Key performance indicators (KPIs) are measurable values that determine whether an organization is achieving key objectives. KPIs will depend upon a business-specific context, as each company and industry will have its own core metrics to track. Indeed, the choice of the right KPIs that can positively affect the business’s long-term perspective is critical.
|KPI||Type||Description||When to Use||Example||Formula|
|Revenue Growth Rate||Financial||Measures the percentage change in revenue over a specified period, indicating business growth.||Assess revenue growth performance.||A revenue growth rate of 10% indicates a 10% increase in revenue.||Revenue Growth Rate = [(Current Revenue – Prior Revenue) / Prior Revenue] * 100%|
|Gross Profit Margin||Financial||Represents the percentage of revenue retained as gross profit, indicating profitability at the gross level.||Evaluate the efficiency of production and cost management.||A gross profit margin of 40% means 40% of revenue is retained as gross profit.||Gross Profit Margin = (Gross Profit / Revenue) * 100%|
|Operating Profit Margin||Financial||Measures the percentage of revenue retained as operating profit before interest and taxes.||Assess the efficiency of operating expenses and profitability.||An operating profit margin of 15% means 15% of revenue is operating profit.||Operating Profit Margin = (Operating Profit / Revenue) * 100%|
|Net Profit Margin||Financial||Represents the percentage of revenue retained as net profit after all expenses and taxes.||Assess overall profitability after all expenses.||A net profit margin of 10% means 10% of revenue is net profit.||Net Profit Margin = (Net Profit / Revenue) * 100%|
|Earnings Before Interest and Taxes (EBIT) Margin||Financial||Measures the percentage of revenue retained as EBIT before interest and taxes.||Evaluate operational profitability excluding interest and taxes.||An EBIT margin of 18% means 18% of revenue is EBIT.||EBIT Margin = (EBIT / Revenue) * 100%|
|Return on Assets (ROA)||Financial||Indicates the efficiency of using assets to generate profit, measuring profitability relative to total assets.||Assess the return on investment in assets.||An ROA of 12% means a 12% return on assets.||ROA = (Net Profit / Total Assets) * 100%|
|Return on Equity (ROE)||Financial||Measures the efficiency of using shareholders’ equity to generate profit, indicating shareholder returns.||Assess the return on shareholders’ equity.||An ROE of 20% means a 20% return on equity.||ROE = (Net Profit / Shareholders’ Equity) * 100%|
|Earnings per Share (EPS)||Financial||Represents the portion of net profit allocated to each outstanding share of common stock.||Evaluate profitability per share for investors.||An EPS of $2.50 means $2.50 of profit per share.||EPS = (Net Profit – Preferred Dividends) / Number of Common Shares Outstanding|
|Price-to-Earnings (P/E) Ratio||Financial||Compares a company’s stock price to its earnings per share (EPS), indicating relative valuation.||Assess the stock’s valuation relative to earnings.||A P/E ratio of 15 suggests the stock is priced at 15 times earnings.||P/E Ratio = Stock Price per Share / Earnings Per Share|
|Customer Acquisition Cost (CAC)||Customer||Measures the cost incurred to acquire a new customer, assessing marketing and sales efficiency.||Evaluate the efficiency of customer acquisition efforts.||A CAC of $2000 means it costs $2000 to acquire a new customer.||CAC = Total Marketing and Sales Expenses / Number of New Customers Acquired|
|Customer Churn Rate||Customer||Indicates the percentage of customers who discontinue their relationship with a business.||Assess customer retention and loyalty.||A churn rate of 5% means 5% of customers were lost during a period.||Churn Rate = (Number of Customers at Start – Number of Customers at End) / Number of Customers at Start|
|Customer Lifetime Value (CLV)||Customer||Represents the predicted net profit generated by a customer over their entire relationship with the business.||Assess the long-term value of customers.||A CLV of $5000 means a customer is expected to generate $5000 in profit over their lifetime.||CLV = (Average Purchase Value * Average Purchase Frequency) / Churn Rate|
