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What Are KPIs? Understanding KPIs vs. Metrics

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7 min read
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What is a KPI?

A key performance indicator (KPI) is a quantifiable measure demonstrating the effectiveness of an organization, department, or individual's strategic goals and objectives. KPIs in business can vary by scope, scale, and timeframe, covering both high-level strategic objectives and tactical outcomes. They serve as a gauge to measure progress for strategic performance, helping stakeholders assess progress, guide strategy, and drive business outcomes. 

Why are KPIs important?

KPIs are crucial for businesses, offering a structured pathway to success. Acting as measurable benchmarks, they enable businesses to track progress toward strategic goals, drive clarity, and facilitate alignment across all tiers of the organization. As a result, KPIs help businesses stay focused on their main goals, make informed decisions, and adapt swiftly to changing market conditions by pivoting when progress isn’t going as expected. 

KPI meaning vs. metrics meaning

Key performance indicators and metrics are closely related but serve distinct roles in assessing performance and progress. While all KPIs are metrics, not all metrics are KPIs, meaning they aren’t tied to strategic outcomes.  

  • KPIs are a subset of metrics aligned with organizational goals 
  • Metrics quantitatively track and assess a specific business process 

The critical difference between KPIs and metrics is alignment. Metrics are tied to the business-as-usual work and support KPI progress, while KPIs are targets that contribute to your company goals and objectives.  

To better understand the difference between KPIs vs metrics, let’s take a look at a few examples of KPIs and metrics. 

What are some KPI examples?

Notice how these KPIs frame an impact on business outcomes: 

  • Marketing KPIs: Marketing KPIs could include website conversion rate %, marketing qualified leads (MQLs) 
  • Sales KPIs: Average order value, new inbound leads 
  • Finance KPIs: Net profit margin, operating expense ratio 

What are some metrics examples?

Meanwhile, metrics are impactful but don’t necessarily tie into business outcomes directly: 

  • Marketing metrics: Website visitors, social media engagement rate, number of new leads 
  • Sales metrics: Number of outbound calls, average deal size, time to close a sale 
  • Financial metrics: EBITDA, inventory turnover, total revenue 

Types of KPIs

Leveraging a mix of KPI types ensures a comprehensive, nuanced view of your company's performance. Remember, KPIs help align teams to your strategic vision, so keep in mind the business outcomes you want to drive with your KPIs. Here are the seven main types of KPIs. 

Strategic KPIs

These high-level indicators directly tie into your company's goals, guiding you toward your strategic objectives (example: revenue growth) 

Operational KPIs

These keep your finger on the pulse of your business, focusing on the efficiency of day-to-day processes or operations (example: average customer response time) 

Functional KPIs

These add nuance to operational KPIs, dialing in on a departmental or functional performance (example: cost per acquisition in marketing) 

Quantitative KPIs

These data-driven performance metrics provide an objective basis for making business decisions (example: customer churn rate) 

Qualitative KPIs

These delve into non-numerical data for a rich, holistic view of your company's performance (example: customer satisfaction) 

Leading KPIs 

These are future-looking performance indicators, which guide strategic planning and keep you ahead of the curve (example: sales pipeline). Leading and lagging indicators can be used side by side to get a good idea of how future goals will be impacted by past performance. 

Lagging KPIs

These are past-looking performance indicators, which provide valuable insights for strategy refinement (example: YoY changes in X metric) 

Lagging indicators are vital. In your pursuit of aligned strategy execution, it’s important to understand the crossover of these KPIs and how to use each type to track progress for your organization’s unique goals. 

What are the benefits of KPIs?

While knowing what KPIs measure and track is useful, knowing why you need KPIs is the first step in creating and managing them more effectively. 

Here are the five key benefits of KPIs: 

  1. Shared focus: KPIs concentrate on activities that drive shared strategic objectives, fostering a performance-oriented, collaborative culture 
  2. Accountability: Clear KPIs foster ownership and engagement, as personal performance is directly linked to organizational success 
  3. Decision precision: By regularly monitoring KPIs, businesses can identify trends, uncover potential issues, optimize performance with data-backed decisions 
  4. Performance evaluation: KPIs’ measurability allows teams to evaluate operational effectiveness, congratulate achievements, and address shortcomings 
  5. Continuous improvement: KPIs offer clear benchmarks for success, driving teams and individuals to meet or exceed these benchmarks. 

