What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (2023)

What is KPI?

KPI stands for key performance indicators. These are quantifiable data that allow companies to evaluate their success against particular targets and objectives. Organizations rely on these measures to strategically determine the quality of their performance and gauge their progress.

Data is what makes the world go ‘round. With the digital age in full swing, information is everywhere, waiting to be mined and analyzed. In fact, just within your company, there’s plenty of data you can use to help improve your operations. All you have to do is know what data to collect, how to collect them, and how to understand them. A good place to start is by measuring KPIs. However, you might be wondering, “What is KPI?”

To help you out, we will be discussing all you need to know about key performance indicators from its definition to the different methods through which you can measure it. Moreover, we have provided some templates that you can use to get started on measuring your KPIs.

What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (1)

What is KPI Table of Contents

  1. What is KPI?
  2. Types of Key Performance Indicators
  3. What Are Examples of KPIs?
  4. How Do You Measure KPI?
  5. How Do You Create a KPI?

The success of your business endeavors relies on how well you understand your capacities. That is to say, the more you know your strengths and weaknesses, the better you will be at planning your operations, addressing issues, and ensuring productivity in the workplace. This is why now more than ever is the time to tap into the stockpiles of data that your company has.

In fact, according to the most recent BARC BI Trend Monitor, companies are increasingly establishing a data-driven culture in their workplaces this 2022. The same study revealed that many businesses are focusing on improving data management, learning more about data discovery, and investing in self-service business intelligence. So, it’s safe to say that remaining competitive in the digital age means understanding data.

The simplest way to start is to measure your KPIs. These will allow you to proactively check the progress of your projects and see efficiencies or inefficiencies in your processes. Thus, these indicators will help you know what changes to make to drive your business forward. Consequently, 70% of executives worldwide say that KPIs greatly affect their decision making.

The Importance of KPIs

To what extent do an organization’s KPIs drive management decisions?

Source: MIT Sloan Management Review, 2018

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However, not all companies leverage data to manage their operations. If you’re one of these organizations, we will help you get started by discussing the key performance indicator definition, types, and examples. With this information, you can gain more insight into how you can use KPIs to your advantage.

Of course, aside from learning about what is KPI, it also pays to utilize technologies that will help you promote a more data-driven work culture. We highly suggest that you start by adding a reliable business intelligence software to your arsenal of applications.

What is KPI?

A KPI or key performance indicator is a quantifiable measure of progress toward intended results. It is a detailed specification that lets you track particular objectives. In a way, it serves as a compass that guides companies and organizations by helping them know whether or not they are on the right path towards achieving their long-term goals.

Businesses often use this to evaluate operational performance based on set targets. For example, it can serve as a means to determine the progress of a project or gauge the quality of their output.

An important thing to note here, though, is that KPIs are not to be confused with metrics. Metrics are used to measure certain business activities during particular time periods. Meanwhile, KPIs tackle the evaluation of specific strategic objectives against specific targets. In other words, all KPIs are metrics; however, not all metrics are KPIs.

Why is KPI Important?

KPIs have become crucial in monitoring the success of business operations. However, you might be asking yourself why it’s important in the first place. After all, the proof is in the pudding, right? If you’re turning a profit then you must be doing well.

The only problem with this kind of approach is that you won’t know if you’re on the right track until you’ve either succeeded or failed. On the other hand, if you utilize KPIs, you won’t have to wait to find out. This is because KPIs can:

  1. Gives you actionable information on demand
  2. Allow you to measure your goals accurately
  3. Promote a data-driven work culture
  4. Provide you with insights that help reinforce decision making
  5. Help you remain consistent in operations even as employees, priorities, and business goals change
  6. Make it easy for you to reward staff for doing well. Moreover, it will allow you to gauge if staff members need more training

As you can see from the reasons we’ve cited, KPIs not only measure your overall progress. It gives you detailed insights into every aspect of your operations. That is to say, it lets you gauge if there are things that you can do to make outputs better or processes more efficient as you go.

What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (2)

Example of how businesses set up and measure their KPIs.

Types of Key Performance Indicators

There are all sorts of data that you can collect for your business monitoring efforts. In a similar light, there are plenty of KPI types that you can use. After all, different business targets require different measurement approaches.

