Chances are, if you’re on a team, you’ve heard of KPIs—whether it’s in a company meeting, strategy session, or via a kitchenette conversation when getting the third cup of coffee for the day.
It’s fair to say that most employees know KPIs are important, but when it comes to actually understanding its meaning, why they’re important, and how to get the most out of them, it’s a bit murkier.
We’re here to clear all this up. In the next few minutes, you’ll read all about the meaning of KPIs and how you can use them in your business. You’ll see clear examples of how to create and apply KPIs to any strategy and learn about a tool that can help you meet those goals, even as your team grows or shifts strategies.
First, let’s begin with the million-dollar question.
What is a KPI?
The KPI acronym stands for key performance indicator—it’s a metric that measures how projects, individuals, departments or businesses preform in terms of strategic goals and objectives. KPIs are a way for stakeholders to see if they’re making progress or if the business is on track.
For instance, a social media team may have KPIs for retweets or followers gained per week. For social media teams, these are crucial metrics that determine whether they’re meeting their goals.
But aside from staying on track with goals, KPIs have other benefits as well.
Why should we use KPIs?
KPIs are useful because they:
Keep employees accountable: key performance indicators can track progress down to the individual level. If a sales team’s KPI is the number of monthly sales per person, team leads can easily understand how much each person contributes to the department’s success by whether or not they meet their goals.
Allow managers to adjust: Once managers have KPIs in place, it’s easier to adjust the strategy if the team or individuals don’t reach their goals. This doesn’t need to mean firing the weakest performers; it could mean providing additional training and guidance to those who are struggling.
Make sure everyone is on the same page: it’s likely individuals view success differently. For example, if an IT team member and an accountant work together on a project, they’ll probably measure success differently. KPIs set a standard and common goals for everyone to work towards, making expectations and priorities clear right from the beginning.
Assess a business’s health: KPIs help businesses objectively see how the organization is performing. Financial KPIs for instance, show profitability, while employee retention rates can indicate the strength of a company culture.
Just as KPIs have many benefits, there are also many different ways to approach them. In other words, KPIs aren’t one-size fits all, but they do tend to fall into a few categories.
What are the different types of KPIs?
Some KPIs are high-level, others are low-level within an organization. Some KPIs focus on the short term and are measured in days or weeks, others are long-term and measured in months or years. When creating KPIs, it’s sometimes helpful to divide them into a few groups. Some of the most common categories are:
Operational: these KPIs measure processes and efficiencies within an organization. These metrics indicate how things are going day to day. Naturally, they’re often measured on a shorter timeframe than other KPIs.
Strategic: strategic key performance indicators focus on more long-term, big-picture goals within an organization. A strategic KPI can be something like revenue growth. When a CFO takes a look at this KPI, they’ll get an idea of company performance.
Leading or lagging: a lagging KPI measures past achievement, such as annual sales for the previous year. A leading indicator is a prediction of what will likely occur in the future, such as customer satisfaction. Many organizations benefit from using a mix of lagging and leading KPIs.
Qualitative or quantitative: many KPIs are quantitative, aka they can be easily measured and assigned a number—such as the number of qualified leads from a blog. A qualitative KPI is less of a number, something like employee satisfaction.
The above KPIs are useful all the way up and down a company’s structure. But it’s easiest to break them down into a few hierarchies.
Broadly speaking, you can use KPIs for 3 main business levels
1. The company-level
Company or organizational-level KPIs typically focus on a business’s overall health and performance.Although company-level KPIs are high-level, make sure they also focus on specific aspects of the organization so you can accurately measure them.
Company-level KPIs may include employee retention rates or a customer’s lifetime value.
2. The department level
Different departments and teams have different KPI requirements. And that’s natural because they’re focusing on specific outcomes. Department-level KPIs can include: onboarding time for human resources or for marketing teams, conversion rates of specific campaigns.
3. The project level
Project-level KPIs are usually more specific than those at the organizational or departmental level. For projects, key performance indicators analyze the performance before, during, and after the project wraps up.
The team below chose to organize their company KPIs by quarter:
Now that you’ve seen why we need KPIs and a few places we can use them, you might be wondering how you can create them.
Creating successful KPIs start with planning
Before deciding on a KPI, make sure it’s tied to a strategic objective. It’s just as important to know what to measure as it is how to measure it.
“When performance is measured and reported, the rate of improvement accelerates” — Thomas Monson
So, you’re ready to start using KPIs. During this process, you’ll:
Decide which KPIs to use
In the section above, we discussed a variety of different KPI types from operational to quantitative, company-level to project-level. This is where you can decide which level of your organization to measure. Does the KPI refer to the entire organization, a specific team, or a project? Is it operational or strategic in nature? What do you want to achieve?
Here are a few other questions you can ask:
- Why is this outcome important?
- Who is responsible for the outcome?
- How can the outcome be influenced?
