KPIs are key performance indicators that suggest if you are putting efforts in the right direction. They help you understand the pulse of your organization. The KPI results also tell you if the projects have aligned with strategic goals. To understand more about KPIs, let’s find out what Laura Lake has to say about it in this article at the Balance Small Business.
The Importance of KPIs
No two businesses have the same KPI structure because each has its own set of priorities and objectives. It does not matter if companies are from the same sector or have a similar organizational structure. They need KPIs to assess their endeavors according to the standards of the industry. There are three types of KPIs:
Quantifiable: The results are in numbers.
Functional: They discuss the health of the processes and functions.
Actionable: You can translate their results into actionable items for further improvement.
To produce accurate results, you must feed them the correct data and prevent external factors from influencing them. So, how is it different from goals?
For instance, a school wants its students to pass a test. Instead of using the pass mark, its KPI calculates the number of failures. If it is a business, the income percentage of its loyal customers should be the KPI. Here are the other examples:
- The status of existing customers
- The number of new customers acquired
- Customer attrition
- Customers segmented by profitability or demographics
- The amount of waiting time for delivery of customer orders
- The length of time for stock-outs
The Selection Process
Undergo the following stages to shortlist the relevant key performance indicators:
- Create business processes that are defined methodically.
- Establish goals for those processes.
- Determine how to measure results based on quality and quantity.
- Discuss the variations you would allow for short-term objectives.
Things to Consider
Before setting the KPIs, find out how the top management wants to lead the organization. Analyze if those factors help in achieving corporate strategies. Select KPIs that help both internal and external stakeholders understand progress effortlessly. Do not pick up a key performance indicator because your rivals use it. Though there is no specific number, businesses usually have ten KPIs.
Different Than Metrics
While all the KPIs can be marketing metrics, the opposite is not the same. While a metric measures your performance in an area, a KPI brings in a bigger picture. For instance, the number of sales or total revenue is a metric. You use it to compare your progress. However, it is your key performance indicator that analyzes those numbers from an organizational or industrial perspective.
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