What are key performance indicators (KPIs)?

Key performance indicators (KPIs) are a set of benchmarks your company sets and works toward in order to achieve a stated goal. Without key performance indicators, it is harder to achieve your company’s goals effectively and efficiently. Key performance indicators spell out exactly what needs to be done, by who, by when. The “why” is the goal your company wishes to achieve. This can be something straightforward and tangible or something a bit more vague that requires a broader scope. Common key performance indicators involve hitting financial/sales/customer targets, achieving certain customer satisfaction scores, generating and/or closing a certain number of leads, or reaching internal staffing goals such as hiring a certain number of people or reaching a certain level of employee satisfaction.

Why are KPIs set?

Companies set key performance indicators in order to streamline efforts toward reaching a goal. In the absence of KPIs, companies might be misguided in their efforts to achieve what they want, when they want.

To keep everyone aligned

The most important reason why you should create a set of KPIs is to keep everyone at your company aligned. If everyone is aware of the goals you wish to achieve and their role in achieving them, it clears up a lot of uncertainty and keeps your employees focused on helping you reach whatever your goals are. Having official KPIs that are clearly shared at proper touchpoints such as client meetings, performance reviews, and in internal company communications will go a long way toward keeping your employees, and by extension your projects and company as a whole, on track.

To provide guidance

With alignment comes guidance, and with guidance comes a sense of purpose. By creating and pursuing key performance indicators, your employees will have a single-minded goal they need to achieve in order to succeed. This can cut down on time spent trying to align on tasks and the administrative burden associated with needless internal processes. Many companies have found success by incorporating key performance indicators to their mission, vision, and values—a metric such as prioritizing customer satisfaction can be both a guiding principle for your company’s operations as well as a measurable KPI for your employees to strive for via customer satisfaction scores, for example.

To maintain transparency

Finally, setting good key performance indicators for your company to reach will help to maintain transparency across your organization. With everyone pulling in the same direction, there won’t be any uncertainty around what someone needs to do in order to succeed. When everyone pursues a set of key performance indicators, you remove any ambiguity around what people need to do their job. You can leave it up to individual teams and employees to decide how they would like to achieve the KPIs, but as long as everyone is pulling in the same direction, you will maintain transparency, which will improve team morale, reduce burnout, and make it easier to manage your workforce.

When to check in

Regular check-ins are crucial to making key performance indicators worthwhile. Your company should therefore strive to have a series of KPIs that must be reached at different intervals. Most companies find it useful to have quarterly and annual KPIs, at the very least. Depending on the nature of the goals you wish to reach, you may want to set check-ins at shorter intervals, such as bi-weekly or monthly. Shortening your check-in intervals can reduce time and effort spent on fruitless endeavours. This is especially true when it comes to long-term goals such as annual or even five-year plans. You do not want to spend an inordinate amount of time striving for something you can’t achieve. It can help to know what changes you need to make, or whether to re-scope your goal, before spending months pursuing something you likely won’t be able to do.

Examples of common KPIs

Regardless of the industry in which you operate, there are a few common KPIs that most companies set and strive to achieve. Below are a few examples, along with their importance.

Financial performance

• Revenue growth: Measuring revenue growth and benchmarking it along with events such as new business, product launches, and sales events, can give your company a sense of the steps it can take to improve its financial standing.
• Profit margins: Companies can adjust spending or pricing according to this data, which will help inform operational and input costs.
• Return on investment (ROI): Setting an ROI metric for your company to meet will incentivize your employees to decrease waste and increase efficiency, to ensure all company decisions contribute to your bottom line.

Operations

• Productivity rate: Some of the more common ways of measuring productivity involve optimizing how much it costs to produce something, whether it’s a product or a sale, after accounting for overhead and labour costs.
• Total customers: Whether this is measured as a means of who expresses interest in your company or its products, or as people who visit a physical location or book your services, setting goals for total customers can help inform your marketing and operations budget.
• Supply chain efficiency: Measuring the efficiency of your supply chain can help you make improvements to machinery, logistics, staffing, and many more variables that can affect your company’s bottom line.

Customer satisfaction

• Net Promoter Score (NPS): This is a means of measuring whether or not your customers are willing to recommend you to someone else. Collecting this data and optimizing for it can help improve customer satisfaction, which can drive sales.
• Retention: If you operate in an industry that involves return customers, measuring retention can help identify which steps your company can take to encourage repeat business and whether any decisions have led to decreased retention. You can then mitigate these steps to stem the loss of business.
• Customer acquisition cost (CAC): By comparing how many new customers your business has earned with how much money you’ve spent on acquiring them (such as by marketing or holding sales), you can figure out what works and what doesn’t and optimize accordingly.

Staffing

• Turnover: Every company wants to reduce turnover, and by measuring it, you can take steps to contextualize it and determine whether any operational decisions you’ve made have led to its increase.
• Satisfaction: Engaged employees are satisfied employees, and you can (and should) measure employee engagement at regular intervals to make sure everyone is happy with your company.

No matter your reason for using KPIs, they are a great way to set goals and measure your progress towards meeting them. Set KPIs, get everyone on board with them, continuously measure your performance and watch your company thrive.