Have you ever wondered how big companies with thousands of employees all work in a balanced harmony and push the business together to its ultimate goal? The company will surely fall if everyone works as they prefer and there is no collaboration. This is unbelievable; a small mistake can cost you thousands of dollars! So, how do they lead all these employees toward achieving the company vision?

This is the magic of Key Performance Indicators (KPIs). It doesn’t only lead your employees from different departments to achieve a common goal. It also ensures the business is running smoothly, the employees are all engaged, everyone is contributing to the company, and more. You may wonder, “What are Key Performance Indicators exactly?” Buckel up cause we are having a ride to the world of KPIs and discovering why every business needs them.

What are Key Performance Indicators (KPI)?

KPIs are measurable values that allow you to measure and identify how well an employee contributes to achieving the company’s vision and targets. You can use KPIs to track the success and growth rate of the company across almost every section of your business, from finance to sales. Commonly, KPIs are predetermined milestones every employee targets to achieve.

Suppose you set a target for a salesman to sell 15 products weekly. Now, depending on what result he brings, you can evaluate if he is working properly, his potential, and which aspects he needs to work on to improve his and your company’s performance.  Or suppose you are a project leader. You can set targets to achieve for your team within a specific time and evaluate every team member based on how much they achieve the target. You can use the same method to track the workflow, employee performance, achievement, and target progression rate of an employee. Sounds amazing, right?

Why are Key Performance Indicators Important?

You may wonder, “Why are KPIs so important?” Actually, the impact of properly using KPIs is huge. In fact, it can change the productivity and performance of a business entirely. You may ask, “How does KPIs boost your business?” It is time to find out!

Measure Progress

KPIs will allow you to track your business progress over time. It helps ensure the business is running on the right path to achieve the company vision. As you can quantify individual and team performance, you can easily find out the scopes of improvement as they require.

Informed Decision Making

Since KPIs provide data on the performance of the employees and the company itself, they help make informed business decisions in critical situations. Whether you need to adjust your business strategies or change the workflow of any process, your decision determines the success. A slight mistake can bring failure to the whole thing. In such complex and delicate situations, KPIs will help you with precise data and insights.

Accountability and Transparency

KPIs can build a culture of accountability and transparency in a company. The leader monitors the progress, and the team members have a goal set to achieve. In this system, you can easily identify how much everyone contributes and why you couldn’t reach the milestone. If any individual is responsible for the failure, you can hold him accountable for his actions and show what he needs to do to succeed. There is no blaming each other, and it creates a fair & transparent working environment.

Identify Strengths and Weaknesses

If you regularly track the KPIs of your business, you can find out where you are doing great and need to catch up. It will give you a general idea of the strengths and weaknesses of your company. As a result, you can focus your energy and resources on the areas that need development.

Boost Efficiency and Productivity

By analyzing the KPI reports, you can find out what is inefficient in your workflow or strategies. It will allow you to refine your strategy to bring out more efficiency. As a result, the productivity of your whole organization will increase significantly.

Ensure Continuous Improvement

KPIs are not constant; their value will change according to the goals, strategies, employees, and projects. So, you need to keep reviewing them and changing them to bring out the most efficient result for every project or goal. It will bring a dynamic flow of continuous improvement for the company and the progress of employees.

Focus on What Matters Most

By setting appropriate KPIs, the company can focus on the most important aspects and drive the success rate. It will prevent distractions and help you focus on what you need to do. It will help you and your employees to concentrate on self-improvement.

What are the Differences between KPIs and Metrics?

People often confuse KPIs and Metrics as they both serve the same purposes of tracking data and measuring performances. However, there are some key differences between these two measuring terms. Here are the differences:

This table should be enough for you to understand the difference between KPIs and Metrics clearly.

Types of KPIs

There are several types of Key Performance Indicators that a company can use to measure the performance of the employees. The categories are based on the aspect they focus on and the type of goals they aim to achieve. Here are the key KPI types:

• Quantitative KPIs: These are the KPIs that are expressed using numbers. Some examples include revenue growth, new customer acquisition, and average order value.
• Qualitative KPIs: These KPIs are descriptive and look at the subjective aspect of the performance, such as customer satisfaction ratings or employee feedback scores.
• Leading KPIs: This type of KPIs predicts future outcomes or performance and are productive measures. For example, the number of sales leads or employee training hours are in this category.
• Lagging KPIs: KPIs that measure past performance are reactive and show the results of past actions are considered lagging KPIs. For instance, total generated revenue and customer retention rate are good examples of this category.
• Financial KPIs: These KPIs are used to measure the financial health and performance of a company. Gross profit margin, return on investment (ROI), and operating cash flow are members of this category.
• Operational KPIs: Efficiency and effectiveness of business operations are measured using these KPIs. For example, some of the most used operational KPIs are production downtime, order fulfillment time, and inventory turnover.
• Customer KPIs: These KPIs measure customer behaviors and satisfaction levels. The most used customer KPIs are Net Promoter Score (NPS), Customer Lifetime Value (CLV), and customer churn rate.
• Employee Performance KPIs: These are one of the most important categories of KPIs that measure the efficiency, engagement, and effectiveness of your employees. Employee turnover rate, absenteeism rate, employee satisfaction score, and employee net promoter score are some of the most well-known employee performance KPIs.
• Project KPIs: KPIs that are used to track the progress rate and overall success of an ongoing project are called project KPIs. Some popular project management KPIs are project completion rate, budget variance, and project delivery time.

