At your company or agency, implementing key performance indicators (KPIs) and metrics is an essential part of staying on track, determining areas of improvement, and, ultimately, measuring success. If you don’t have this data readily available, you will have a difficult time gaining actionable insights that truly benefit your customers. It undoubtedly takes a lot of effort and different factors to keep clients happy, but by showcasing your value and how you impact their bottom line, you should be able to gain clients and keep them for life.
This is where KPIs and metrics come in. Let’s take a closer look at how you can utilize KPIs and metrics and the main differences between the two. We’ll also go over some strategies that will help you keep your company and its client base prosperous and healthy by utilizing KPIs and metrics.
What are KPIs?
If you want to improve your organization’s performance, you will want to have a solid understanding of what a KPI is and why KPIs are so important. In essence, a KPI is a metric that enables you to track and measure your company’s progress toward specific goals. It’s important that you take the time to select the right KPIs for your organization. It’s also just as crucial to track and analyze these KPIs regularly so that you can identify trends and take the appropriate actions depending on these trends.
By utilizing KPIs, you can enhance your company’s performance, which is exciting. A KPI is a performance metric that’s tied directly to your business objectives, so your KPIs will primarily depend on what your goals are (e.g., revenue growth, user acquisition). Your clients want to see KPIs that demonstrate your company’s effectiveness. These KPIs may include new client acquisitions every month, great client retention rates, and monthly website traffic, for example. If you leverage these KPIs, you’ll be able to showcase the impact that your company has had on past clients and inspire potential clients to work with you.
What are metrics?
Naturally, when assessing your company’s performance, you’ll also want to understand the concept of metrics. Metrics represent the quantifiable data categories that are relevant to your company’s overall performance. While metrics are typically attached to certain aspects of your company’s business processes, they don’t necessarily need to be directly linked to strategic objectives like KPIs do. In general, your clients will expect to see metrics that provide insights into their business, like website sessions, engagement with content, social media followers, and goal conversion rates.
That said, it’s worth mentioning that the concept of metrics encompasses quite a lot. Having access to extensive data may seem beneficial, but consider this: it may ultimately lead to information overload and distract you from what you were trying to figure out in the first place (i.e., whether or not certain metric improvements will impact your client’s bottom line). For this reason, you’re going to want to prioritize KPIs — based on their relevance to each client.
Why are KPIs and metrics important?
For newer entrepreneurs, it may be difficult to understand the difference between KPIs and metrics. Here’s what you need to know: KPIs play a significant role in supporting your business’s overall strategy and guiding your teams toward what really matters. They essentially serve as beacons of focus and direct your efforts toward your company’s main goals. In other words, KPIs encapsulate the essence of your company’s strategic goals, and, in turn, they become benchmarks for success.
Metrics, on the other hand, measure how successful your company’s day-to-day activities are (i.e., how much they contribute to your KPIs). Metrics are important as they can have a significant impact on certain outcomes for your company, but they aren’t typically the most critical measures you’ll want to keep in mind as a business owner. While metrics provide valuable insights and contribute to the bigger picture, KPIs will ultimately serve as your company’s compass. They will steer your business toward success.
Types of KPIs
By now, you know that KPIs play a critical role in tracking and measuring your company’s overall performance. There are a few different types of KPIs to keep in mind: operational KPIs, functional KPIs, strategic KPIs, and leading or lagging KPIs. Let’s take a closer look at how these different KPIs work.
Operational KPIs
Operational KPIs focus specifically on shorter time frames (such as monthly or daily) for analyses. You can use operational KPIs to delve into specific processes or geographical locations, which will allow you to get an idea of your company’s performance over time. As a business owner, you’ll likely rely on operational KPIs when evaluating the impact of strategic KPIs. For instance, if you notice a decrease in company-wide revenue, you can use operational KPIs to help you determine which product lines are struggling specifically.
Functional KPIs
You can use functional KPIs to narrow down your focus (i.e., concentrate on specific departments within your company) to gauge how your business is doing on a departmental level. For example, your finance department might monitor the number of new vendors they’ve registered into the accounting information system each month, while your company’s marketing department might measure the click-through rates of certain email distributions. Functional KPIs are generally valuable to specific users in specific departments, as they can help them assess their performance.