To help you determine what types of indicators to use to get the information you want, we’ve detailed some of the most common types of key performance indicators types used by businesses:

  1. Leading. Indicators that help you forecast changes depending on current processes. These are input-oriented so you can expect that while they are easily influenced, measuring them is not always going to be accurate (e.g., number of unique site visitors).
  2. Lagging. Indicators that measure the outcome of business processes. However, these are output-oriented so it only provides data on events that you can no longer influence (e.g., total sales).
  3. Quantitative. Indicators that are presented numerically (e.g., inventory counts).
  4. Qualitative. Indicators that are presented using descriptive characteristics (e.g., employee satisfaction rate).
  5. Input. Indicators that measure the different resources used for a particular process (e.g. total funding spent on employee training).
  6. Output. Indicators that reflect the outcome of specific process activities (e.g. customer acquisition rate relative to a campaign).
  7. Process. Indicators that show the efficiency or productivity of particular processes (e.g.. delivery speed).
  8. Directional. Indicators that show whether current processes have a negative or positive impact on your organization (e.g.. client churn rate).

By having a good grasp of these KPI types, you can simplify the process of creating indicators for your business. Moreover, you can have a better shot at ensuring accuracy in your monitoring efforts.

What Are Examples of KPIs?

Once you’ve narrowed down the types of KPIs you’ll be needing for your business processes, you can move on to specifying your indicators. To help you get an idea of where to start, we have listed some KPI examples for different processes below.

KPI for sales

  1. Sales Target. A KPI that compares your current sales wins to past performance to help you set future targets for your team.
  2. Quote to Close Ratio. This indicator measures the number of quotes your team sent to customers against the number of customers that made a purchase.
  3. Sales Per Representative. This KPI for sales measures how many deals each of your representatives are closing so you can gauge the productivity or determine the strengths and weaknesses of your employees.

KPI for marketing

  1. Social Media Engagement. A KPI for marketing that tracks how your social media followers interact with your content. This can sometimes be measured by the number of likes, retweets, or shares that your posts and other social media content are getting.
  2. Landing Page Conversion Rate. This measures the number of leads who visit your landing pages against the number of leads who converted through the landing page.
  3. Click-Through Rate. An indicator that counts how many potential customers are clicking your emails, advertisements, and other online content to learn about what your business has to offer.

KPI for Employees

  1. Employee Satisfaction Index. This is KPI lets you gauge how happy or unhappy your employees are about company processes and policies.
  2. Employee Productivity Rate. This is one of the most common key performance indicators for employees. It determines workforce efficiency by measuring the total input vs the total output of your employees.
  3. Attrition Rate. This indicator measures how many employees leave a company against the average number of employees during a specific period of time.

KPI for Customer Support

  1. Resolution Rate. This measures the number of tickets assigned to your team versus how many tickets they resolve. Among the many customer support KPIs, this is perhaps the best at helping you monitor productivity and efficiency.
  2. Average First Response Time. A KPI that focuses on the amount of time it takes a representative to respond to a customer request.
  3. Number of Ticket Backlog. This indicator lets you track the number of unresolved customer requests during a set period of time.

Of course, the key performance indicator examples we’ve cited here are only a few of the many indicators you can set for the different processes you have. If you’d like to find out more, you can check out our list of business intelligence KPIs.

What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (3)

This illustrates different kinds of marketing KPIs on a single dashboard.

How Do You Measure KPI?

Knowing the different types and examples of indicators is only the first step to fostering data-driven processes. That is to say, KPIs won’t collect and analyze themselves. So, to help you put it to use, we will now tackle how to measure KPI.

Firstly, you will have to specify what aspects of your operations you want to monitor. After that, you can zero in on the possible indicators that will help you measure them. Lastly, you should pick a method through which these should be measured. Below, we’ve detailed some of the methods you can choose from.

1. Counts

Counts are the most basic method of tracking your key performance indicators. It lets you perform simple monitoring of factors that can be measured with whole numbers. So, it might not be the best option if you want to measure the frequency of an event or trends relating to an event. For example, you can use this to count incidents of data breaches in your workplace but it won’t be able to help you monitor how many times it happens over a period of time.

2. Totals

In a similar vein as counts, totals allow you to perform basic KPI tracking. However, unlike counts, these are continuous variables. That is to say, it can measure all sorts of sums, including data with decimals. A good example here would be your company’s total annual revenue.

3. Ratios

Ratios are used to compare and contrast two sets of data. Therefore, it allows companies to pinpoint differences in outcomes, check returns on investment, or measure other pairs of data side by side. For example, you can take a look at the number of leads that you generate versus the number of leads you can convert in a particular period of time. In a similar light, this can help you compare in-store purchases against online purchases to know where your products are selling better.