|Net Promoter Score (NPS)||Customer||Measures customer satisfaction and loyalty by asking customers how likely they are to recommend the business.||Assess customer satisfaction and potential for referrals.||An NPS of 40 indicates a positive customer sentiment, while -10 suggests negative sentiment.||NPS = (% of Promoters – % of Detractors) * 100%|
|Cost per Lead (CPL)||Customer||Represents the cost incurred to acquire a lead (potential customer) through marketing efforts.||Evaluate the efficiency of lead generation campaigns.||A CPL of $10 means it costs $10 to acquire one potential customer lead.||CPL = Total Marketing Expenses / Number of Leads Generated|
|Inventory Turnover Ratio||Operational||Measures the number of times inventory is sold and replaced during a specific period, indicating efficiency.||Evaluate the efficiency of managing inventory.||An inventory turnover ratio of 5 means inventory is sold and replaced 5 times in a year.||Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Value|
|Accounts Receivable Turnover Ratio||Operational||Indicates the number of times accounts receivable are collected and replaced in a given period.||Assess the efficiency of collecting outstanding payments.||An accounts receivable turnover ratio of 8 suggests receivables are collected and replaced 8 times a year.||Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable|
|Return on Investment (ROI)||Operational||Measures the return on investment as a percentage of the initial investment amount.||Assess the profitability of an investment.||An ROI of 15% means a 15% return on investment.||ROI = (Net Profit / Initial Investment) * 100%|
|Employee Turnover Rate||Operational||Represents the percentage of employees who leave a company within a specific period.||Assess employee retention and HR effectiveness.||An employee turnover rate of 10% means 10% of employees left during the year.||Employee Turnover Rate = (Number of Employees Who Left / Average Number of Employees) * 100%|
|Website Traffic Conversion Rate||Operational||Measures the percentage of website visitors who take a desired action, such as making a purchase.||Assess the effectiveness of website marketing and user experience.||A conversion rate of 3% means 3% of website visitors make a purchase.||Conversion Rate = (Number of Conversions / Number of Website Visitors) * 100%|
|Sales and Marketing KPIs|
|Sales Growth Rate||Sales/Marketing||Measures the percentage change in sales over a specified period, indicating sales growth.||Assess sales performance and growth trends.||A sales growth rate of 8% indicates an 8% increase in sales.||Sales Growth Rate = [(Current Sales – Prior Sales) / Prior Sales] * 100%|
|Customer Retention Rate||Sales/Marketing||Indicates the percentage of customers retained by a business over a specific period.||Assess customer loyalty and the effectiveness of retention efforts.||A retention rate of 85% means 85% of customers were retained during a period.||Customer Retention Rate = ((Number of Customers at End – Number of New Customers) / Number of Customers at Start) * 100%|
|Lead-to-Customer Conversion Rate||Sales/Marketing||Measures the percentage of leads that become paying customers, assessing sales effectiveness.||Evaluate the efficiency of lead nurturing and conversion efforts.||A conversion rate of 20% means 20% of leads convert into customers.||Conversion Rate = (Number of Customers / Number of Leads) * 100%|
|Customer Lifetime Value to Customer Acquisition Cost (CLV/CAC) Ratio||Sales/Marketing||Compares the customer lifetime value to the customer acquisition cost, indicating the efficiency of customer acquisition.||Assess the effectiveness and ROI of customer acquisition efforts.||A CLV/CAC ratio of 3 suggests that the lifetime value of a customer is three times the cost of acquisition.||CLV/CAC Ratio = (Customer Lifetime Value / Customer Acquisition Cost)|
|Email Click-Through Rate (CTR)||Sales/Marketing||Measures the percentage of recipients who click on a link contained in an email marketing campaign.||Assess the effectiveness of email marketing campaigns.||An email CTR of 7% means 7% of recipients clicked on a link in the email.||CTR = (Number of Clicks / Number of Emails Sent) * 100%|
|Quality and Customer Service KPIs|
|Customer Satisfaction Score (CSAT)||Quality/Customer||Measures customer satisfaction based on their responses to a satisfaction survey.||Assess overall customer satisfaction levels.||A CSAT score of 85% indicates an 85% satisfaction rate among customers.||CSAT = (Sum of Satisfaction Scores / Total Number of Responses) * 100%|
