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KPIs: What Are Key Performance

Indicators? Types and Examples

What Are Key Performance Indicators (KPIs)?

Key performance indicators (KPIs) are quantifiable measurements used to
gauge a company’s overall long-term performance. KPIs specifically help
determine a company’s strategic, financial, and operational achievements,
especially compared to those of other businesses within the same sector.
They can also be used to judge progress or achievements against a set of
benchmarks or past performance.

KEY TAKEAWAYS

 Key performance indicators (KPIs) measure a company’s success vs. a

set of targets, objectives, or industry peers.
 KPIs can be financial, including net profit (or the bottom line, net
income), revenues minus certain expenses, or the current ratio (liquidity
and cash availability).
 Customer-focused KPIs generally center on per-customer efficiency,
customer satisfaction, and customer retention.
 Process-focused KPIs aim to measure and monitor operational
performance across the organization.
 Businesses generally measure and track KPIs through analytics
software and reporting tools.
Jiaqi Zhou / Investopedia

Understanding Key Performance Indicators (KPIs)

Key performance indicators are used in business to judge performance and
progress toward specific, measurable goals. They may be compared to:

 A predetermined benchmark
 Other competitors within the industry
 The performance of the business over time

Also referred to as key success indicators (KSIs), KPIs vary between

companies and between industries, depending on performance criteria. For
example, a software company striving to attain the fastest growth in its
industry may consider year-over-year (YOY) revenue growth as its chief
performance indicator. Conversely, a retail chain might place more value on
same-store sales as the best KPI metric for gauging growth.

At the heart of KPIs lie data collection, storage, cleaning, and synthesizing.
The KPI data is gathered and compared to whatever target has been set. The
results of that comparison then are analyzed and used to draw conclusions
about how well current systems, or recent changes to those systems, are
working to achieve the department or business's goals. This lets
management know whether the current systems are effective or whether to
make changes to improve those outcomes and meet future goals.

The goal of KPIs is to communicate results succinctly to allow management

to make more informed strategic decisions. They are often measured using
analytics software and reporting tools.

The information from key performance indicators may be financial or

nonfinancial and may relate to any department across a company, or the
performance of the business as a whole.
Companies can use KPIs across three broad levels.

Company
Company-wide KPIs focus on the overall business health and performance.
These types of KPIs are useful for informing management of how operations
stand in the company as a whole. However, they are often not granular
enough to make decisions. Company-wide KPIs often kick off conversations
on why certain departments are performing well or poorly.
Department
Department-level KPIs are more specific than company-wide KPIs and often
provide information on why specific outcomes are occurring. Companies
often dig into department-level KPIs to better understand the results of
company-wide KPIs. For example, if overall revenue is down, a company
may want to look at customer conversion or satisfaction rates in specific
departments.

Project or Sub-Department
If a company chooses to dig even deeper, it may engage with project-level or
subdepartment-level KPIs. These KPIs often must be requested by
management as they may require very specific data sets that may not be
readily available. For example, management may want to ask a control group
about a potential product rollout.

Common Types of of Key Performance Indicators

Most KPIs fall into four broad categories. Each category has its own
characteristics, time frame, and level of business that is likely to use it.
Different KPIs may also be used by different departments within the same
business.

Strategic
Strategic KPIs are usually the most high-level. These types of KPIs may
indicate how a company is doing, although they don't provide much
information beyond a high-level snapshot.

Executives are most likely to use strategic KPIs. Examples include return on
investment, profit margin, and total company revenue.

Operational
Operational KPIs are focused on a tight time frame. These KPIs measure
how a company is doing month over month, or sometimes day over day, by
analyzing different processes, segments, or geographical locations.

Operational KPIs are often used by managing staff and to analyze questions
that are derived from analyzing strategic KPIs. For example, if an executive
notices that company-wide revenue has decreased, they may investigate
which product lines are struggling.

Functional
Functional KPIs hone in on specific departments or functions within a
company. For example, a finance department may keep track of how many
new vendors they register within their accounting information system each
month. A marketing department measures how many clicks each email
distribution receives.

These types of KPIs may be strategic or operational. What sets them apart is
that they provide the greatest value to one specific set of users.

Leading/Lagging
Leading/lagging KPIs describe the nature of the data being analyzed and
whether it is signaling something to come or something that has already
occurred. Leading KPIs indicate a change that is coming in the future.
Lagging KPIs indicate a change that has already happened.

Examples of these are the number of overtime hours worked and the profit
margin for a flagship product. The number of overtime hours worked may be
a leading KPI should the company begin to notice
poorer manufacturing quality. Alternatively, profit margins are a result of
operations and are considered a lagging indicator.