4. Averages

Counts and totals let you get the sum of particular data. Averages, on the other hand, allow you to pinpoint a central value in a particular set of data. Consequently, it lets you see the bigger picture in your data. This can help you if you are looking to check for frequency of occurrences, set profit targets, or create revenue projections. For instance, if you use cycle time as a KPI for your supply chain processes, you can determine the time you spend manufacturing a product.

5. Percentages

Lastly, we have percentages. These allow you to divide a particular set of data depending on varying factors. As a result, it is great for understanding how many of your total sales calls ended in conversion, how many of your current employees are satisfied with their job, and similar data.

How Do You Create a KPI?

We’ve said it over and over again—KPIs are great tools for improving your business. However, as the old adage goes, “too much of anything is bad”. In other words, keeping track of too many KPIs might actually do more harm than good to your processes.

According to Mukul Deoras, the chief marketing officer of Colgate-Palmolive, the biggest challenge today is sifting through meaningless KPIs and focusing on the few that will yield the most crucial insights. So, to prevent you from overwhelming yourself with data, here is a step-by-step guide to creating KPIs that are relevant to your processes:

  1. Define your goals and objectives. Ask yourself, where do you want your business to be in ten years. What long-term goals do you want to work on? Moreover, what measures will bring you closer to your goals?
  2. Specify your plan of action Note down the output that you need to produce and map out the processes that you will have to implement to achieve your goals.
  3. Set up your KPIs accordingly. Determine what factors will be able to monitor whether your outputs and processes are helping you fulfill your goals and objectives.

So, for example, your long-term goal is to grow your startup. Then, one objective here would be to reinforce marketing strategies to boost your customer base. To help you measure the success of your campaigns, a good KPI to consider would be the customer acquisition growth rate.

Setting Up KPI Reports

Now that you have created and measured your KPIs, the only thing left to do is to set up your KPI reports. These should contain the indicators you are measuring and their respective statuses. In other words, these serve as the summaries of your monitoring efforts.

A standard KPI template would include the following information:

  1. Description. This should give context to the KPIs you are measuring. So, it must explain what objective the indicator is tracking.
  2. Report Owner. This should specify who is gathering the data to ensure accountability.
  3. Measure Formula. Define what methodology you used. This makes it easier to understand how the data in the report was yielded. Moreover, it allows other employees to recreate the process for similar indicators.
  4. Data Summary. Lastly, the report should contain a summary of the KPIs you gathered.

Of course, this is only a bare-bones structure of a KPI report. So, it is ideal for those who are beginning to track their KPIs. However, as you collect more data and track more complex indicators, you might need to add more information to your reports such as RAG statuses, charted data, trend graphs, and the like.

You can create these templates manually on spreadsheets and perform your calculations there. On the other hand, if you want to save time, you can also leverage SaaS products to create them. To get you started, be sure to look at this list of best BI tools for KPI dashboard creation.

What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (4)

An example of a comprehensive KPI dashboard showing the metrics and their respective status.

Improving Your Business Using KPIs

In a world where knowledge is power and data is currency, it is important for businesses to know how to harness information. However, you must remember that data is only as good as the questions you ask. So, you should do your best to focus on learning what is KPI, which ones to monitor, and how to measure them properly.

As a good rule of thumb, you should create KPIs aligned with your long-term business goals. Moreover, you should only measure indicators that are most crucial to your operations. This way, you don’t overwhelm yourself with too much data and lose focus on what you want to achieve.

In addition, you should consider investing in business intelligence platforms or data analytics tools to reinforce your monitoring efforts.

To help you further maximize your use of KPIs, we highly recommend you take a look at our compilation of business intelligence statistics. This should give you a better idea of how other companies are measuring their KPIs and utilizing data to promote business growth.


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What Is KPI and How to Measure It Effectively: Definition, Examples & Templates - Financesonline.com (5)

By Nestor Gilbert

Nestor Gilbert is a senior B2B and SaaS analyst and a core contributor at FinancesOnline for over 5 years. With his experience in software development and extensive knowledge of SaaS management, he writes mostly about emerging B2B technologies and their impact on the current business landscape. However, he also provides in-depth reviews on a wide range of software solutions to help businesses find suitable options for them. Through his work, he aims to help companies develop a more tech-forward approach to their operations and overcome their SaaS-related challenges.


