What is a KPI? How To Choose the Best KPIs for Your Business

The question "what is a KPI?" comes up at many meetings. If you want to scale your company, you might be wondering about KPIs and how they can help your business grow.

Reviewing performance through key performance indicators (KPIs), tells your team when you've met the mark or fallen short. But how do you pick the right KPIs for your business?

In this post, we'll walk you through what a KPI is, which KPIs you should focus on, and how you can hone in on the metrics that matter most for your business.

Keep reading, or jump to the section you’re looking for:

• What is a KPI?
• Why are KPIs important?
• Types of Key Performance Indicators
• KPIs vs. Metrics
• OKR vs. KPI
• How To Determine KPIs
• KPI Examples
• How To Measure KPIs

Whether a KPI is for a one-off campaign or a long-term initiative, it can help teams track their progress, improve results, and stay on track.

Businesses use KPIs to figure out whether they are reaching their top goals. These KPIs usually track the overall health and performance of the organization.

Departments use KPIs to show the value of their efforts to the business. These performance indicators help teams work toward set outcomes and solve issues that stand in the way of those goals.

And employees use KPIs to understand how their individual efforts contribute to project, team, and organizational goals.

KPIs can also help track the effectiveness of:

• Projects
• Processes
• Campaigns
• Strategic changes

A KPI is also useful for cross-departmental collaboration, as it makes it simple to see what other teams are working toward at a glance. KPIs tell companies if their hunches are right and if what they are doing is working.

Important note: KPIs should measure your most essential indicators.

For instance, your social media team may have a ton of data points that can serve as KPIs. However, they should only choose the ones that align with the broader business goals. Let's say it's brand awareness. In this case, follower count, post reach, and impressions will likely be the social media KPI metrics to measure.

With that in mind, having KPIs means narrowing your focus to a few vital metrics that will influence your business the most.

Why are KPIs important?

People around the world generated and consumed 64.2 zettabytes in 2020. And according to Statista, that number should reach 181 zettabytes by 2025.

How much is a zettabyte? One billion terabytes. And how much is a terabyte? About one trillion bytes. That's a lot of information. That means that your business is processing more information than ever before.

As you process that ever-growing mass of data, it can start to feel overwhelming. For example, this post on sales metrics outlines over 140 metrics that one sales manager might track in a month. These are valuable metrics that can help salespeople excel. But add in weekly metrics, and it's no surprise that 80% of workers are suffering from information overload.

Enter the KPI. When you select a KPI for your business or team, it narrows the focus of your efforts. This one strategy can help your team rally around what's most meaningful. It can push teams to get results faster, be more productive, and make useful changes when they're needed.

A KPI is more than a number. It's a message, a story that quickly shows your team whether you are moving toward the goals you've set together. Key performance indicators can help:

• Keep high-level goals top of mind
• Convert abstract ideas into manageable targets
• Cut down on data overload

Strong KPIs can help your business save time, get critical insights, guide management, and keep your business on a long-term path of growth.

Because KPIs are so critical, it's essential to set the right KPIs for your business. The wrong KPI can disrupt even the strongest team.

For example, say your marketing team is selecting a KPI for its growth goals. Ranking in search engine results is important for a blog, so the amount of #1 keyword rankings could seem like a good KPI.

But what if your blog's top-ranking keywords don't relate to your business goals? What if those keywords have low traffic volume or don't connect to qualified leads? In this situation, organic traffic is probably a better KPI.

Choosing the right KPI might take some extra research, so let's talk about the different types of KPIs.

Types of Key Performance Indicators

While there are many different indicators of performance that a business can measure, most fall under two categories:

Quantitative KPIs

A quantitative KPI uses numbers to measure progress toward a goal. The majority of KPIs are quantitative, like the number of closed sales, customer service tickets, or annual revenue.

Image Source

Qualitative KPIs

A qualitative KPI tracks non-numerical data, like customer comments or employee engagement. While there are ways to get quantitative data from qualitative research, these KPIs focus on non-numerical data.

For example, say a company just released a new product online. As soon as the product listing goes live they'll track quantitative metrics like:

• Product sales
• Abandoned carts
• Product page views

At the same time, the company would also track qualitative data like product reviews and customer surveys. This can help the team figure out how people are responding to the product and how to keep improving it.

Image Source

Most businesses use more than one KPI to track performance and may combine KPIs to reach a set goal.

There are other measures that companies use to hone in on their business goals.

Other Key Performance Indicators

Leading KPIs: This is quantitative data that helps a business measure potential responses to a change. For example, if a SaaS business plans to launch a new feature, leading indicators can help it project future results.

Lagging KPIs: These measure results after a change to track whether that change is meeting expectations. These are sometimes also called output indicators. For example, after the SaaS business launch above, lagging indicators will show the actual outcomes of the release.

