Key Performance Indicators (KPIs) in business are quantifiable metrics that track and measure the success of operations. They provide a clear picture of how effectively it is performing against its objectives in specific areas.
How do businesses prove they have succeeded? The key to answering this is to define success. To do this, you need clear, well-defined, and measurable targets known as Key Performance Indicators (KPIs). This blog will outline the meaning of KPIs and provide examples and tips to implement, track and measure them.
What are KPIs?
KPIs are Key Performance Indicators, measurable values that indicate how effectively a person, department, or organisation is achieving their objectives. KPIs are used to monitor progress, assess performance, and make data-driven decisions.
KPI examples
KPIs may be different for each department within the business, enabling a focus on what they can impact and improve rather than looking at data that isn’t directly relevant.
They are typically based on specific objectives, which can vary depending on the nature of the business.
Industry/Sector |
Common KPI examples |
| Retail | Sales per square foot, customer conversion rate, inventory turnover, average order value, ROI for marketing campaigns. |
| Manufacturing | Overall equipment effectiveness (OEE), Yield, defect rates, cycle times, on-time delivery rates. |
| Healthcare | Patient satisfaction, readmission rate, average length of stay, mortality rate, bed occupancy rate. |
| Technology/SAAS | Customer churn rate, average revenue per user, customer acquisition cost, user engagement rate, time to market. |
| Hospitality | Occupancy rate, Average daily rate, revenue per available room, gust satisfaction, repeat customer rate. |
Why KPIs matter
KPIs can promote a culture and mindset of continuous improvement and reflection, involve many different teams within a business, and drive focus on the overall business objectives. KPIs enable businesses to...
- measure performance in a quantifiable way,
- understand how performance aligns with expectations,
- improve collaboration across different teams,
- make better decisions, and,
- provide transparency and accountability.
Robust KPIs allow business teams to focus on what matters the most. They help align everyone’s efforts towards common goals, leading to improved efficiency and success business-wide.
How to select the right KPIs for your business
Businesses have many moving parts, which can make it difficult to know what to measure as part of your KPIs. Selecting the right KPIs for your business requires careful consideration and alignment with your overall goals.
When selecting your KPIs, you should consider the following:
- Identify your overall business objectives
- Make sure the outcomes are measurable
- Ensure they are aligned with strategic priorities
- Take industry benchmarks into account
- Keep things actionable
- Use the SMART system (specific, measurable, attainable, relevant, and time-bound)
- Keep the number of KPIs limited
- Continuously review and refine your KPIs
Selecting the right KPIs should be dynamic, including ongoing evaluation and adaptation. We recommend reviewing them regularly, such as quarterly or annually, to ensure the insights they provide are as fresh and relevant as possible.
How many KPIs should a business have?
Having hundreds of different measures to focus on isn't helpful, as the attention will be split, and their effectiveness diluted.
KPIs may change over time, but the number of different measures should not keep increasing.
Therefore, it is important to define the end goal and examine which KPIs will help you achieve it and which teams are responsible for each. This will provide a roadmap to achieving the business goals and success.
How do you track and measure KPIs?
When your KPIs have been selected, it’s important to make sure you can track and measure them effectively. Lots of tools and systems can be deployed depending on the goals and requirements of the business. Here are some examples:
- Spreadsheets: Such as Microsoft Excel, Google Sheets
- Business Intelligence (BI) tools: Such as Power BI
- Accounting software: Such as Xero
- Performance Management Software
- Customer Relationship Management (CRM) systems
- Data Analytics platforms
- Enterprise Resource Planning (ERP) Systems
When selecting your tools and systems, you should always consider things like scalability, ease of use, integration capabilities, reporting functionalities, and (of course) cost. You should continuously evaluate the different options to ensure you only use the right tools for your business needs.
Reviewing KPIs
The frequency of reviewing business KPIs depends on business goals, industry dynamics, company operations, and other factors.
For time-sensitive metrics, daily reviews may be necessary. Operational KPIs can often be reviewed weekly. Financial KPIs might require monthly reviews. Strategic KPIs, which measure long-term performance, may only need quarterly or annual reviews.
The most important part is to ensure that KPIs are reviewed often enough to identify trends, make timely adjustments, and achieve business objectives.
Potential challenges and issues
While important for a business's growth and success, implementing KPIs can present challenges.
- Selecting irrelevant KPIs can lead to misguided decisions and ineffective actions.
- Lack of clarity and communication can result in misinterpretation of the KPIs and what they really mean.
- Inadequate or poor-quality data can undermine the effectiveness of KPI tracking and measurement.
- Unrealistic or unattainable targets can demotivate employees and create a negative perception of KPIs.
- Tracking excessive KPIs can lead to information overload and dilute focus.
- Failing to review and adapt KPIs can result in outdated metrics that do not reflect the current needs of the business.
The good news is that these can all be mitigated with proper planning.
If you require advice in determining the right strategic objectives and KPIs for your business, and on the best ways to report on them, we recommend you contact our Genus team, who will be more than happy to help.
Alicia Williams
Alicia is Director of the Genus team at Shorts, a chartered certified accountant and Xero specialist.
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