What is a key performance indicator (KPI)

KPI represents a measurable indication of progress towards a business goal. These metrics can be high-level, reflecting overall business operations, or lower-level, focusing on specific departments like sales, marketing, or human resources.

Key performance indicator is a way of measuring a business goal. It can be used in any level or department in a organisation.

Financial KPIs are based on accounting date and provide insights into areas such as revenue growth and net cash flow. Examples of a financial KPI can be employee turnover and inventory carrying costs.
Data you collect from monitoring KPI can help your business in decision making or to improve your business.

Why are KPIs important for businesses?

KPIs serve as vital management tools, offering focus, clarity, and guidance for behaviour and decision-making. It helps you measure the goals and results in your company.
KPIs gives transparency and accountabilty, reflecting a company’s mission and values across the organisation. The guide underscores the significance of selecting appropriate KPIs aligned with business goals.

Types of Key Performance Indicators (KPIs)

You can use KPI as a tool to measure different tasks and goals in a company. KPIs can be categorised based on perspectives such as customer, financial, growth, and process focus.

The “balanced scorecard” framework provides a structure, with examples ranging from customer satisfaction to financial metrics like days sales outstanding (DSO). Additionally, project-specific KPIs track progress toward milestones, dates, or key deliverables.

Leading and lagging KPIs

We can devide KPIs into Leading and lagging KPIs. The two types of measuring influences decision-making in different ways, especially regarding timing.

Leading KPIs are predictive, offering insight into possible future events, while lagging KPIs measure past outcomes. For a more nuanced knowledge of the business goals, a combination of the two types is advised.

KPI Examples

Companies can measure KPI in everything from sales, finance, customer relations and marketing. Examples range from sales conversion time to customer churn rate, offering a diverse toolkit for measuring performance across various business functions.