- How will you measure progress?
- How often will you measure progress?
- How will you know if you achieve your goals?
Make your KPIs clear
Once you know your goal, write it out and keep the language super simple. Ideally—and this is especially true for transparent organizations—everybody should be able to understand what your KPIs measure and how to interpret them. Team members will be able to think more strategically and get more done when they understand what they’re working towards.
Communicate your KPIs
A KPI isn’t super valuable for the company if it’s not communicated. Think about how successful sales teams operate; usually they’re working towards a specific KPI that keeps them motivated and on track. Now consider if that same team didn’t have goals or objectives. How would they know how to prioritize their time? Would they find the motivation to meet and surpass previous accomplishments? How would they understand their contribution to the company?
Communicating key performance indicators makes it clear not only what you aim to achieve, but how that can impact the company’s success. Pro tip: instead of informing team members about KPIs at the beginning of a new project or start of the quarter, constantly remind them of the goals.
Keep refining KPIs over time
Creating and tracking KPIs isn’t a one time deal. To really get the most out of this data, it’s important to keep the process going and make changes when necessary. For example, a retail company may measure the amount of lost inventory, whether it’s damaged, stolen, or the result of a clerical error.
When creating the KPI, the company can look up the average amount of lost inventory, but won’t be able to stack it against their business unless they have more data to work with. That’s why it’s important to continue checking and refining your KPIs over time to get a better idea of where you stand and where you can improve.
In the example below, this company uses an especially colorful and intuitive way to track KPIs:
Even when factoring in the above, there’s a little bit more to creating KPIs, but don’t worry, we’ll break down a method that can help you focus on the most impactful KPIs.
Get SMART when it comes to creating strong KPIs
One common, effective way to create KPIs is through the SMART structure.
What is the SMART structure?
The SMART acronym applies to goal-setting. Teams often use it for measuring goals associated with employee performance, personal development, and project management. SMART stands for:
- Specific: does the KPI have enough details in order to accurately assess progress?
- Measurable: How will you measure progress?
- Attainable: Is the KPI realistic?
- Relevant: is this KPI useful for the organization?
- Time-bound: what is the time frame for achieving this KPI?
SMART is often an effective formula for developing impactful KPIs. Following the above bullet points, ‘increase sales’ doesn’t meet the SMART KPI requirements, but ‘increase sales by 10% by the end of the year’ is a measurable target that provides enough context to accurately assess performance and progress.
There are plenty of KPIs that use the SMART method. If you’re in need of some inspiration, look no further.
SMART KPIs by department
- Increase average order value by X% during Y timeframe
- Develop X new qualified opportunities by Y timeframe
- Capture X new inbound leads by Y timeframe using Z method
- Increase conversion rates by X% by Y timeframe doing Z
- Earn X sales qualified leads by Y timeframe, per person
- Increase the lifetime value of customer by X in Y months using Z strategies
- Improve the gross profit margin by X by Y timeframe
- Reach an X net profit margin by end of quarter
- Keep the operating expense ratio under X% for the rest of the year
- Lower ticket resolution time to X in Y timeframe for A customers
- Open X number of support tickets in Y hours
- Decrease downtime by X minutes in Y weeks
- Increase number of calls handled per hour from X to B
- Raise customer satisfaction (improved with helpdesk software) by Y timeframe
- Lower average call wait time and average handle time from X minutes to B minutes by end of Q1
By now, you may have some KPIs in mind you want to track. While you can do this manually, we have an even better solution for measuring your success.Get started with monday.com
monday.com Work OS can help you create and track KPIs
monday.com Work OS is an open platform where anyone can create and shape the tools they need to run every aspect of their work, and this certainly applies to KPIs.
The platform has several templates that easily help you track KPIs in various areas of your business. For instance, marketeers, can use the high-level marketing budget template to instantly understand budget breakdown by tracking marketing costs and budget allocation in one place.
The same template can track KPIs such as marketing costs as well as quarterly and yearly spending goals. A comprehensive dashboard and real-time reports help teams easily visualize their progress.
A comprehensive Work OS like monday.com can also help teams easily stay on top of KPIs. On monday.com, for instance, marketing teams can use automations to set reminders and notifications to check the budget and to see if they’re overspending.
Below, this marketing team can easily see whether they’re meeting budget KPIs:
But this barely scratches the surface of what you can achieve on the platform.
Use monday.com to track KPIs, reach goals, and a whole lot more
Key performance indicators measure whether your organization will meet its goals, gives team members extra motivation and direction, and easily allows top management to see the team’s impact. The SMART method can help you set better KPIs and ensure they’re specific, measurable, attainable, relevant, and time-bound.
But for an extra powerful KPI strategy, you can get started planning goals with pre-built templates, understand insights at a glance with dashboards and reports, mitigate repetitive work, and so much more—all on monday.com Work OS.