|Net Promoter Score (NPS)||Quality/Customer||Measures customer satisfaction and loyalty by asking customers how likely they are to recommend the business.||Assess customer satisfaction and potential for referrals.||An NPS of 40 indicates a positive customer sentiment, while -10 suggests negative sentiment.||NPS = (% of Promoters – % of Detractors) * 100%|
|First Response Time||Quality/Customer||Represents the average time it takes for customer service to respond to a customer inquiry or request.||Assess the efficiency of customer service responsiveness.||A first response time of 2 hours means, on average, it takes 2 hours to respond to customer inquiries.||First Response Time = (Total Time to First Response / Number of Inquiries)|
|Customer Complaint Resolution Time||Quality/Customer||Measures the average time it takes to resolve customer complaints or issues.||Assess the efficiency of customer complaint resolution.||A resolution time of 24 hours means, on average, it takes 24 hours to resolve customer complaints.||Complaint Resolution Time = (Total Time to Resolution / Number of Complaints)|
|Supply Chain and Inventory KPIs|
|On-Time Delivery Rate||Supply Chain/Inventory||Indicates the percentage of orders or products delivered on time as scheduled.||Assess supply chain efficiency and customer satisfaction.||An on-time delivery rate of 95% means 95% of orders were delivered on time.||On-Time Delivery Rate = (Number of On-Time Deliveries / Total Number of Deliveries) * 100%|
|Inventory Turnover Ratio||Supply Chain/Inventory||Measures the number of times inventory is sold and replaced during a specific period, indicating efficiency.||Evaluate the efficiency of managing inventory.||An inventory turnover ratio of 5 means inventory is sold and replaced 5 times in a year.||Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Value|
|Days of Inventory on Hand (DOH)||Supply Chain/Inventory||Represents the average number of days it takes for inventory to be sold or used.||Assess inventory management efficiency and liquidity.||A DOH of 25 days means, on average, inventory can cover sales for 25 days.||DOH = (Average Inventory Value / Cost of Goods Sold) * 365|
|Employee and HR KPIs|
|Employee Turnover Rate||Employee/HR||Represents the percentage of employees who leave a company within a specific period.||Assess employee retention and HR effectiveness.||An employee turnover rate of 10% means 10% of employees left during the year.||Employee Turnover Rate = (Number of Employees Who Left / Average Number of Employees) * 100%|
|Employee Satisfaction Score||Employee/HR||Measures employee satisfaction based on responses to a satisfaction survey.||Assess overall employee morale and job satisfaction.||An employee satisfaction score of 75% indicates a 75% satisfaction rate among employees.||Employee Satisfaction Score = (Sum of Satisfaction Scores / Total Number of Responses) * 100%|
|Employee Productivity||Employee/HR||Indicates the output or performance of employees relative to their input, such as hours worked.||Evaluate employee efficiency and performance.||An employee productivity of 90% means employees are 90% efficient in their tasks.||Employee Productivity = (Output / Input) * 100%|
|Website and Digital Marketing KPIs|
|Website Traffic Conversion Rate||Website/Digital Marketing||Measures the percentage of website visitors who take a desired action, such as making a purchase.||Assess the effectiveness of website marketing and user experience.||A conversion rate of 3% means 3% of website visitors make a purchase.||Conversion Rate = (Number of Conversions / Number of Website Visitors) * 100%|
|Bounce Rate||Website/Digital Marketing||Represents the percentage of website visitors who navigate away from the site without interacting further.||Assess the effectiveness of website content and user engagement.||A bounce rate of 40% means 40% of visitors left the website after viewing one page.||Bounce Rate = (Number of Single-Page Visits / Total Number of Visits) * 100%|
|Click-Through Rate (CTR)||Website/Digital Marketing||Measures the percentage of users who click on a specific link, often used in online advertising campaigns.||Evaluate the effectiveness of digital marketing campaigns.||A CTR of 2.5% means 2.5% of users clicked on an online ad.||CTR = (Number of Clicks / Number of Impressions) * 100%|
