What is a KPI? Who is using KPIs in their business? Key performance indicators or KPIs are a measure that a company uses to determine how well they are meeting their strategic and operational goals. The businesses that use them tend to do much better than businesses that don’t.
It lets you know if your company is headed in the right direction or not. KPI’s create an analytical basis for decision making and help focus attention on what matters the most.
There are three types of KPIs:
1. Leading indicators– These predict future performance and changes in the business environment.
2. Lagging indicators– These reflect past performance and show whether the goals have been met or not.
3. Composite indicators– These are a combination of leading and lagging indicators.
The most important thing to remember when choosing KPIs is to make sure they are aligned with your company’s goals.
KPIs can be categorized into several different types:
- Inputs – measures attributes of resources consumed in the processes of outputs.
- Process – measures activity- efficiency, quality or consistency
- Outputs – measures results – how much work is done and defines what is produced
- Outcomes – measures accomplishments or impacts, or end outcomes.
- Project – measures status of deliverables and milestones progress
Every business needs both strategic and operational measures:
Strategic: tracks the progress toward strategic goals:
- Customer
- Financial
- Internal Processes
- Organizational
Operational: focus on operations and tactics, help with day-to-day product/service delivery or other operational functions.
- Project
- Risk
- Employee
KPIs vary from business to business. But in general, the 5 most commonly used KPIs include:
- Revenue Growth
- Revenue Per Client
- Profit Margin
- Client Retention Rate
- Customer Satisfaction
The bottom line is that KPIs offer an effective way to measure a company’s success vs a set of targets or objectives and KPIs can be financial, customer-focused or process-focused.
By implementing the KPIs properly, owners are better able to optimize their business for long term success.
Now that you understand what KPIs are and how they can help your business, it’s time to start setting some of your own! Not sure where to start? Let’s Chat.
