What is a KPI? Types, Limitations, and How to Make KPIs Work For Your Business

Tracks the percentage of customers who stop doing business with a company over a specific period. Ted is a Founder and Managing Partner of ClearPoint Strategy and leads the sales and marketing teams. Quality metrics, like Defect Density and Rework, measure the quality of the project’s deliverables. Lower defect density and less rework indicate higher quality and greater customer satisfaction. Throughput rate measures the number of units produced per unit of time. Increasing throughput rate can lead to higher production volumes and potentially higher revenues.

What are the different types of KPIs?

Financial metrics may be drawn from a company’s financial statements. For example, a company may leverage variable costing to recalculate certain account balances for internal analysis only. Examples include return on investment, profit margin, and total company revenue. Company-wide KPIs focus on the overall business health and performance.

Examples include revenue, profit margin, production output, customer acquisition cost, and website traffic. These are quantitative measures of an organisation’s stability, growth and business viability. Financial KPIs often include gross profit margin, net profit margin, customer acquisition costs etc.

Likewise, if you know there is a busy month approaching, you can use the downtime to prepare. Every business wants to be successful and to do that, it’s important to set and achieve goals. But, when working towards a goal, it can often be difficult to see what progress has actually been made and how far away the overall target is. Besides measuring performance, KPIs provide insight into what is managed and measured and the quality of management and decision-making.

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They are typically linked to outcomes that drive business success and are often derived from frameworks like the Balanced Scorecard. To achieve a specific business goal, HR may track multiple KPIs, each representing a smaller, actionable target. This should be your easiest category of KPIs in the sense that you should already have most of them in your back pocket. Talk to your CFO, look at your strategy, and then make sure your finance department can track whatever you want to measure. Social media managers should have KPIs that represent reach, engagement, and conversion to revenue. The 15 social media key performance indicators examples below should be applied both as totals and for each social media platform that your organization is active on.

On-time completion rate

Examples are recruitment cost (in dollars, for example) and the satisfaction score of the manager after one year (quality of hire). While not commonly used, this KPI can be valuable for identifying opportunities to reduce costs or evaluate the potential benefits of automation in streamlining operations. Evaluates training effectiveness through exam pass rates and average scores. Calculates the percentage of total expenses that go directly to funding programs and services, as opposed to administrative costs.

Assesses the ratio of overhead costs (including administrative and fundraising expenses) to total operating costs. Measures how efficiently a company collects cash from its customers. Tracks the percentage of customers who actively promote and advocate for the brand. Measures the percentage of customers who have made more than one purchase. Assesses how much effort a customer must exert to resolve an issue, complete a purchase, or interact with customer service. I would focus mainly on self-benchmarking or comparing your numbers to last year.

1. If your KPI is qualitative, identify an effective method of data collection and craft questions that will help you collect relevant sentiments.
2. You can track the number of project milestones reached on time using this KPI.
3. Additionally, consider adding a “stretch goal” that goes beyond the primary objective to encourage exceptional performance.
4. ROI measures the profitability of a particular investment relative to its cost.
5. Achieving milestones as planned is crucial for maintaining project timelines and stakeholder confidence.

Demotivation most often occurs when the organization sets unattainable KPI targets. This KPI measures total tasks against tasks completed within schedule. Tracking on-time completion rates help you identify inefficiencies or set timeline goals more realistically. This KPI tracks the average time a visitor spends on your website. Measuring average time on page helps you determine your website’s effectiveness and the likelihood of converting visitors to customers. Assign a KPI owner who can effectively build business strategies from regular progress monitoring.

KPI Type #2: Progress Measures

They are measurable metrics directly linked to the organization’s strategic goals. “Without data, you’re just another person with an opinion.” This is arguably the best-known quote of Dr. William Edwards Deming, an influential American statistician. Indeed, key performance indicators (KPIs) are crucial in HR in order to make the best possible decisions.

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The first type of KPI is what we like to call broad number measures. An example is counting the number of products sold or the number of visits to a webpage. 💡 Learn how to partner with your data team—download the “Context is Gold” whitepaper. If your sales are struggling, your organization may be stuck treading water. Successfully graduate from the kiddy pool with a few important KPIs below. At the risk of sending you into a terminology-induced tailspin, another way to look at it is that all KPIs are metrics, but not all metrics are KPIs.

1. Tracking employee turnover, for example, only tells you how many people leave, but the real work is in understanding why.
2. These targets should be realistic, yet ambitious, and based on historical data, industry standards, or desired performance levels.
3. Tech companies should be looking at growth, whereas companies in a regulated industry should be looking at steady performance.
4. Companies often dig into department-level KPIs to better understand the results of company-wide KPIs.
5. ClearPoint leverages calculations and aggregations and automatic evaluations to quickly show the progress you are making with your KPIs.
6. You can increase sales targets, but you can also get more specific and attract potential customers through lead conversion campaigns.

The difference between KPIs and metrics is that while both measure progress, KPIs are tied to business goals and objectives. The stakeholder satisfaction KPI uses surveys to ask clients, investors, team members, and other stakeholders to rate their satisfaction with the project’s output. This measures project success and allows project managers to identify which strategies to carry forward in future endeavors.

Meanwhile, if a function contributes to short-term department goals, you can classify it as an operational KPI. Sales KPIs like monthly sales growth and product performance make for effective functional KPIs. As you may notice, leading indicators are often less precise but offer interesting insights into a KPI’s ongoing performance and potential outcomes. Lagging indicators, on the other hand, are more precise, but only after the fact. This refers to the number of new hires that leave the company within three months (or a year if you opt for key performance indicators examples the 360-day quit rate). It is part of HR’s role to ensure that the right people are hired.

KPIs help businesses set goals (targets), monitor their achievement (milestones), and identify areas for improvement. Lagging indicators are retrospective measures that assess past performance and outcomes. They indicate the results of actions taken and are typically used to evaluate the effectiveness of strategies or initiatives after they have been implemented.