What are key performance indicators?

Organizations can use key performance indicators (KPIs) to measure whether their teams and strategies are making progress toward current goals. Understanding what they are and how to choose the correct ones can be a helpful skill when it comes to managing a company, team or project. 

A key performance indicator is a specific, measurable metric that can help track progress toward team goals. Unlike general metrics in business analytics, which can track any available quantifiable data, performance indicators are typically tied to specific objectives to help determine whether progress is happening toward the underlying goal.

Different teams within an organization can use their own performance indicators to track goals within their department. Financial teams may track metrics that assess profitability, for example, while client-focused teams look at customer satisfaction scores or repeat purchase rates. Meanwhile, operational teams might closely measure indicators that evaluate efficiency, delivery time and project spend.  

Performance indicators can offer several benefits for teams. As a result, knowing how to use them can be a valuable business management skill.

First, the indicators can provide clarity to teams and leadership by helping everyone stay on the same page. If a social media team, for example, tracks shares, saves and reposts for a campaign while leadership watches likes and comments, the lack of cohesion can be frustrating and potentially result in a misunderstanding about how successful the campaign was.

If a campaign or project isn’t hitting its expected performance, indicators can help teams determine why. If a software development leader sees a sharp decrease in accuracy in deployed code, for example, they can investigate. They may find that they need a more in-depth quality assurance process or that their team needs additional training. 

Choosing the incorrect performance indicators can create problems for teams. For example, an unrealistic goal can cause burnout across a team. Another example would be if a goal is set that misaligns to an organization strategic goal or misallocates resources. Knowing how to choose the right metrics is key.

Sometimes, companies may choose indicators that prioritize vanity metrics — which look impressive but may not indicate progress toward the goal — or speed-based metrics. If chosen indicators incentivize speed without also prioritizing quality, however, teams could end up creating low-quality work that creates issues down the line. Customer service agents who are told to reduce the time they spend on calls to a certain number of interactions a day, for example, could rush conversations to make quotas and fail to address customer needs.

Misguided metrics can affect multiple departments. A software team deploying ineffective code may just be rushing to meet unsustainable deadlines, and supply chain management teams that are focused only on shipping speed may slip on order accuracy. All can have business impacts resulting in a poor experience for customers when they can’t get the help they need from support representatives and end up with a glitchy mobile app or receive the wrong item. 

Effective performance indicators should provide objective evidence of progress toward a business objective. They should be specific and measurable over time to help assess both progress and trends.

A vague goal like “improve customer service” is difficult to track. A specific target such as “resolve 50% more customer concerns on the first call to reduce Customer Effort Score by the end of Q3” gives teams a clear target to track. 

The following steps may help teams develop a strong set of performance indicators to effectively track progress toward their goals:

• Understand team goals: Teams should determine the outcomes they want to see so the metrics they’re tracking can reflect the strategic priority.
• Choose the right indicators for individual objectives: Decide which metrics indicate success in a given project.  
• Define target performance: Determine what specific, measurable outcomes would constitute “success.”
• Involve stakeholders early: Keep everyone on the same page and potentially increase internal support by getting all important players involved as soon as possible.
• Adapt as needed: If necessary during a project or campaign, teams can adjust performance indicators to accurately track progress as expected. 

Teams can categorize key metrics in several ways depending on scope, function and timing. 

Strategic indicators can measure high-level organization goals, such as market share or revenue growth. Operational indicators often focus on day-to-day processes, such as leads generated, fulfillment times or sales deals closed.

Strategic and operational indicators both can provide valuable insight to teams, but they may serve different purposes and audiences. Leadership teams may pay closer attention to strategic indicators, for example, while frontline teams may focus more on operational metrics that affect the work they do. 

Leading indicators measure activities that may help predict future outcomes. If a SaaS sales team increases their number of calls in a given week, for example, that may correlate with an increase in booked demos and eventual closed deals.

Lagging indicators, on the other hand, can measure outcomes that have already happened. For example, the sales leader can see how many demos were booked and the value of deals closed last month. This is qualitative, hard data that shows guaranteed progress toward goals.

When choosing key performance indicators, selecting both leading and lagging indicators can be helpful. Teams can get a solid picture of performance through both already-obtained outcomes and metrics that can indicate a positive or negative trend. 

Different departments may track unique indicators even on a single project, depending on their specific objectives. Matching the right metrics to the outcomes each team is responsible for can be critical.

A single marketing campaign, for example, might have marketing, operations and sales teams tracking progress. Marketing key performance indicators might focus on cost per lead or website conversion rates, while sales key performance indicators track average deal size. Then, operations teams might focus on the on-time delivery of the campaign itself. 

Once indicators are defined, the next step is monitoring them consistently and reporting on performance.

KPI dashboards can help consolidate data into a single report, which can help make it easier for leadership teams to identify patterns and track performance against their target goals. These dashboards should be updated regularly to help teams have an accurate, up-to-date picture of what’s happening.

Choosing clear visual options can help make data easier to understand and trends easier to track. Line charts may help track trends while bar charts can help show month-over-month progress for sales in different regions.

Reporting frequency can vary depending on business objectives, types of stakeholders and the indicators themselves. Some indicators may be reviewed daily or weekly; others may be assessed monthly or quarterly.

A marketing team, for example, might review a campaign’s social media engagement daily or weekly so they can make adjustments in real time. In contrast, the CMO might get a high-level report of performance once a month or quarter. 

Performance indicators can vary depending on an organization’s industry and the department in question. That said, there are several commonly referenced metrics:

• Revenue growth rate: The percentage increase in revenue over a set period.
• Customer retention rate: The percentage of customers who continue doing business with the organization over time.
• Net profit margin: Net income expressed as a percentage of revenue.
• Cycle time: The amount of time it takes to complete a process from start to finish.

Various departments may look at the same metrics differently. A subscription-based business that sees a drop in customer retention rate may have multiple teams assessing the problem. Marketing might assess whether their campaigns are reaching and appealing the target audience. Meanwhile, customer success teams may look for service concerns, and product teams might assess potential features or technical gaps that drove churn. 

Finally, smaller organizations may need to track fewer indicators and rely on simpler tools compared to larger organizations, which may need more structured reporting across departments due to the size of their campaigns. Regardless, the key is choosing indicators that help prioritize a team’s specific objectives. Starting with a narrow set of clear indicators can help smaller teams focus and allow more metrics to be added over time. 

Understanding key performance indicators and how organizations use them is one of many topics that may be covered in business education. University of Phoenix offers business programs including:

• Bachelor of Science in Business
• Bachelor of Science in Business Analytics
• Master of Business Administration (MBA)
• Competency-Based Master of Business Administration (CB-MBA)
• Doctor of Business Administration

For more information, contact University of Phoenix.