How to Define and Measure a Key Performance Indicator

By Indeed Editorial Team

Updated November 11, 2022

Published August 17, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A key performance indicator (KPI) is a definable work activity or objective that allows you to measure your progress in a quantifiable way. KPIs are useful to evaluate your work performance and improve your efficiency. Measuring your daily, weekly and monthly success can help you align your personal performance goals with your organization's goals. In this article, we discuss when to use KPIs, the different types, how to structure goals for your KPI, what to include when you report your progress and examples of different KPIs.

Related: What Are Key Metrics? (With a List of Some to Consider)

Where to use key performance indicators

Here is where you can use key performance indicators in the workplace:

For individuals

Employees can use KPIs if they want to measure results and quantify performance. As a professional, measuring and tracking your work activity gives you insight into the development of your role with definable results. As a contractor, it can give you data to leverage when gaining new, and keeping existing, clients.

Related: SMART Goals: Objectives for Your Career

For teams

If you are a team manager or chief marketing officer, you want to implement KPIs to measure performance and compare your department's achievements to other departments. Team-based KPIs are used to measure the performance of your department and ensure your department's goals align with the company's priorities.

Related: What Is a Performance Metric? 4 Types to Use for Your Team

For organizations

You want to define KPIs that help you manage and grow the organization. These could be KPIs that focus on budgeting, time management, hiring, daily tasks and development strategies that reflect definable results to shareholders and company executives. Clear and accountable objectives help organizations grow in line with quarterly or annual corporate objectives.

Related: Performance Dashboard (Definitions, Types and Benefits)

What types of KPIs are there?

Here are the various key performance indicators and where they're used:

Lagging KPIs

Lagging KPIs measure current progress towards achieving a goal after a certain amount of time. These could be any goals such as revenue for the year, social media growth for the month, and the expected revenue from a sales representative by the end of the quarter. They are lagging KPIs because they are measuring goals set in place instead of proactively setting new ones.

Related: How To Create a 5-year Plan (With Examples)

Leading KPIs

Leading KPIs define and measure goals for the business or organization's future. These could be long-term indicators like hiring rate, expansion into new markets and research and development into company products or services. Leading KPIs can also apply to individuals who want to transition into new roles and become certified with new skills.

High KPIs

High KPIs target company-wide priorities. These are KPIs that define and measure company growth across the entire organization. High KPIs are broader in scope, for example, a high KPI may deal with how the marketing department's web traffic has grown for the month instead of the daily activities the marketing department handles.

Low KPIs

Low KPIs measure smaller and more definable targets within an organization. These are targets you may be directly responsible for within a department or sector of the organization. For example, a low KPI would assess the daily activities needed by the marketing team to increase website traffic. Both high and low KPIs work together since high KPIs define department objectives and low KPIs manage the activities needed to meet those high KPI objectives.

Related: Performance Review Goals (Definition, Types and Importance)

How to structure goals for a key performance indicator

Here is how you structure and define a relevant KPI for your role using the SMARTER model:

1. Make it specific

Your KPI needs to be clear, simple, and define exactly what you want to achieve. For example, instead of saying you want to "improve customer acquisition", try saying "you want to improve customer acquisition through social media landing pages by nine percent by the end of Q2." The first example is too general in application, but with clear goals, defined growth and a set time period, your KPI is specific.

2. Ensure it's measurable

You need to measure growth and the time frame in which to achieve it. Reflect on your daily activities to see which quantifiable results, like numbers, percentage points or raw data, are most relevant to your role.

3. Keep it achievable

Creating effective KPIs is about finding a balance between being ambitious, yet setting attainable goals. A KPI aims to give you data points on your career with results you can leverage. Aim to set realistic goals based on the work expectations you're already attaining and aim higher towards growth. Try to avoid burning yourself out.

4. Make sure it's relevant

Consider how applicable your KPI is to your team and organization. Find goals that not only focus on your self-improvement but also your role. For example, as an accountant having the goal of "helping retain 30% of new employees in the accounting department" does not apply to your role and would be the responsibility of HR. Instead, a relevant KPI might be "prepare 12 tax returns by the end of this month."

5. Keep it time-bound

When you set an ambitious KPI, be conscious of the time frame in which you plan to achieve it. Set a low KPI targeting daily activities or a high KPI across multiple months for delivering a project. Defining these expectations depends on your role and experience when determining what is realistic and achievable.

6. Evaluate your KPIs

One of the most important steps is reviewing your KPI based on the changing demands of your role. Create checkpoints to see if you're matching the expectations of your KPI, exceeding your KPI too easily, missing your target or if the goal is actually relevant. Start with smaller KPIs to measure and determine how applicable your goals are.

7. Readjust as needed

Consider how relevant your KPI is to your role, how close you were to achieving it and whether you can reformat the KPI into a more appropriate timeframe. Talk with colleagues and managers to help you understand what you need to do to adjust your KPI.

Related: Understanding OKR vs. KPI (Joint Strengths and Differences)

Reporting a KPI

Here are the types of KPI reports you can focus on and what to include in them:

Types of reports

You may need to report your KPIs to a team leader or supervisor. How you structure your report depends on who your audience is and whether the KPI is high or low. Here are the types of reports:

  • Analytical report: This report analyzes what affected the KPI the most. This may likely be historical data and benchmarks measuring KPI growth.

  • Operational report: This report projects data that can apply to organization-wide KPIs to inform management of daily operations and department priorities.

  • Strategic report: This report forecasts company-wide KPIs to determine the future priorities for the organization. This is primarily aimed at stakeholders.

Types of variables to include

Regardless of the type of report you're writing, include:

  • Goal: Identify the aim of the KPI.

  • Metric: Define the timeframe and quantifiable result of the KPI.

  • Rationale: Explain why you focussed on this KPI.

  • Frequency: Explain how often you measure the KPI.

  • Source: Reference where you got the data.

  • Visuals: Highlight your data in charts, tables, and graphs, making it easier to read.

  • Comments: Add insights into your KPI to help inform the team on the next steps.

Related: What Are Performance Reports? (With Benefits and Tips)

Examples of different KPIs

Here are a few examples of the different KPIs and their application:

Lagging KPIs

These KPIs focus on existing goals within the organization:

  • Marketing qualified leads: Continue to grow our click-through rate for MQLs by 6% month over month.

  • Customer service: Retain 60% of customers with complaints by the end of the year.

Leading KPIs

These KPIs focus on future goals for the organization:

  • Deals closed: Close 33% of all sales calls with our expansion into Alberta by the end of the next quarter.

  • Growth: Hire three new software developers to work in our new neural network division by end of the year.

High KPIs

These are KPIs broadly focus on large-scale company-wide development:

  • Net profit: Increase sales revenue by 18% this fiscal year.

  • Employee turnover: Retain 70% of current employees by the end of this year.

Low KPIs

These KPIs specify direct tasks to help a department achieve a greater goal:

  • Website traffic: Write three ad copies for our social media campaign by the end of the week.

  • Workflow: Update the client relationship management software to reduce IT requests by 5% this month.

Related: A Complete Guide to Key Performance Indicator Examples

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