|Cost per Click (CPC)||Website/Digital Marketing||Represents the cost incurred for each click on an online ad, indicating advertising efficiency.||Assess the efficiency and cost-effectiveness of online advertising.||A CPC of $1.50 means it costs $1.50 for each click on an online ad.||CPC = Total Advertising Cost / Number of Clicks|
|Quality and Manufacturing KPIs|
|Overall Equipment Effectiveness (OEE)||Quality/Manufacturing||Measures the efficiency of manufacturing equipment and processes.||Assess equipment and process effectiveness.||An OEE of 80% suggests equipment is running at 80% of its potential efficiency.||OEE = Availability x Performance x Quality|
|First Pass Yield (FPY)||Quality/Manufacturing||Represents the percentage of products that pass quality control on the first attempt.||Evaluate manufacturing quality and efficiency.||An FPY of 95% means 95% of products pass quality control on the first attempt.||FPY = (Number of Good Units Produced / Total Units Produced) * 100%|
|Defects Per Million Opportunities (DPMO)||Quality/Manufacturing||Measures the number of defects per one million opportunities, indicating process quality.||Assess process quality and defect rates.||A DPMO of 5,000 means 5,000 defects occur per one million opportunities.||DPMO = (Number of Defects / Number of Opportunities) * 1,000,000|
|Scrap Rate||Quality/Manufacturing||Represents the percentage of material or products that are discarded as scrap during manufacturing.||Assess material and production efficiency.||A scrap rate of 2% means 2% of material or products are discarded as scrap.||Scrap Rate = (Weight or Quantity of Scrap / Total Weight or Quantity Produced) * 100%|
Understanding key performance indicators
Key performance indicators are critical indicators of progress toward the desired result.
They also provide a focus for strategic development and create an analytical foundation for decision-making. Perhaps most importantly, KPIs help a business focus its resources on actions that matter most.
Key performance indicators are quantifiable, outcome-based statements. They are used to simplify the often complex process of performance tracking by reducing a large number of measures into a few select “key” indicators.
As a result, KPIs are used when the business needs to evaluate its performance. This usually includes the performance evaluation of projects, plans, people, or departments.
The anatomy of a key performance indicator
Each key performance indicator must contain the following elements:
What is being measured? Measures can be strategic or operational. They can also be associated with risk and project or employee performance.
What is the business seeking to achieve? Targets are usually numerical values that are sensitive to time or other constraints.
A data source
The data that underpins the target must be robust. There must be no room for interpretation in how each KPI is tracked and measured.
To some extent, reporting frequency will depend on the particular needs of the organization. But it is good practice to report at least once a month.
Creating a key performance indicator
Creating a KPI takes some work.
Successful key performance indicators can only be created once a business has a clear and structured understanding of its aspirations.
After this has been determined, it is a matter of following these steps:
Establish a clear objective
For example, a business that wants to become a market leader must clearly define what it will take to get there.
It might involve a 5% increase in revenue each financial year or the expansion of a product range by 15 products.
Define the criteria for success
In other words, what will the target be? Is it attainable in the desired timeframe?
How will progress be monitored?
Early-stage KPI monitoring is most effective when decision-makers focus on long-term targets with midterm monitoring.
Where is the data located? Are there previous KPIs that might hold relevant information?
Here, the business needs to collect and collate data into a central location.
Build the KPI formula
While some KPIs measure one metric, most will rely on a combination of metrics incorporated into a single calculation.
