What Is a Key Performance Indicator (KPI)?

Key performance indicators (KPIs) are quantifiable metrics employed to evaluate an organization’s performance in relation to its specific objectives or goals.

They are the scorecards of an effective business. KPIs are pivotal in assessing a company’s strategic, financial, and operational achievements as well as its flaws. Once these flaws and achievements have been discovered, managers can use them to improve the business.

KPIs are not only used as analytical tools to find what’s working best and what is failing. They can also be fantastic motivation tools. Employees will work harder to score as high as they can in their key performance indicators to impress management and show their worth.

However, this motivation can backfire if the wrong KPIs are used (or important KPIs are missing). Employees will often focus on improving the metrics that they are evaluated the most on. If important metrics are left off of the KPIs, workers may start to ignore them as they aren’t being directly evaluated on them.

This is why managers have to choose KPIs carefully by using a data driven approach and finding the most important leading metrics to follow.

Types of KPIs With Examples

Businesses use a wide range of different types of KPIs in order to evaluate and motivate each and every important part of their operations. They include:

  1. Financial KPIs are used to evaluate the financial health of the company. Examples include metrics such as revenue growth, profit margins, and return on investment (ROI).
  2. Operational KPIs focus on the company’s processes, judging how smoothly operations across the board are run. Examples include production cycle time, throughput, and employee productivity.
  3. Customer Experience KPIs measure important metrics related to the customer experience to gauge customer satisfaction, retention, efficiency, and loyalty. Examples include Net Promoter Score (NPS), customer retention rate, and customer lifetime value (CLV).
  4. Employee and HR KPIs gauge the productivity, satisfaction, and general performance of employees as well as the human resources department. Metrics include employee turnover rate, job satisfaction, and training completion rates.
  5. Sales and Marketing KPIs are used to measure the effectiveness of sales and marketing efforts. They assess conversion rates, lead generation, and customer acquisition costs at the individual, team, and organizational levels.