What is a KPI?

A KPI is a Metric that describes the Performance of a Company or Business.

  • It’s name is an acronym for Key Performance Indicator.

 

It’s main purpose is to track Progress and Identify what can be improved.

 

Although there is no law that establishes what a KPI should look like, an effective KPI Should be:

  • Descriptive.
  • Objective.
  • Measurable.

 

Let’s see it in more detail:

What is a good KPI

A Good KPI should be:

 

  • Descriptive: KPIs should be Defined and Meaningful Metrics.
    • Instead of complex equations describing confusing and fuzzy parameters.

 

  • Objective: KPIs should not evaluate Opinions but Facts.
    • Assess what is really happening, not what you think is happening.

 

  • Measurable: KPIs should be expressed in Numbers, not Words.
    • Numbers allow you to accurately check your progress.

 

Before giving you different KPI examples, let’s clarify something:

  • The difference between Quantitative and Qualitative KPIs.

 

Qualitative KPIs? Let’s see it:

Quantitative and Qualitative KPI

 

Some professionals divide KPIs in 2 groups:

  • Quantitative KPIs: Those that describe Quantifiable Objective parameters.
  • Qualitative KPIs: Those that describe Qualities and more Subjective data.

 

The problem is: It is very difficult to establish an effective Qualitative Indicator.

 

For example:

  • How do you measure Customer Satisfaction?

Practically nobody use these machines properly.

  • My 5 years old nephew presses all the buttons when he sees these machines.

 

Why not measure Customer Satisfaction with other Objective Indicators such as:

  • Time spent in the Mall.
  • Frequency of visit.
  • Money spent.
  • etc.

 

We recommend you to use always Quantifiable Data, that can be measured in Numbers.

  • The conclusions you’ll get are much more reliable.

 

In our “Define your Data” Page, we explain the difference between Quantitative and Qualitative Data and we also give some Tips on How to Quantify Qualitative Data.

  • We highly recommend you to visit that Page.

The best way to understand what a good KPI is, is by taking a practical approach.

 

Now we will give you many examples so that you understand it better:

Examples of KPIs

We have chosen different Businesses and Activities and proposed several KPIs that could be of great help to evaluate their performance.

 

Let’s begin:

Business Performance - KPI example

 

KPIs to evaluate Business Performance:

  • Revenue Growth in percentage.
  • Variable Costs as a percentage of Revenue.
  • Variable Costs as a percentage of Total Costs.
  • Fixed Costs as a percentage of Revenue.
  • Fixed Costs as a percentage of Total Costs.
  • Working Capital as a percentage of Revenue.
  • EBITDA as a percentage of Revenue.
  • Net Profit variation in percentage.
  • Cash Flow (Operational and / or Free) as a percentage of Revenue.

 

Why did we use percentages?

  • If a Company keeps its profit constant (for example) but its revenues have doubled, they are doing worse.

Percentages are much more useful than absolute numbers for evaluating Performance.

Website Performance - KPI example

 

KPIs to evaluate the Performance of a Website:

  • Growth in Users in percentage.
  • Growth in Page Views in percentage.
  • Bounce Ratio variation (percentage of Users that enter and go away).
  • Session duration variation in percentage.
  • Traffic Sources as a percentage of Total Traffic (Organic, Direct or Referral).
  • Growth of Users from a certain country in percentage.
  • Number of Backlinks pointing your Site.
  • Click Through Rate (CTR).
  • Traffic per Device in percentage (Mobile, Desktop or Tablet).

 

Websites can track dozens of Metrics.

  • We have just mentioned the most used ones.

Customer Satisfaction - KPI example

 

KPIs to evaluate Customer Satisfaction:

  • Frequency of Product consumption (Monthly consumption, for example).
  • Presence in Social Networks (Number of related Articles, Posted by Consumers).
  • Variation in Money Spent by Customers, in percentage.
  • Number of Products consumed by Customers (more than one product).
  • Recommendations done by Clients (can be tracked with coupon codes).
  • Evolution of Claims made by Clients, in percentage.

 

Customer Satisfaction is not easy to Track.

  • We recommend focusing on the Customer’s Behavior, rather than what they say.

Personal Finances - KPI example

 

KPIs to evaluate Personal Finances:

  • Variation of Savings, in percentage and in absolute.
  • Monthly expenses per activity (Restaurants, Drinks, Rent, etc).
  • Monthly Income (specially for people without a fixed salary).
  • Financial products as a percentage of your total equity (Stocks, Investment Funds, etc).
  • Cash available in your bank account.
  • Evolution of personal loan payments (Installments on a loan for your car, etc).
  • Mortgage that you have left to pay (and its evolution ratio).

 

Depending on your lifestyle, you will have to focus on some parameters or others.

  • But these KPIs can be helpful in keeping track of everyone’s personal finances.

Weight and Exercise - KPI example

 

Although KPIs are used in Business and Finance, we wanted to apply them to other everyday situations.

 

KPIs to evaluate Weight loss:

  • Variation of Weight in percentage and absolute.
  • Weekly hours dedicated to exercise.
  • Evolution of Body Fat in percentage.
  • Calories consumed per day.
  • How many kilometres you can Run (Jogging).
  • How many push-ups can you do in a minute.
  • Your Lung capacity (you can measure it in a pharmacy).

 

If you are trying to lose weight through exercise, you can track these KPIs to assess your success.

  • As you can see, they are pretty obvious.

 

Actually, the first thing you should do is seek professional advice.

  • This is just an example to show what KPIs are and how we use them every day without realizing it.

Summarizing

A KPI is a Metric that describes the Performance of a Company or Business.

  • It’s main purpose is to track Progress and Identify what can be improved.

 

An effective KPI Should be:

  • Descriptive: KPIs should be Defined and Meaningful Metrics.
  • Objective: KPIs should not evaluate Opinions but Facts.
  • Measurable: KPIs should be expressed in Numbers, not Words.

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