A key performance indicator (KPI) is a quantifiable metric that measures the performance or progress of specific business goals and objectives. Common KPIs include revenue, customer satisfaction, customer lifetime value (CLV), and conversion rate (CVR), and return on ad spend (ROAS).
A key performance indicator (KPI) is a type of metric that helps you quantify your business objectives and measure your progress to those objectives. As the name implies, KPIs should measure the results that are most important to your business. They track your progress toward your high-level strategic goals.
Key performance indicators are one of the best ways to evaluate the success of your business in a succinct, measurable way. Having KPIs in place gives you a way to see whether your business is making progress toward success—as you define it.
Whether your top priority is brand loyalty, sales growth, profit margin, customer satisfaction, or something else, the right KPIs will be centered around that priority and the metrics that meaningfully capture your progress.
Without KPIs—or with a focus on the wrong KPIs—you could end up spending your effort on a strategy that is inefficient for achieving your objectives. You might pay attention to metrics that don’t actually drive the right outcomes or even move you in the wrong direction. For instance, if your goal is to drive customer acquisition, then tracking brand awareness metrics such as site traffic or video views may put your focus on the wrong areas of performance.
Don’t overlook the importance of KPIs for your employees and business leaders. As your team looks to meet specific goals while making strategic decisions and determining priorities, they can use KPIs to help measure how their work ladders up to key strategies. This can help individuals recognize the importance of their role in the business, which can positively influence employee engagement.
There are multiple types of KPIs, and the right KPIs for you depend on the nature of your business and its priorities, so there is no way to create an exhaustive list of all possible KPIs. Instead, the 12 categories below show you different types of KPIs. Note that these aren’t 12 separate categories, but rather 12 descriptors that show the various ways KPIs work, which can give you a framework for creating and selecting your own.
- Quantitative KPIs: These first two categories are broad classifications that can overlap with the other 10. Quantitative indicators measure objective, number-based aspects of business performance. You may immediately think of financial KPIs, such as the number of quarterly sales or customer lifetime value, but this also includes marketing numbers, such as click-through rate, social media following, and email open rate. Quantitative KPIs also apply to internal performance, such as employee turnover or retention rate.
- Qualitative KPIs: Qualitative indicators refer to non-numerical performance, such as customer reviews and employee satisfaction. These measures are often based on opinion or interpretation and aren’t cut-and-dried objective data the same way that quantitative indicators are. However, you can—and should—still find ways to measure performance in these areas. For example, with customer reviews you can ask customers to give a rating on a scale of 1 to 5; or you can categorize written reviews as either positive or negative, and track your percentage of positive reviews.
- Leading KPIs: Leading indicators help you forecast what will likely happen in the future based on trends. With the above example of customer reviews, you could look at a decrease of rating as a potential leading indicator for customer attrition.
- Lagging KPIs: Lagging indicators track performance that has already happened, so that you can track progress and recognize trends. For example, if you run a display ad campaign to promote one of your products, your lagging KPI could be product sales growth over time.
- Input KPIs: Input indicators help you track resources you need to use in order to produce desired results, which can include budget, equipment, and staff.
- Output KPIs: On the other side of input indicators are output indicators, which track the results brought about by the inputs. Hiring additional staff in your call center could be the input, with a decrease in customer wait time as the resulting outcome.
- Process KPIs: Process indicators allow you to measure effectiveness and efficiency of the operation of your business. For example, you could look at your process for producing a video ad campaign, from ideation to design to execution, and look for ways to improve inter-team communication or consolidate efforts in order to reduce time or cost.
- Practical KPIs: With practical indicators, you look at how the processes in your business impact other parts of your business. With the above example of the process of creating video ads, a poor process could result in wasted resources, an increase in overtime hours, or the need to repeat or reverse previous work.
- Directional KPIs: Directional indicators measure positive or negative trends over time. To use a physics metaphor, if you’re tracking monthly sales, then the number of sales is the velocity; the rate of increase or decrease is the acceleration—the directional KPI. You may look at trends in your business’s performance in comparison to others in the field.
- Actionable KPIs: Actionable indicators measure internal business changes. How effective is your business at enacting changes such as improving company culture or employee satisfaction?
- Financial KPIs: We referenced financial indicators above when discussing quantitative KPIs. These KPIs track your business’s economic growth and stability or sustainability. Examples of financial KPIs include revenue growth and net profit margin.
- Outcome KPIs: Outcome indicators look at the impact of the actions taken by your business. Take the example from output KPIs: a decrease in customer wait time (output) generated by hiring additional call-center staff (input). One potential outcome indicator is increased customer satisfaction.
Let’s take a look at some KPI examples that marketers often use for their campaigns.
- Campaign reach: Choose KPIs that indicate the size of your campaign’s audience, including ad impressions, email sends, and page views.
- Campaign engagement: Use KPIs to quantify how audiences respond to your campaign, such as clicks and click-through rate, bounce rate, social shares, and video completion rate.
- Campaign results: The KPIs that measure campaign results can vary depending on what you want your audience to do. You may look at product sales for a lower-funnel campaign, brand recall for an awareness campaign, and conversion rate (CVR) on an online form for a consideration campaign.
KPIs are related to objectives and key results (OKRs) but they are not the same thing. Whereas KPIs are individual metrics that track your company performance, the purpose of an OKR is to act as a strategic framework for the business. KPIs can certainly feed into your OKRs; the objectives in OKRs are the larger organizational goals that explain the why of your KPIs.
Creating a valuable KPI takes a few steps. Below are some instructions on how you can start that process for your business objectives.
1. Identify your business goal
Understanding the relationship between KPIs and OKRs can help you create and define your own KPIs. Your long-term business objectives will guide you in creating a KPI, so select one of your overarching goals.
2. Determine a key metric
Now you can decide on a performance indicator you need to measure in order to make progress to those objectives. Remember to look at both external performance (like sales) and internal performance, (like employee engagement).
3. Make it measurable
Know how you will determine success or failure on the KPI. What is the improvement you want to achieve in this metric? What is the time frame for accomplishing that improvement? Can your employees understand how their work contributes to it?
4. Keep track of it
Establish a regular cadence for checking on the KPI. If your time frame is one year, you might choose monthly or bimonthly updates. For marketing KPIs, you can use reporting or analytics solutions such as Amazon Attribution to help you measure progress.
Once you go through this process and create multiple KPIs, consider creating a KPI dashboard that provides visibility into your progress through an aggregated view.