In any case, it is important to build and then test formulas to make sure the results are what the business expects.
At some point, KPI data will need to be synthesized into a form that is easily understood by others.
A host of KPI software and applications can help the business create presentable graphs and charts from its results.
KPIs Per Vertical
Here are some common examples of KPIs grouped according to department:
Number of new contracts signed per period, average conversion time, number of qualified leads in a sales funnel.
Revenue growth, gross profit margin, operational cash flow, current accounts receivables.
Net Promoter Score (NPS), average ticket resolution time, percentage of market share, average refund or return rate.
Time to market, employee churn rate, order fulfillment time.
Monthly website traffic, blog particles published per month, landing page conversion rate.
- Employee Satisfaction Index: A measure of employee happiness and engagement within the organization.
- Employee Turnover Rate: The percentage of employees who leave the company within a specified period.
- Time-to-Fill: The average time it takes to fill a vacant position.
- Training and Development ROI: The return on investment for employee training and development programs.
- Diversity and Inclusion Index: A measure of diversity and inclusion efforts within the workplace.
- HR Cost per Employee: The total HR expenses divided by the number of employees.
- Overall Equipment Effectiveness (OEE): A measure of manufacturing efficiency that considers availability, performance, and quality.
- Defect Rate: The percentage of defective products in a production run.
- Cycle Time: The time it takes to complete one cycle of a manufacturing process.
- Inventory Turnover: The number of times inventory is sold or used during a period.
- Supplier Performance Score: A rating of supplier performance in terms of quality, delivery, and cost.
- Scrap Rate: The percentage of materials that are discarded as waste during manufacturing.
- Sales per Square Foot: The average revenue generated for each square foot of retail space.
- Customer Lifetime Value (CLV): The predicted value of a customer over their entire relationship with the business.
- Inventory Shrinkage Rate: The percentage of inventory lost due to theft, damage, or other factors.
- Average Transaction Value: The average amount customers spend per transaction.
- Foot Traffic Conversion Rate: The percentage of in-store visitors who make a purchase.
- Online Customer Acquisition Cost: The cost of acquiring a new online customer.
- Patient Satisfaction Score: A measure of patient satisfaction with the healthcare experience.
- Readmission Rate: The percentage of patients who are readmitted to the hospital within a specified period.
- Average Length of Stay (ALOS): The average number of days a patient stays in the hospital.
- Physician Productivity: Measures of a physician’s patient load, billing, and patient outcomes.
- Medication Error Rate: The percentage of medication errors in healthcare settings.
- Emergency Room Wait Time: The average time patients spend waiting in the emergency room before receiving treatment.
- Software Development Velocity: The rate at which software development teams deliver features or user stories.
- Customer Churn Rate: The percentage of customers who stop using a product or service.
- Customer Acquisition Cost (CAC): The cost of acquiring a new customer.
- SaaS Monthly Recurring Revenue (MRR): The total monthly revenue generated from subscription-based services.
- Bug or Issue Resolution Time: The average time it takes to resolve reported software bugs or issues.
- User Engagement Metrics: Includes metrics like daily active users (DAU), monthly active users (MAU), and user retention rate.
- Occupancy Rate: The percentage of hotel rooms occupied during a specific period.
- RevPAR (Revenue per Available Room): A measure of hotel revenue that considers both occupancy and room rates.
- Average Daily Rate (ADR): The average price charged for a hotel room.
- Customer Review Scores: Ratings and reviews from guests on platforms like TripAdvisor or Yelp.
- Restaurant Table Turnover Rate: The number of times tables are occupied by diners in a restaurant during a meal service.
- Spa or Wellness Center Utilization Rate: The percentage of guests who use spa or wellness services during their stay.
KPIs vs. Metrics
KPIs are metrics an organization uses to track and measure progress toward business critical objectives.
The operative word here is “key” since the metrics chosen are the most important ones at hand and serve as measurable benchmarks.