Leading and lagging KPIs can help teams make corrections early. This can save the business time, effort, and investment over time.

Input KPIs: These track the resources a business needs for a campaign, project, or process.

Process KPIs: Process KPIs track how well a new process is working and help target potential changes. For example, a common process KPI is the time it takes to close a support ticket.

Practical KPIs: These track current internal company processes and how they impact other parts of the business.

Directional KPIs: These KPIs look at overall company performance. They may focus on trends within the company or in comparison to competitors.

Actionable KPIs: Indicators like this track how well a company commits to and carries out internal business changes. Examples include KPIs that track culture changes, employee sentiment, or DEI initiatives. These often measure progress within a set period of time.

KPIs vs. Metrics

When you were in school, you might have learned that a square can be a parallelogram, but not every parallelogram is a square. The same is true of KPIs and metrics.

While a KPI can be a metric, not every metric is a KPI. This is because KPIs track progress toward a specific goal. A KPI is a significant measure of performance.

When your team selects a KPI, they commit to a specific metric and how meeting that goal can lead to business growth. KPIs also narrow the scope of information to data that everyone needs to know — from interns to stakeholders.

This doesn't mean that metrics aren't impactful. As your team solves specific problems and creates processes, there are many metrics you will track. In turn, these metrics can help your team meet your KPIs.

KPI Metrics Example

Here's an example. Say that your team is creating a blog for your sales team to generate more qualified leads. The KPIs for this project are:

• Traffic
• New users
• Leads

Those are the key performance indicators that your team believes will show that the time and effort of launching a new blog is worth it to the business.

At the same time, if you've ever started a blog, you know that there are many other metrics to track like:

• Engagement time
• Bounce rate
• Views per user
• Backlinks
• Domain authority

These metrics will help your team solve problems, choose the right blog topics, and make changes that improve the user experience.

Metrics are essential to the team that works on the blog so they can make it better. At the same time, metrics are often too much detail for every stakeholder. In this example, your blog team needs other metrics to help meet its KPIs.

OKR vs. KPI

Objectives and Key Results (OKR) and KPIs are often used interchangeably because both terms refer to goals that are tracked and measured. However, they differ in intention.

Put simply, KPIs show whether your business is hitting its targets. They are often called health metrics as they tell you how the company is doing to meet an objective that's already set.

OKRs, on the other hand, are broad objectives for your business with the key results that will signify achievement in meeting those objectives. They are aggressive and ambitious goals that speak to the business's big-picture vision.

For instance, let's say a technology company has the objective of becoming one of the top 10 providers in their industry in 2021. Their key results could be:

• Acquire 1,000 new customers by Q3.
• Generate 3,000 leads every month.
• Increase annual membership sales by 30%.

While KPIs are ideal for scaling, OKRs are designed for dramatic growth. They're more ambitious and push teams to stretch their capabilities.

It's also important to note that while KPIs can be the key results in your OKR, the opposite is generally not true.

For example, your marketing team could have a KPI of 3,000 leads as mentioned in the example above. However, it's unlikely that any department would list the "Top 10" goal as their KPI as that speaks to a broader vision and has a more flexible timeline.

Before you can measure your KPIs, you'll need to determine which metrics to track. This will greatly depend on your goals and your team.

Once you narrow that down, set your targets. They're usually based on a combination of factors, including historical performance and industry standards.

You'll also have to answer the who, when, and why. Who is responsible for this KPI? Identify the person on your team who is managing this KPI, so they can be the go-to when addressing roadblocks that may affect performance. They will also be responsible for reporting on progress.

As for the "when," you'll need to know the timeline to reach these targets. Many businesses set them on a monthly or quarterly basis, but your timeline can be shorter or longer depending on your team.

Lastly: the why. It's the most important thing to keep in mind when measuring your KPIs. Having your goals clearly identified can help motivate your team and make sure everyone is aligned on the direction you're going in.

Let’s go over a few steps that can help make this process more simple.

1. Choose KPIs directly related to your business goals.

KPIs are quantifiable measurements or data points used to gauge your company's performance relative to a goal. For instance, a KPI could be related to your goal of increasing sales, improving the return on investment of your marketing efforts, or improving customer service.

What are your company goals? Have you identified any major areas for improvement or optimization? What are the biggest priorities for your management team?

Answering these questions will bring you one step closer to identifying the right KPIs for your brand.

2. Consider your company's stage of growth.

Depending on the stage of your company – startup vs. enterprise – certain metrics will be more critical than others.

Early-stage companies typically focus on data related to business model validation while more established organizations focus on metrics like cost per acquisition and customer lifetime value.

Here are a few examples of potential key performance indicators for companies in various stages of growth:

3. Identify both lagging and leading performance indicators.

The difference between lagging and leading indicators is essentially knowing how you did, versus how you are doing. Leading indicators aren't necessarily better than lagging indicators, or vice versa. You should just be aware of the differences between the two.