How to Measure Key Performance Indicators?

Measuring KPIs can be a hard task at times. The more important the KPI is, the more complex the measurement process may get. Here is a step-by-step process with an example:

Suppose you need to set a KPI for customer retention rate. So, set the goal as: Improve customer retention rate by 10% over the year. After setting the goal, you need to collect data to see how much effort the employees are giving to achieve the goal.

You can collect the data from various sources like your CRM system to track repeat customers. You can also use the customer database to get retention data. Then, you have to calculate the retention rate using the specific formula and data for the time period. Finally, double-check the results and the data to make sure there are no errors and make a report on the findings.

That’s a lot of work, right? Instead of calculating the KPIs manually, you can use dedicated KPI management tools. It will save you time & effort and give you error-free reports.

What are the KPI Best Practices?

If you wake up in the morning and set a bunch of KPIs for your employees, it will do more harm than good. Setting KPIs is also fairly complicated as measuring them. You need to consider many factors that influence the success of the KPIs. Here are some of the most important KPI activities that will bring the best results:

1. Involve the Employees: Before you design KPIs for your staff, schedule a conversation session with them. It will ensure that all employees understand their goals and how to attain them. They will become more involved and invested in the goal-achieving process.
2. Set Measurable and Clear Targets: Make sure the key performance indicators (KPIs) are straightforward and explicit. An employee should be able to grasp what has to be done to attain the KPI just by looking at it. It will keep personnel on track and focused on their tasks.
3. Set SMART Goals: SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound targets. It is a framework for setting KPIs; some must-have characteristics that a KPI must contain to deliver a proper result.
4. Regularly Adjust and Review: A key performance indicator (KPI) cannot be set and held constant indefinitely. Following the deadline, you must review the KPIs and evaluate the data to understand your workers’ strengths and limitations better. Adjust the KPIs regularly to reflect their skills and business plans.
5. Provide Continuous Feedback: Regular feedback is essential for the employees to understand how much they contribute to the company’s success. It will encourage them to work harder and help them focus on their goals.

Streamline KPI Management with ProKPI

Remember, we said earlier that a dedicated KPI management software can make the whole thing easier? Well, here we are with the best KPI management tool online. We are featuring ProKPI, the all-in-one solution for your whole KPI scenario. Not only calculation, but you can assign strategic business objectives, track them, and get the report in several easy formats. All you need to do is assign the KPIs; you can depend on ProKPI for the rest.
Let’s look at some of the crucial features of ProKPI.

1. You can set the company vision
2. You can set KPIs for the employees based on their department and roles
3. You can set KPIs for yourself
4. There is no limit to the number of KPIs you can assign
5. You can set KPIs for various deadlines like daily, weekly, monthly, or yearly
6. 24/7 responsive customer support is there in case you need any help
7. Highly user-friendly interface that allows you to adapt quickly
8. KPI reports can be visualized in different formats, like graphs or pie charts
9. ProKPI is reasonably priced and affordable
10. The KPI dashboard is flexible and allows you to customize it as needed.
11. We are ISO certified and follow GDPR.
12. There is a free trial so that you can see what you are buying before paying anything.
13. You can integrate functions and features according to your needs with the help of our developer team.
14. Our software will also help you in Performance Management and eNPS score measurement.

Overall, ProKPI will make the whole process of assigning, measuring, reporting, and evaluating employees fast and easy. With its help, you don’t need to calculate employee progress manually anymore! Also, with error-free data and detailed insight, you can make data-driven decisions to take your company closer to ultimate success.

FAQs

How do I choose the right KPI for my business?

The right KPI depends on your relevant industry, business goals, and the specific objective you aim to achieve. Ensure the KPI has SMART goal characteristics to be more effective.

How often should I update the SMART goals?

You need to monitor the SMART goals regularly. Every once in a while, check the progress of the goals to identify any issues. It will allow you to react fast and minimize the waste of time.

What are the common KPIs for every business?

Some of the most common KPIs across various businesses are sales KPIs, marketing KPIs, customer satisfaction KPIs, financial KPIs, and operational KPIs. No matter what kind of business you run, using these KPIs are must to run a smooth business progress.