KPIs aren’t just numbers — they offer the clarity, motivation, and direction needed to achieve organizational goals. 

What are the limitations of KPIs?

While KPIs are vital to any mature business operation, they have flaws. KPIs are usually implemented without context, prioritization, or knowledge of KPI use. This causes several KPI limitations, such as: 

  • Data overload: Tracking too many KPIs may lead to a flood of data and information, possibly overshadowing strategic objectives and creating confusion 
  • Misinterpretation: Most KPIs are quantifiable, but without proper context on data, they can mislead decision making 
  • Resource intensive: Setting up, monitoring, and analyzing KPIs takes time, labor, and financial investment, as with most critical business functions 
  • Limited scope: As KPIs often lens in on specific business areas, they don’t accurately depict dynamic interdependencies and holistic business performance  
  • Rigidity: KPIs can be difficult to change or adapt once set, affecting adaptability 

KPIs are the means to an end for greater strategic performance, but they’re not the end all-be-all themselves. 

KPIs vs. Goals

KPIs can be adapted to suit differing business needs. As such, they don’t necessarily have to replace new or existing goal-setting processes. 

For example, when paired with a more ambitious goal-setting process, KPIs are complementary. KPIs pair well with a strategy execution framework like objectives and key results (OKRs). OKRs can help you set collaborative stretch goals, while KPIs contribute to the data-driven portion of OKRs: key results. 

By combining OKR goals with data-driven KPI measurements, organizations can boost accountability, performance, and ensure effective strategy execution 

OKRs vs. KPIs differences

How to create effective KPIs

Here's a step-by-step process for creating effective KPIs within your organization.

  • Define strategic objectives: Start by clearly defining your business's strategic goals and priorities. Keep these front and center as critical areas that require measurement.
  • Pinpoint focus areas: Determine the focus areas or processes that impact your organization's strategic goals. These could include sales, marketing, customer service, or operational efficiency.
  • Select measurable metrics: Choose quantifiable metrics that align with each focus area identified. These metrics should provide clear, objective measures of performance and progress.
  • Select clear targets: Establish realistic targets or benchmarks for each metric based on historical performance, industry standards, or your business's ambitions. Ensure that these targets are challenging yet attainable.
  • Involve relevant stakeholders: Engage key stakeholders (e.g., department heads, team leaders, and subject matter experts) in the KPI development process. This makes for well-rounded, relevant, and meaningful KPIs across the board.
  • Prioritize actionability: Ensure that each KPI is actionable. All KPI data should be usable as a starting point for informing and driving meaningful improvements in processes or operations.
  • Establish monitoring mechanisms: Implement robust monitoring mechanisms to track KPI progress. These can include data collection systems, cyclical reporting procedures, or dashboard tools for real-time monitoring. 
  • Review and adjust KPIs regularly: Reassess and tweak KPI targets based on fluctuating internal and external business changes to keep your KPIs attuned to trends and potential issues.
  • Communicate and cascade: Communicate your KPIs and targets throughout the business. Ensure wider KPIs cascade down to teams, enabling them to understand the link between their performance and how it ties into the broader success of the company.

By following these steps, you can create effective business KPIs that drive focus, accountability, and continuous improvement toward achieving your strategic objectives.

The wrap-up on KPIs

KPIs are the inside look at your organization’s performance. When used correctly, they promote alignment to strategic goals, informed decision-making, and an iterative approach to business operations. In our current business environment, however, simply having KPIs is not enough — a comprehensive understanding of which KPIs are important and why is the path to true impact. 

OKRs apply greater strategic context to KPIs, eliminating the risk of siloed metrics. By connecting your KPIs to quantifiable, aligned outcomes, OKRs are the next evolution of your KPI strategy. 

To learn more about KPIs in the context of OKRs, check out our OKRs vs. KPIs article. 

Quantive empowers modern organizations to turn their ambitions into reality through strategic agility. It's where strategy, teams, and data come together to drive effective decision-making, streamline execution, and maximize performance.  

As your company navigates today’s competitive landscape, you need an Always-On Strategy to continuously bridge the gap between current and desired business outcomes. Quantive brings together the technology, expertise, and passion to transform your strategy from a static plan to a feedback-driven engine for growth.  

Whether you’re a visionary start-up, a mid-market business looking to conquer, or a large enterprise facing disruption, Quantive keeps you ahead — every step of the way. For more information, visit www.quantive.com

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