Lagging indicators measure the output of something that has already happened. Total sales last month, or the number of new customers or hours of professional services delivered, are examples of lagging indicators. These types of metrics are good for purely measuring results, as they focus on outputs.

On the other hand, leading indicators measure your likelihood of achieving a goal in the future. These serve as predictors of what's to come. Conversion rates, sales opportunity age, and sales rep activity are just a few examples of leading indicators.

Traditionally most organizations have solely focused on lagging indicators. One of the main reasons for this is they tend to be easy to measure since the events have already happened. For instance, it’s easy to pull a report of the number of customers acquired last quarter.

But measuring what happened in the past can only be so helpful.

You can think of leading indicators as business drivers because they come before trends emerge, which can help you identify whether or not you are on track to reaching your goals. If you can identify which leading indicators will impact your future performance you will have a much better shot at success.

With every business, growth is the goal. KPIs help you track your progress and scale progressively to grow in whichever way that matters to your company.

4. Focus on a few key metrics, rather than a slew of data.

As you begin to identify KPIs for your business, less is worth more. Rather than choosing dozens of metrics to measure and report on you should focus on just a few key ones.

If you track too many KPIs, you might become overwhelmed with the data and lose focus.

As you can imagine, every company, industry, and business model is different so it’s difficult to pinpoint an exact number for the amount of KPIs you should have. However, a good number to aim for is somewhere between two to four KPIs per goal. Enough to get a good sense of where you stand but not too many where there's no priority.

KPI Examples

Your organization's business model and the industry in which you operate will influence the KPIs you choose.

For example, a B2B software-as-a-service (SaaS) company might choose to focus on customer acquisition and churn, whereas a brick-and-mortar retail company might focus on sales per square foot or average customer spend.

Here are a few examples of some industry-standard KPIs:

While some KPIs are simple, KPIs that can help your business target specific goals can be tougher to create. These examples of key performance indicators for businesses can inspire the right KPI for your business.

Marketing KPIs

KPIs for marketing can help you track the effectiveness of marketing efforts. It can help you figure out the value of specific campaigns and initiatives, and assess different media channels.

For example, this video outlines how to set KPIs for social media:

These are some of the top marketing KPIs:

• Return on Investment (ROI)
• Lifetime Value of a Customer (LTV)
• Customer Acquisition Cost (CAC)
• Conversion Rate

For more KPI ideas, check out these resources:

• Marketing KPIs
• Business blogging metrics
• SEO KPIs
• Email marketing metrics
• Marketing KPIs for CEOs
• Content marketing metrics

Sales KPIs

Sales is a numbers-driven activity and this makes KPI selection even more important. Sales KPIs can measure individual, team, departmental, or organizational efforts. They can also help sales teams make shifts and respond to goal and priority changes.

These are some common sales KPIs:

• Monthly sales growth
• Monthly calls (or emails) per rep
• Opportunity to deal ratio
• Average purchase value

For more KPI ideas, check out these resources:

• Field sales leader KPIs
• Sales metrics guide
• Inside sales metrics
• Sales and marketing KPIs

Service KPIs

Customer service KPIs can track the performance of support teams. They also help service managers understand, analyze and optimize the customer experience.

Here are some of the top service KPIs:

• Number of resolved tickets
• Customer satisfaction score (CSAT)
• First response time
• Net promoter score (NPS)

For more KPI ideas, check out these resources:

• Customer service KPIs
• Customer experience metrics
• Customer success metrics
• Call center metrics

Website KPIs

A website KPI can connect the performance of your website to marketing, sales, and service goals. Website data can help businesses understand how to connect siloed departments and fix gaps in the buyer journey. This type of KPI is especially useful for ecommerce sites.

Here are some common website KPIs:

• Traffic
• Traffic sources
• Number of sessions
• Number of transactions

This post also has some great suggestions for website engagement metrics.

Now that you know what a KPI is and how to choose the right KPIs for your business, it's time to act. Measuring a KPI can be simple or complex depending on your KPIs, your tech stack, and the way your team works.

Some companies end up tracking the wrong KPI because it’s the easiest data to track. This isn't a satisfying solution, and it can lead to bigger business challenges long term.

Let's walk through the best practices for measuring your KPIs.

1. Identify the tools or software you need to measure your KPIs.

KPI measurement starts with your data sources and the tools your business uses to track data. There are a few things you'll want to look for in the right software.

Integrations

According to 2021 research from Productiv, the average company uses over 200 apps. This means that you'll need a software solution that connects to a range of tools to pull together accurate data.

Dashboards

Dashboards are also useful for tracking KPIs because they make it easy to visualize insights. Visualization can make complicated information simpler and quicker to understand and act on.

