What is a KPI?
KPI stands for key performance indicators. This is a quantifiable measurement of performance over time for a specific activity that is tied to a company objective.
A key performance indicator can help you better understand your business’ financial and operational achievements, so you can see where you’re at and make improvements to your strategy.
Picture Robin Hood aiming for his archery target. Without the target, Robin Hood wouldn’t know where to aim his bow. But, with the target, he can measure exactly how far off he is from his goal, so he can adjust his aim, strength, or his bow.
The same is true for the KPIs in your business. They give you a clear marker of how you’re performing so you can understand if you’re in the right direction, or if you need to make strategic adjustments along the way.
A KPI provides your business with a target to shoot for, milestones to track your performance over time, and insights to help your organization's leaders make better decisions. From marketing to sales to finance and even HR, key performance indicators can help improve productivity, progress, and achievement across every area of your business.
What is KPI reporting?
KPI reporting is the business management practice of measuring, organizing, and analyzing a business’ most important key performance indicators.
KPI reports help business leaders identify strengths and weaknesses, optimize company performance, improve engagement, and reach strategic goals. Managers also use KPI reporting to analyze trends in specific departments or in the business as a whole to improve decision-making.
KPI reporting is typically presented visually in the form of an interactive dashboard. KPI dashboards give managers a quick overview of the essential data points associated with your specific key performance indicators.
KPI dashboards present your KPIs in an easily digestible format so managers can quickly analyze and extract the most crucial information to help them optimize their overall strategy.
How to measure KPI
If you’re going to be successful in your KPI tracking, then you need to build a proper KPI measurement framework, or use a KPI Tree Template. Here are six steps to setting a framework for your KPI measurement:
1. Determine your main goal(s)
The first step to measuring your KPIs is to first identify which KPIs you'll be tracking. To figure out your KPIs, you need to first determine the goal you and your team are working towards. For instance, the goal of a specific marketing campaign could be to generate $50,000 in revenue or bring in 50 leads. No matter what your goal is, we’ll use it to establish KPIs.
2. Establish primary KPIs
Now that you have your overall goal, it’s time to establish your primary KPIs. These are significant KPIs designed to measure the overall results of your campaign and whether it was a success or not. Some primary KPI examples include the amount of revenue generated by specific channels like email marketing or Facebook ads. Or, if your goal is brand awareness, it could be your overall reach or impressions on different social platforms.
3. Establish secondary KPIs
Next up, it’s time to establish secondary key performance indicators to further understand the success of your campaign. These could be three to five additional metrics that are important to your campaign but not necessarily your primary KPI. For instance, if your primary KPI is email revenue generated, secondary KPIs could include average order value or return customer rate.
4. Choose health metrics
Next, we’ll establish metrics that'll help you understand the overall health of your campaign, rather than whether or not you've reached your primary goal. Following our email marketing KPIs, health metrics could include metrics like open rate, click rate, and total email opens.
5. Establish specific KPI targets
Now that you’ve chosen the KPIs that you’ll track, it’s time to determine the exact numerical target for each KPI. The numbers you establish should be realistic and measurable numbers to help you stay on track. Simply stating you want to earn more revenue from email marketing isn’t enough. Get specific. State that you want to generate $50,000 from the campaign, with $20,000 of that coming from email. If your average order value (AOV) is $50, set a goal for your AOV to be $60. Aim for a 40% email open rate if you usually get 35%.
By setting specific, measurable KPIs, you’re much more likely to achieve them or at least come close.
6. Set up benchmarks
Finally, you need to set up benchmarks. Remember to look at past campaign performance to better understand what a typical benchmark for KPIs is. But, don’t stop there. Look at competitors. Look at others in your industry or similar businesses in other industries. By understanding where you’re at relative to your competitors or your own past performance, it'll help you determine whether you’re on the right track or not.
Benefits of tracking KPIs
KPIs are a critical part of any business strategy to ensure you’re staying on track and improving performance. Here are a few reasons why you should be tracking KPIs.
Measure performance
First off, KPIs help you measure your performance. If you’re just “winging it” when you’re working on a project or a campaign, how will you know whether or not you’re a success?
Without KPIs, you’ll be driving blind, not knowing what’s improving or worse yet — harming — your organization.
Tracking KPIs can help you measure your progress — or lack thereof — toward crucial business goals.
Improve employee morale and engagement
A business is nothing without people, and a business is almost as good as nothing if people aren’t engaged. One key path to improving engagement at work is by establishing KPIs.
