run previous metrics on this key performance indicator, compare current data with past data to evaluate progress.
- Offer regular reporting. Schedule regular updates across the lifespan of the KPI to present and compare data as it changes. Monitor progress and determine how often you’ll present your findings to stakeholders on an ongoing basis.
Follow this guide for tips on how to give a presentation in case you need to present your KPI report.
Examples of KPIs by industry
A company’s key performance measures will vary depending on the industry and the organization’s objectives. For example, a technology company might measure growth by comparing each year’s earnings, while a retailer might look at same-store sales.
Some KPIs will be more quantitative than others. For example, earnings are generally much easier to measure with hard numbers while user satisfaction with a product, service or site is open to interpretation. Performance indicators can be based on finances, customer service, marketing, sales, manufacturing, human resources, supply chain and more. Below are some possible KPIs for different industries.
Sales and finances
Examples of sales and finance-based KPIs might include:
- Earnings before interest, taxes, depreciation and amortization (EBITDA)
- Net profit (how much revenue the company retains after paying taxes, expenses, etc.)
- Gross profit (how much revenue the company retains after deducting the production cost of goods sold)
- Costs (to figure out ways to lower them)
- A comparison of projected vs. actual revenue
- A comparison of expenses vs. budget
- Debt vs. equity ratio
- Day sales outstanding (DSO) (the average number of days it takes to receive payment after a sale)
- Regional or national sales
- Sales from new customers
- Repeat sales revenue
- Proposals issued and/or lost
- Deals closed
- The number of prospect meetings across a set period
- The number of returned items
- The number of online vs. in-store sales
- Inventory turnover (how long it takes for products in inventory to get sold)
- Average sale size
- The cost of maintaining sales staff
Examples of marketing key performance indicators might include:
- Dollars spent on marketing over a certain period
- Online traffic (the number of visitors to the company website)
- Organic online traffic (the number of visitors to the company website via a search engine)
- Web traffic (to determine how many visitors are new vs. returning)
- Mobile traffic
- Click-through rate (the ratio of web traffic that clicks on a particular ad)
- The number of visits to a particular piece of content
- SEO rank (where your web content appears in search engine results for certain keywords)
- Social media traffic growth
- Sales revenue earned from online marketing campaigns
- Marketing qualified leads (a potential customer who has indicated he or she is likely to buy the company’s product or service)
- Sales qualified leads (a potential customer who’s been researched, vetted and determined likely to buy the company’s product or service)
- Cost per lead
Examples of customer service-based key performance indicators might include:
- Customers gained over a set period
- In-store foot traffic
- Percentage of customers who don’t continue paying for service or buying products
- Cost of customer acquisition
- Customer lifetime value (to determine how to best gain and retain customers)
- Customer retention
- Customer satisfaction or customer satisfaction score
- Survey-based net promoter scores (to determine whether customers would recommend the company to others)
- Customer support tickets and their response or resolution times
- The number of calls to customer service
- The number of customer complaints via email, phone or other methods
Human resources and employment
Examples of human resources or employee-based key performance indicators might include:
- The number of new hires
- Cost per hire
- The number of promotions
- Employee turnover
- Employee satisfaction via survey responses
- Retirement rate
- Absenteeism rate (to determine how much productivity has been lost due to employee sick or personal days)
- The rate of training and development based on test scores pre- and post-training
- Salary competitiveness ratio (to determine how your company’s average salary compares to your competitors or the industry as a whole)
Examples of key performance indicators employees might use to track their own development include:
- Personal targets such as sales quotas
- Project completion within a certain time frame
- Units processed or issues resolved a day, week, month, etc.
- Speed of work
- Customer satisfaction
- Job satisfaction
How to use KPIs for individual performance
You can apply the above strategies to achieve your own goals as an employee. Setting a goal for yourself and measuring it with relevant KPIs can help you stay on track and achieve it. Your success should contribute directly to company goals. Using KPIs, you and your manager can track whether you’re hitting your target goal and take the appropriate steps to get there.
Consider beginning by aligning your goal and your KPI with that of your department or organization. This means your success is also your company’s success.
Here’s an example, if a company’s vision is to create high customer satisfaction:
Company goal: Reduce the percentage of unsatisfied customers by 30%
Individual goal: Boost settled complaints by 15% during a specified period
Company KPI: Settle unsettled customer grievances each week
Individual KPI: Reduce percentage of satisfied complaint resolutions vs. unsatisfied complaint resolutions
You can also use KPIs to track your professional growth and success within a company. For example, you might compare data over time using metrics such as your speed of work, accuracy, level of responsibility or quality work to determine whether you’re improving. If so, you know that you’re adding value to the company. If you’re not meeting your goals, you might consider adjusting your focus and tactics accordingly.
Track short- and long-term professional goals
KPIs can help you plot career objectives by setting short and long-term development goals, too. Short-term KPIs might be daily or even hourly, such as how long it took you to complete a particular task. These are real-time indicators of your performance and ability to meet deadlines. Long-term KPIs track career goals over months or a year and help guide your progress.
Record and keep KPI data
Be sure to record and keep the KPI data you collect so you can use it as an example of your career growth when seeking promotions or interviewing with other employers. If you’re starting in an entry-level position, set KPIs that reflect your core responsibilities as well as your potential. Choose performance indicators that will benefit your employer while supporting your professional goals. Present these metrics in future interviews as you progress to higher positions.
Using key performance indicators, companies and individuals can gauge their success and progress. These metrics can help you and your company make well-informed business decisions, boost performance and understand your performance within an industry. With thoughtful KPIs, you can track your professional progress to make smart decisions, meet goals and improve performance.