Metrics and KPIs are often conflated, but each has a distinct meaning.
The term “Metrics” refers to any quantifiable data a company monitors to track performance & improvements across the business. As the organization begins to track an important metric, it has a baseline against which it can now compare the future to see how over time the performance of various processes and or teams has changed. Often as the business grows, it starts to track more metrics, including the ones specific to certain initiatives or Business Units.
The term Key Performance Indicators (KPIs) refers to metrics that are particularly important to your business because they measure progress against critical company objectives. One of the distinguishing features of KPIs is they usually have predetermined goals, which is not true of all metrics. A company might monitor certain metrics for years without any specific targets in mind. At least a few KPIs are usually financial metrics, like revenue growth, profit margin, cash flow etc.
In summary, KPIs reveal if a business achieves primary objectives or targets. Metrics track the status of different processes that are of varying importance to the company.
KPIs really matter to your business:
The Key performance indicators (KPIs) are quantifiable business metrics to track & measure the progress of a corporate toward its strategic objectives. Therefore, more than just numbers, KPIs tell a story about how well a company is performing. Now, understanding KPIs as they relate to your industry, your company and even separate business units/depts within a company is very essential to growing business.
KPIs help companies achieve their business goals, both short and long-term. It helps to make course corrections or adjustments to stay on track. It is more meaningful when presented as a dashboard after analysing it in the context of and alongside other KPIs, to get a comprehensive view of how different aspects of a company/business are faring against set objectives.
KPIs provide a variety of insights, and businesses rely on them for the following purposes:
- Reveal business patterns and trends.
- Measure progress toward set goals.
- Indicate if a goal needs to be adjusted.
- Expose/uncover the trouble spots.
- Monitor the health of the organisation/corporate.
Reveal business patterns and trends:
When KPIs are measured over time, such as month over month, quarter on quarter etc.. patterns and trends often emerge that can shape decision-making. If sales for a particular product is not growing, perhaps a new marketing campaign is needed. If customer returns for a certain product have increased over a quarter/half year period, that could indicate an issue with manufacturing or quality. KPIs, therefore, help spot patterns.
Measure the progress toward set goals:
KPIs help to measure progress. By its very definition, KPIs measure progress on an organisation’s key business objectives. If one of the goals is to increase annual sales by 20%, then KPIs like monthly sales growth & sales bookings can help gauge progress toward that set goal.
Indicate if a goal needs to be adjusted:
KPIs help to adjust goals and targets that are agreed upon. The circumstances may change after establishment of goals. By frequently monitoring certain KPIs, a company might realize an objective is unrealistic or no longer aligned with the revised plan. This insight provides the stakeholders a chance to revise their plans to better match an organization’s goals.
Expose/uncover the trouble spots:
- KPIs helps to identify problems to resolve. Analysing KPIs can uncover issues that might otherwise go undetected. Example, a marketing KPI related to the corporate’s website, such as a high bounce rate or drop in daily active usage, may signal that pages are loading too slowly or contain broken links.
- When KPIs are applied to business processes, one can easily identify bottlenecks and reallocate resources to boost efficiency.
Monitor health of the organisation:
KPIs can be grouped in multiple ways— organizational or operational, leading or lagging, by customer, financials, and growth or process. Taken all together, it indicates how well an organization is performing.
Leading indicators predict what may happen in the future and offer businesses the opportunity to prepare accordingly
Lagging indicators reflect past results, measuring the aftermath of actions. Monthly recurring revenue is an example of this type of KPI. Lagging indicators can also uncover trends, help companies evaluate their progress & influence future decisions.
Before selecting any KPIs, an organisation must first establish its overall goals. Only then can it know what & which to focus on in terms of various aspects of the business functions. From there, one can choose the right KPIs to help an organization stay on track to achieve its business goals. The characteristics of good KPIs are 1) it reflects a business’s strategic goals 2) It is quantifiable and measurable 3) It helps move the business forward and 4) Unlike vanilla metrics that are not useful, it is actionable towards business goals. Without a goal, the KPI is just a metric, not an indicator. KPIs can help make informed decisions, revealing trends that impact future strategies.
Manually calculating, tracking and monitoring more complex metrics, especially financial and operational KPIs is challenging. Back-end business systems with integrated reporting and analytics capabilities help companies track and spot changes that will have a positive or negative impact on their financial health. Growing businesses need a way to consistently check on these metrics, as this can be the deciding factor of their growth story.