Custom and standard reports

It's also helpful to use KPI software with both standard and custom reporting. While some KPIs are effective alone, others may need supporting metrics to clarify the story of the data. For example, say your KPI is social media engagement. You may also want to present data on every social media tool your team is using.

Read here if you're looking for the right data tracking software.

2. Narrow down your final list of KPIs.

Focus is the top reason to limit the number of KPIs you track. If KPIs are the most critical measure of business success, you want to track just two or three KPIs, not 10-20.

First, make sure there is a clear separation of KPIs from metrics. Next, revisit your goals to make sure that the KPIs you've selected show clear progress toward that goal.

As you research software you might notice that some KPIs are easier to track than others.

For example, tracking customer lifetime value by marketing channel is easy if your revenue and marketing systems connect. But what if these are two different systems? Maybe your marketing platform shows that most of your leads come from the blog. At the same time, your customer platform analytics show that most of your leads come from a landing page.

This kind of issue leads to a lot of manual work, and a KPI your team can't trust. Until you can unify your systems, you may want to choose a KPI that you can measure accurately.

Be sure to watch your KPIs in the first few months and take note of how often you check each KPI. Sometimes you'll need real data to figure out if that performance indicator is useful.

For example, say at the beginning of a co-marketing partnership, you and your partner set a KPI for shared leads. But in the first two months, the only shared leads come from a webinar that your companies host together. At the same time, you both notice increased lead volumes from referral links.

If you want your KPIs to measure the effectiveness of your partnership, you may want to change this KPI.

3. Create standard reports and timing for reporting.

One way to help stakeholders invest in KPIs is to create a consistent reporting schedule and format. You can measure and report on KPIs each week, month, quarter, or year depending on your business needs.

For example, if you have a monthly lead goal, it's a good idea to track your KPIs weekly. If performance tracks with expectations, you can gather insights into what your team is doing well. If not, you have a chance to ask for resources, troubleshoot, and make changes.

A standard report has the same structure every time. You can often automate these reports and they usually don't need much manual data analysis. Depending on your industry and KPIs you may want to customize your standard reports. This can help you make sure that your reports clearly show the most useful information.

4. Design visualizations in your dashboard for your most important KPIs.

Scanning numbers is satisfying for some. But most people process and retain visuals best. So, you'll want to make the most of your data with a visual dashboard that makes your KPIs easier for stakeholders to understand and remember.

As you build your dashboards, there are a few helpful things to think about. First, try to group your KPIs to create audience-specific dashboards. For example, you might want to build one KPI dashboard for C-suite presentations and another for meetings with your team.

Next, keep your visuals simple. Choose the best chart for the information you're presenting and don't add small text or extra graphics that could distract from your data.

5. Share KPIs reports with other teams for quality checks.

It may take some time before your KPIs are a reliable source of information. There is a lot that you can do with digital tools, but don't forget another crucial resource for making sure your KPIs are accurate — your team.

Whether you check in with your friends in Accounting every other day or hold weekly check-ins with people in your department, it's smart to reach out. Even small issues can lead to big errors over time.

For example, do you want to base your KPI on the average daily call volume of customer service seven days a week or just Monday through Friday? If you don't talk to your CS team about their structure and schedule, you might pull the wrong data. This can lead to skewed numbers, poor strategic decisions, and more.

The more your business can trust your KPIs, the more benefits they'll get from them.

6. Choose a reporting cadence for stakeholders.

Most decision-makers in business organize reporting around the business calendar. But you'll still want to think about the right reporting cadence for your specific KPIs.

For example, a monthly cadence might not be frequent enough to troubleshoot problems. At the same time, a weekly cadence might create information overload. Too frequent meetings can also lead to conversations about metrics instead. This takes the focus away from your key performance indicators.

If you are new to this process, it may make sense to meet more frequently in the beginning, then create more space between meetings later.

You want to build a culture and structure around support for your KPIs. Remember that it's about the business using this tool to reach your goals.

7. Set new goals and KPIs based on your results.

Some KPIs are forever, but you'll want to continue to review and update your KPIs based on results. So, schedule time at least once a year to review your KPIs.

As you make updates, organize your data in a way that makes it easy to compare useful KPIs with indicators that aren't helping.

Next, make some time to plan and research the changes you might want to make. Changing KPIs can sometimes create unintended issues. For example, a slack KPI can show consistent strong results, even if performance isn't in line with growth goals.

As you make adjustments, keep in mind that KPIs should come from business goals, not the other way around.

Use Your KPIs to Fuel Growth

With every business, growth is the goal. KPIs help you track your progress and scale progressively to grow in whichever way that matters to your company.

Powerful KPI creation and tracking can give you and your business a strategic advantage. They can help you prioritize, focus, and scale processes toward your goals.

Some KPIs are easy. But if you want to push to the next level, you may need to take some extra time to find the exact KPIs that your company needs.

This post was originally published in March 2021 and has been updated for comprehensiveness.