Strategic KPIs
Strategic KPIs provide you, as a business owner, with a detailed overview of your company’s performance. Basically, you’ll get a general idea of how your organization is fairing. Some examples of strategic KPIs you can use include profit margin and total company revenue. Strategic KPIs tend to be broader than functional KPIs and operational KPIs, but they’re just as important.
Leading or Lagging KPIs
Depending on the nature of the data you’re analyzing, you can generally classify KPIs as either leading or lagging. Leading KPIs serve as early warning signs and may give you insights into potential future developments. To give an example, if you track the number of overtime hours worked, this might indicate a decline in the quality of your company’s manufacturing ability. On the flip side, lagging KPIs are the result of past operations. Take your business’s profit margins for example. These lagging KPIs reveal the outcomes of business activities that happened previously.
Types of metrics
While KPIs should generally be your priority as a business owner, you shouldn’t overlook the importance of metrics. Metrics are absolutely crucial for measuring performance in certain areas of your business. Let’s take a look at the main types of metrics you’ll want to focus on below:
Business performance metrics
The great thing about business performance metrics is that they can provide helpful insights into your company’s overall health and success. Business performance metrics include market share, customer satisfaction, customer retention rate, and revenue growth. You can easily assess your business strategies’ effectiveness by tracking these metrics. This will also be a great way to determine which areas need improvement.
Sales performance metrics
Sales performance metrics focus specifically on evaluating the effectiveness of your sales team (as the name suggests). These metrics typically include total sales revenue, average deal size, conversion rate, customer acquisition cost, and sales pipeline velocity. If you put enough time and effort into monitoring these metrics, you’ll be able to identify who your top-performing salespeople are and more effectively optimize your sales strategy.
Project management performance metrics
As you may have guessed, project management performance metrics come into play when tracking the progress and success of your various projects. Project management performance metrics usually include budget variance, project timelines adherence, utilization of resources, and task completion rate. This is how you make sure that all projects get completed and delivered on time and within an appropriate budget.
Employee performance metrics
You can use employee performance metrics to help you properly assess how productive your workforce is. These metrics may include how efficiently and successfully individuals and teams can achieve their goals, as well as employee engagement levels and any customer feedback related to interactions with employees. Again, this is a good way to determine who your top performers are and enhance employee engagement as a whole.
The functions of KPIs and metrics: How do they differ?
Regarding industry standards or certain benchmarks, metrics typically adhere to them. They let you compare your performance against other established thresholds or benchmarks within your industry. Conversely, your business will typically customize and set certain KPIs based on the company’s specific goals. Unlike metrics, KPIs are specifically tailored to reflect your business’s goals and aspirations. They’re also meant to ensure that your strategic direction aligns with your company’s goals.
Ownership is another differentiating factor you’ll want to take into consideration. While specific employees, teams, or departments tend to own metrics, KPIs involve a combination of metrics and strategies and are, therefore, more comprehensive. Unlike metrics, KPIs will require a lot of coordination and collaboration across all of your company’s different areas. In other words, KPIs can provide a holistic view of how your company is succeeding in achieving its goals.
Selection of KPIs and metrics
You’ll want to follow a structured approach when developing your KPIs and metrics. You’ll need to define the measure for each KPI you want to implement. Remember: your KPIs need to align with your company’s strategic priorities. From there, you can categorize performance measures into activity measures. This will help you quantify specific activities or processes (like the number of leads in your pipeline, for example).
Once you’ve done this, define your target (i.e., the numeric value you’re trying to achieve). You’ll want to make sure that your target aligns with the due date and type of measurement. If your measurement is a percentage, then set your target as a percentage. If your measurement is a raw number, your target should be a corresponding raw number. You’ll also want to outline the data source of each of your KPIs. Clearly articulating your data source and specifying any relevant calculations will help keep everyone involved on the same page.
If you want your KPI management to be truly effective, assign an owner to each KPI and establish a clear and defined frequency for tracking said KPIs. Specify the tracking frequency with your employees every month or so, and set aside some time for analysis and informed decision-making once you’ve properly monitored the data.
KPIs and metrics: The bottom line
Both KPIs and metrics play a crucial role in the tracking and measurement of performance within a company. However, KPIs are strategic indicators that align with a company’s big picture, whereas metrics focus specifically on certain processes and activities — meaning they lack the strategic context of KPIs. Clearly, understanding the differences between KPIs and metrics is incredibly important in performance management. Now that you know more about KPIs and metrics, consider checking out other SRSR articles on KPIs and the best KPI developing and tracking tools that will help you run your business.