Metrics measure organizational performance and health in the context of specific activities and processes. While metrics may be related to organizational objectives, they provide less clarity on whether the company is making suitable progress.
To understand the main difference between each measure, first consider that KPIs are a subset of metrics.
In other words, all KPIs are metrics, but not all metrics are KPIs.
Other differences relate to communication, intention, and focus.
KPIs vs. OKRs
While KPIs are metrics that any business can use to track its short, and long-term progress.
OKRs is a goal-setting method for organizations, which helps them set aggressive yet achievable goals shared across the company to make them visible, clear, and shared.
Thus, while KPIs are more generic, OKRs, need to be very specific, addressable, and achievable while also aggressive.
KPIs, on the other hand, can be picked based on the company’s structure, and it often helps to have a North Star, which is a focused KPI that helps steer the business in a given direction in the short term.
Both tools are extremely important for companies, and especially startups, to reach their goals and move fast.
- Key performance indicators are measurable values that help an organization determine whether it is meeting stated objectives.
- Key performance indicators are comprised of four elements: a measure, a target, a data source, and a defined reporting frequency.
- Key performance indicators can be used to track performance across a range of departments, including sales, finance, customer service, operations, and marketing.
- Definition and Significance:
- Key Performance Indicators (KPIs) are measurable values used to assess whether an organization is achieving its key objectives.
- KPIs vary based on business-specific contexts and industry requirements, playing a critical role in long-term business success.
- Understanding KPIs:
- KPIs indicate progress towards desired outcomes and serve as a foundation for strategic development and decision-making.
- They focus resources on actions that are most impactful and relevant.
- KPIs simplify performance tracking by condensing numerous measures into a select few key indicators.
- Anatomy of a KPI:
- A KPI comprises four elements: a measure (what is being assessed), a target (desired achievement), a data source (robust data to support measurement), and a reporting frequency (regular reporting).
- Creating a KPI:
- Establish a clear objective aligned with business aspirations.
- Define success criteria and target attainment in a feasible timeframe.
- Collect relevant data from dependable sources.
- Formulate a KPI formula that often involves multiple metrics in a single calculation.
- Present KPIs effectively using visualization tools and software.
- Common KPI Examples:
- Sales: New contracts signed, average conversion time, qualified leads in the sales funnel.
- Finance: Revenue growth, gross profit margin, operational cash flow, accounts receivables.
- Customer Service: Net Promoter Score (NPS), ticket resolution time, market share percentage, refund/return rate.
- Operations: Time to market, employee churn rate, order fulfillment time.
- Marketing: Monthly website traffic, published blog articles, landing page conversion rate.
- KPIs vs. Metrics:
- KPIs are specific, vital metrics used to track progress toward business-critical objectives.
- Metrics measure performance in various activities and processes, but not all metrics are KPIs.
- KPIs vs. OKRs:
- KPIs are generic metrics for tracking short- and long-term progress.
- OKRs (Objectives and Key Results) are a goal-setting method that sets specific, challenging, and achievable goals shared across an organization.
- KPIs can be selected based on a company’s structure, while OKRs demand specific and aggressive goal-setting.
- North Star Metric (NSM):
Connected Analysis Frameworks
Related Strategy Concepts: Go-To-Market Strategy, Marketing Strategy, Business Models, Tech Business Models, Jobs-To-Be Done, Design Thinking, Lean Startup Canvas, Value Chain, Value Proposition Canvas, Balanced Scorecard, Business Model Canvas, SWOT Analysis, Growth Hacking, Bundling, Unbundling, Bootstrapping, Venture Capital, Porter’s Five Forces, Porter’s Generic Strategies, Porter’s Five Forces, PESTEL Analysis, SWOT, Porter’s Diamond Model, Ansoff, Technology Adoption Curve, TOWS, SOAR, Balanced Scorecard, OKR, Agile Methodology, Value Proposition, VTDF Framework, BCG Matrix, GE McKinsey Matrix, Kotter’s 8-Step Change Model.