What is KPI and how is it measured? ›

Key performance indicators (KPIs) measure a company's success versus a set of targets, objectives, or industry peers. KPIs can be financial, including net profit (or the bottom line, gross profit margin), revenues minus certain expenses, or the current ratio (liquidity and cash availability).

What is a KPI with example? ›

KPIs are the key targets you should track to make the most impact on your strategic business outcomes. KPIs support your strategy and help your teams focus on what's important. An example of a key performance indicator is, “targeted new customers per month”.

How do you measure KPI effectively? ›

One of the most effective ways of evaluating the effectiveness and appropriateness of a KPI is the SMART criteria. SMART stands for Specific, Measurable, Attainable, Relevant, Time-Bound: How SPECIFIC is the goal?

What are the 5 key performance indicators? ›

Top 5 Key Performance Indicators (KPIs)
  • 1 – Revenue per client/member (RPC)
  • 2 – Average Class Attendance (ACA)
  • 3 – Client Retention Rate (CRR)
  • 4 – Profit Margin (PM)
  • 5 – Average Daily Attendance (ADA)
Oct 1, 2017

What are the 3 types of KPIs? ›

Types of KPIs

Quantitative indicators that can be presented with a number. Qualitative indicators that can't be presented as a number. Leading indicators that can predict the outcome of a process.

What is a good KPI? ›

Good KPIs:

Provide objective evidence of progress towards achieving a desired result. Measure what is intended to be measured to help inform better decision making. Offer a comparison that gauges the degree of performance change over time.

How do you write KPI examples? ›

How to write and develop key performance indicators
  1. Write a clear objective for each one.
  2. Share them with all stakeholders.
  3. Review them on a weekly or monthly basis.
  4. Make sure they are actionable.
  5. Evolve them to fit the changing needs of the business.
  6. Check to see that they are attainable (but add a stretch goal)

How do you set KPI examples? ›

Here are a few tips to keep in mind for setting good KPIs.
  1. KPIs should be aligned with the overall business strategy and outcomes. The overarching business strategy should be what informs your KPIs. ...
  2. KPIs should be actionable. ...
  3. KPIs should be realistic. ...
  4. KPIs should be measurable.

What are the most important KPIs to measure? ›

The Most Important KPIs to Track
  • Sales Growth. ...
  • Leads. ...
  • Return on Investment (ROI) ...
  • Lifetime Value of a Customer (LTV) ...
  • Customer Acquisition Cost (CAC) ...
  • Conversion Rate. ...
  • Open Rate. ...
  • Click-Through-Rate.
Jan 18, 2023

What is a KPI for an employee? ›

To measure performance in an objective way, you can set key performance indicators (KPIs) for staff members, roles or departments. KPIs are standards or targets that you can track and use as a benchmark to measure success. They also provide employees with focus and clarity over what's expected of them.

What KPIs do you use to measure the effectiveness of your team? ›

Here are seven of those KPIs that, while employee-oriented, may be adapted to measure team performance.
  • Employee Satisfaction Index.
  • Employee Engagement Level.
  • Staff Advocacy Score.
  • Employee Churn Rate.
  • Absenteeism, as measured by the Bradford Factor.
  • 360-Degree Feedback Score.
  • Training Return on Investment.
May 17, 2016

How do you create a KPI list? ›

How to Define KPIs
  1. Identify business metrics directly related to business goals. Let's start with the basics that Sales KPIs look different from Product KPIs, which are different from Finance KPIs. ...
  2. Write out clear and specific key performance indicators. ...
  3. Get KPIs into a remote-first tool to record and monitor progress.
Jul 22, 2022

How do you set KPI for employees? ›

The key to setting KPIs is to identify desired outcomes for the business, and isolate means and ways employees can meaningfully help to achieve these outcomes. Employee goals should align with business goals which need to be constantly re-assessed in light of the changing business environment.

What are the 10 characteristics of good KPI? ›

KPI 101
  • Relevant. Indicators should be relevant to the organization. ...
  • Clear definition. A performance indicator should have a clear and intelligible definition in order to ensure consistent collection and fair comparison. ...
  • Easy to understand and use. ...
  • Comparable. ...
  • Verifiable. ...
  • Cost effective. ...
  • Attributable. ...
  • Responsive.

What is KPI and its benefits? ›

“Key Performance Indicators are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.”