You may think that pressuring your team to hit certain targets will make them dislike their job. But, the opposite is true. People crave growth. Establishing KPIs for individuals and different departments is a great way to get your team engaged.
Remember to align your KPIs with organizational goals and goals for your department. The better you can tie your KPIs to a deeper, purposeful goal, the more engaged your employees will be and the greater company morale will be overall.
Improve decision-making
KPIs provide leaders with key insights into their organization and department. They offer more than just numbers on a page or a screen. They offer valuable information that can help you understand what specific points of action are improving your business and what ones are hurting it.
Instead of just making decisions based on gut feelings, you can use KPIs to make data-informed decisions that will improve your odds of success.
Examples of KPIs
Curious to know what the most commonly tracked KPIs are?
Here are a few examples of KPIs, broken down by different departments that you can use as a baseline to establish your own key performance indicators:
Marketing
Revenue
Revenue by channel
Customer satisfaction
Conversion rates
Marketing qualified leads (MQLs)
Return on investment (ROI)
Return on advertising spend (ROAS)
Customer acquisition cost (CAC)
Sales
Total sales generated
Sales volume by location
Sales qualified leads (SQLs)
Marketing qualified leads (MQLs)
New inbound leads
New qualified opportunities
Total pipeline value
Average order value
Finance
Operating profit margin
Gross profit margin
Net profit margin
Operating expense ratio
Working capital ratio
Burn rate
Return on investment
Customer Service
Average response time
First contact resolution rate
Cost per conversation
Customer effort score
Most active support agents
What makes for an effective KPI?
Now that you know a few different types of KPIs you can track broken down by department, it’s time to figure out what makes for an effective KPI so you know how you can craft yours the right way.
Relevant
First and foremost, the KPIs you track should be relevant to your role, team, department, and business. It should be connected with your team and organization’s overall business goals and mission.
For example, let’s say your company is aiming to increase annual recurring revenue (ARR) by 30% at the end of the year. If you’re on the marketing team, you might consider tracking conversion rates as this directly aligns with revenue.
Measurable
KPIs need to be measurable. If you don’t know how to measure it, then you need to change it or throw it out. When you set up KPIs, ask yourself, ‘What am I trying to achieve? What is my desired end result?’
You need to make sure you don’t just set a number, but also a date. By setting a deadline, you will have a clear yes or no on whether you hit your KPI goals or not.
Actionable
Your KPIs can’t be vague, and they can’t be passive. You need to set KPIs that can be achieved by taking specific actions. Once you have your KPI, it should be relatively straightforward to make an action plan broken down into smaller goals to achieve success.
Simple
Finally, your KPIs need to be simple. Don’t get too complicated, and don’t track too many. You don’t need to track every single possible KPI. Depending on your overall goals, you should only stick to a few primary KPIs and potentially some secondary ones.
What’s the difference between KPIs and OKRs?
So, how are KPIs different from OKRs? Are they the same? Do you choose one or the other?
Simply put, OKRs and KPIs work together. However, they serve different purposes.
While key performance indicators measure performance against specific targets, you can create OKRs, or objectives and key results, to achieve goals within a specific period of time that align with an organization's vision.
Objectives and Key Results (OKRs)
Objectives and key results are broken down into two parts.
Think of objectives as where you want to go. For example, an organization may decide they want to evolve their brand image from cheap to premium. This is an objective.
Key results are how you’re going to achieve your strategic objectives. These are measurable metrics to track your progress. For instance, if you’re trying to become a more premium brand, one key result may be increasing your average product price from $60 to $100. Another one may be upgrading the materials used to make your products from a $10 manufacturing cost per product to higher quality manufacturing for $20 per product.
Key Performance Indicators (KPIs)
The way KPIs fit into an OKR strategy is one step lower. Think of Objectives as the bird’s eye view. Key results are skyscraper buildings. Key performance indicators are the foundation on which key results lay.
For instance, a key performance indicator aligned with the objective to become a premium brand and increase your average product price might be to track your average order value (AOV). In this example, if you raise your price point, you’ll want to track if the AOV is aligning with it and by how much. Perhaps the average order value isn’t rising even though you’ve raised your prices.
Another KPI you could track is your conversion rate. Since you have started raising your prices, are your conversion rates dropping? They’re likely going to dip down to some degree. If it’s too much, perhaps you moved the price up too high too quickly.
Collaboratively set and track your KPIs
With Miro, teams can collaboratively define, visualize, and monitor KPIs in real-time. Whether you need to track sales targets, project milestones, or customer satisfaction metrics, Miro makes it easy to document your KPIs in one shared space, fostering transparency and accountability. Sign up for free to get started!
