What Is a KPI and Why Is It the Secret to Your Success?
Get a handle on the business term that will literally measure your success.
The business world loves jargon. You can only go so long until terms like sales funnel, customer journey, and low-hanging fruit become a normal part of your vocabulary. Here’s a big one: KPI. Short for key performance indicator, a KPI is your North Star when it comes to measuring your progress toward a given goal.
That goal could be anything: acquiring a specific number of clients, driving a higher percentage of clicks to a website, or reducing the amount of time it takes you to make a pepperoni pizza. It all depends on the specifics of your role or the team you’re leading.
The point is that without a clear set of key performance indicators, there’s little visibility into how you’re tracking toward your main targets—which not only helps the company measure your success, but also gives you a better roadmap to delivering those results.
Jargon still tripping you up? Let’s break down KPIs a little bit further.
What is a KPI (Key Performance Indicator)?
According to Investopedia, a good KPI definition is “a set of quantifiable measurements that a company uses to gauge its performance over time.”
Businesses are inherently complex machines, with many moving parts. Since growth usually results from how all of those parts work in tandem, organizations need to break down what success looks like into groups of smaller objectives—or KPIs. While each KPI may be small on its own, it’s part of a larger picture of where the business is headed (and clarifies your role helping move it in that direction).
What are some examples of KPIs?
If you can track and measure something that indicates your rate of success or growth, that something can be a key performance indicator. If you were a baseball player, your hits, runs, on base percentage, and batting average are examples of KPIs. Those measurements can be compared over time to see if you’re getting better, staying about the same, or getting worse at your job.
Every job and line of business has its own measures of success. Here are some common examples of KPIs that can be tracked over a certain span of time:
- Sales KPI: Boost sales revenue by 15%
- Marketing KPI: Increase conversion rates to prove your strategy is effective
- Web company KPI: Generate 10% more organic traffic to your site
- Human resources KPI: Improve employee retention
- Restaurant KPI: Reduce amount of food waste
At a higher level, executives look at factors like EBITDA (or earnings before interest, tax, depreciation, and amortization) to evaluate the company’s financial performance. While this might sound like it came out of a business school textbook (and it probably did), it’s really just another form of KPI.
Why are key performance indicators important?
KPIs keep you honest. When you know what your success is being measured against, you can make better decisions about what to focus on and get a sense of how you’re tracking toward your goals.
Because you’ve broken what can amount to a vague, fuzzy idea—success—into a clear set of metrics, you’ll know when something is working and when you need to adjust your approach.
KPIs also give larger teams their marching orders and make sure everyone is working toward the same objectives.
One thing to keep in mind: If you’re in charge of setting the KPIs, give your people context for each one and explain why it’s important. It’s hard to feel motivated when you’re simply told to meet some cold, unfeeling number. But when teams understand how their individual KPIs ladder up to the success of the larger business, there’s a deeper spirit of comradery.
What are some best practices for creating a KPI?
Some of the logic behind creating KPIs is common sense, but some of it is a bit trickier.
1. Choose KPIs wisely. They should be important to your business’ or department’s objectives. If you’re a marketer, measure how many people are opening your newsletter emails. If you work in customer service, keep track of call volume and how quickly issues are being resolved.
2. Create key performance indicators that can actually be achieved. You want to set goals that are realistic, not overly lofty ones you’re unlikely to meet.
3. Determine how each KPI will ultimately be measured. This may require diving into your business’s tech infrastructure to make sure there are systems in place to accurately capture those metrics.
While these practices are just the tip of the iceberg, the core idea is that each key performance indicator should be purposeful, achievable, and measurable. These aren’t just random goals—if they were, the word “key” wouldn’t be in the name. The bottom line is that each KPI is an important indicator of a business’s success...and yours.
How and when to show your progress
There’s no rule that says you’re to reveal your results only at the completion of a project. You should be sending out regular progress reports so your team (and boss!) can see the results of your work.
For example, send a weekly email that gives a quick snapshot of the KPI wins and losses your team has accrued in the past seven days. Include the work you completed, as well as the corresponding data. Not only does this alert everyone to what it is you’re up to, but regular reporting also offers you a chance to see how well your strategy toward hitting your goals is working and if you need to rethink your game plan.
Do you have KPIs for your career?
Maybe it’s the rate at which you’re promoted, or the percentage of co-workers that show up to the conference room to celebrate your birthday, but however you measure your professional development, it should be on the rise, not the decline. Could you use some more help making headway on your goals? Monster’s free career advice can help you stay on the track to success.