What makes a strong KPI? ›

A KPI should be simple, straightforward and easy to measure. Business analytics expert Jay Liebowitz says that an effective KPI is one that “prompts decisions, not additional questions.” For example, “How many customers did we add this quarter?” is clear and simple.

Which 3 of the following are examples of Key Performance Indicators? ›

D. All of the above are examples of KPIs, i.e. Average customer satisfaction ratings, number of repeat customers, and sales revenue growth.

How do you write a four step KPI? ›

How to Write KPIs in 4 Steps
  1. Step 1 - Determine the Key Strategic Objectives. Before writing KPIs, you'll first need to determine which of your organization's strategic objectives you're trying to gauge. ...
  2. Step 2 - Define Success. ...
  3. Step 3 - Decide on measurement. ...
  4. Step 4 - Write your KPIs.
Jun 14, 2022

How do you explain KPI in an interview? ›

What does KPI stand for? KPI stands for Key Performance Indicators. They are measurable goals set by your employers which help track your progress in a particular position. As well as matching your personal progress, KPIs should always align with and reflect the business' goals.

What is the the most important KPI to assess financial performance? ›

Gross Profit

This is an important financial KPI measured by most companies. Gross Profit is the amount of profit after deducting the Costs of Goods Sold (COGS). They are the costs associated with creating and selling your products and services. This does not include interest, taxes or operating expenses.

What are examples of smart KPIs? ›

A SMART KPI should motivate your employee to work hard to attain it, but also needs to be achievable. EXAMPLE: 75% customer retention month on month or provide quotes to customers within an hour of request.

How KPIs can be used to evaluate financial performance? ›

Financial KPIs (key performance indicators) are metrics organizations use to track, measure, and analyze the financial health of the company. These financial KPIs fall under a variety of categories, including profitability, liquidity, solvency, efficiency, and valuation.

What are key result areas examples? ›

Examples of KRAs include increasing sales by a certain percentage, reducing expenses by a certain percentage, or increasing customer satisfaction by a certain percentage. Measuring progress against KRAs allows individuals and teams to track their progress and make necessary adjustments along the way.

What are the four types of indicators? ›

According to this typology, there are four types of indicators: input, output, outcome and impact.

What are KPI tools? ›

KPI tools are a business reporting solution used by companies to track, monitor, and generate actionable insights from key performance indicators specific to the company's business objectives to achieve sustainable business development and, ultimately, profit.

How do you write a KPI example? ›

How to write and develop key performance indicators
  1. Write a clear objective for each one.
  2. Share them with all stakeholders.
  3. Review them on a weekly or monthly basis.
  4. Make sure they are actionable.
  5. Evolve them to fit the changing needs of the business.
  6. Check to see that they are attainable (but add a stretch goal)

How do you set KPIs at work? ›

Setting SMART KPIs
  1. Specific: be clear about what each KPI will measure, and why it's important.
  2. Measurable: the KPI must be measurable to a defined standard.
  3. Achievable: you must be able to deliver on the KPI.
  4. Relevant: your KPI must measure something that matters and improves performance.

What is the most important KPI? ›

There is no surprise that sales growth is seen as one of, if not, the most important KPIs for marketing managers and businesses in general. Sales growth is what any business owners strive for, what investors care about, and what employees are working hard towards.

What are the 4 requirements to make a KPI? ›

What makes a good KPI?
  • KPIs should be aligned with the overall business strategy and outcomes. The overarching business strategy should be what informs your KPIs. ...
  • KPIs should be actionable. ...
  • KPIs should be realistic. ...
  • KPIs should be measurable.

What are 2 commonly used indicators? ›

  • Litmus:- It shows red colour in acidic solution and blue colour in basic solution.
  • Methyl orange:- It shows red colour in acidic solution and yellow colour in basic solution.
  • Phenolphthalein:-It is colourless in acidic solution and pink colour in basic solution.

What are the 5 types of indicators? ›

Type of indicators
  • Input indicators. These indicators refer to the resources needed for the implementation of an activity or intervention. ...
  • Process and output indicators. Process indicators refer to indicators to measure whether planned activities took place. ...
  • Outcome indicators. ...
  • Impact indicators.

What are two examples indicators? ›

Some examples of natural indicators are turmeric, grape juice, red cabbage, cherries, onion, beetroot etc. Synthetic indicators are indicators which are synthesized in the laboratory. Examples of synthetic indicators include phenolphthalein, methyl orange etc. litmus paper is also an example of synthetic indicator.

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