Frequently Used KPIs

Financial Metrics
Key performance indicators tied to the financials typically focus on revenue
and profit margins. Net profit, the most tried and true of profit-based
measurements, represents the amount of revenue that remains, as profit for a
given period, after accounting for all of the company’s expenses, taxes, and
interest payments for the same period.

Financial metrics may be drawn from a company’s financial statements.

However, internal management may find it more useful to analyze different
numbers that are more specific to analyzing the problems or aspects of the
company that management wants to analyze. For example, a company may
leverage variable costing to recalculate certain account balances for internal
analysis only.

Examples of financial KPIs include:

 Liquidity ratios: KPIs that measure how well a company will manage
short-term debt obligations based on the short-term assets it has on
hand. Also known as current ratios, which divide current assets by
current liabilities.
  Profitability ratios: KPIs that measure how well a company is
performing in generating sales while keeping expenses low. An
example is the net profit margin.
 Solvency ratios: KPIs that measure the long-term financial health of a
company by evaluating how well a company will be able to pay long-
term debt. An example is the total debt-to-total-assets ratio .
 Turnover ratios: KPIs that measure how quickly a company can
perform a certain task. For example, inventory turnover measures how
quickly a company can convert an item from inventory to a sale.
Companies strive to increase turnover to generate faster churn of
spending cash to later recover that cash through revenue.

Customer Experience Metrics

Customer-focused KPIs generally center on per-customer efficiency,
customer satisfaction, and customer retention. These metrics are used
by customer service teams to better understand the service that customers
have been receiving.

Examples of customer-centric metrics include:

 Number of new ticket requests: Counts customer service requests

and measures how many new and open issues customers are having.
 Number of resolved tickets: Counts the number of requests that have
been successfully taken care of . By comparing the number of requests
to the number of resolutions, a company can assess its success rate in
getting through customer requests.
 Average resolution time: The average amount of time needed to help
a customer with an issue. Companies may choose to segment average
resolution time across different requests (i.e., technical issue requests
vs. new account requests).
 Average response time: The average amount of time needed for a
customer service agent to first connect with a customer after the
customer has submitted a request. Though the initial agent may not
have the knowledge or expertise to provide a solution, a company may
value decreasing the time that a customer is waiting for any help.
 Top customer service agent: A combination of any metric above
cross-referenced by customer service representatives. For example, in
addition to analyzing company-wide average response time, a company
can determine the three fastest and slowest responders.
 Type of request: A count of the different types of requests. This KPI
can help a company better understand the problems a customer may
 have (i.e., the company’s website gave incorrect or inaccurate
directions) that need to be resolved by the company.
 Customer satisfaction rating: Many companies may perform surveys
or post-interaction questionnaires to gather additional information on
the customer’s experience, though this is a vague and imprecise
measurement.

KPIs are usually not externally required; they are internal measurements
used by management to evaluate a company’s performance.

Process Performance Metrics

Process metrics aim to measure and monitor operational performance across
the organization. These KPIs analyze how tasks are performed and whether
there are process, quality, or performance issues or improvements to be
made.

These types of metrics are most useful for companies with repetitive
processes, such as manufacturing firms or companies in cyclical industries.
Examples of process performance metrics include:

 Production efficiency: Often measured as the production time for

each stage divided by the total processing time. For example, a
company may strive to spend only 2% of its time soliciting raw
materials. If it discovers it takes 5% of the total process, the company
knows that area needs to be improved.
 Total cycle time: The total amount of time needed to complete a
process from start to finish. This may be converted to average cycle
time if management wishes to analyze a process over an extended
period.
 Throughput: The number of units produced divided by the production
time per unit, measuring how fast the manufacturing process is.
 Error rate: The total number of errors divided by the total number of
units produced. A company striving to reduce waste can use this metric
to understand the number of items that are failing quality control
testing.
 Quality rate: A measure of the items produced that pass quality control
checks. By dividing the successful units completed by the total number
of units produced, this percentage informs management of its success
rate in meeting quality standards.
Marketing Metrics
Marketing KPIs attempt to gain a better understanding of how effective
marketing and promotional campaigns have been. These metrics often
measure conversation rates, or how often prospective customers perform
certain actions in response to a given marketing medium. Examples of
marketing KPIs include:

 Website traffic: The number of people who visit certain pages of a

company’s website. Management can use this KPI to better understand
whether online traffic is being pushed down potential sales channels
and whether or not customers are being funneled appropriately.
 Social media traffic: Tracks the views, follows, likes, retweets, shares,
engagement, and other measurable interactions between customers
and the company’s social media profiles.
 Conversion rate on call-to-action content: Measures how well
promotional programs convert customers to perform certain actions,
such as a campaign to encourage purchases during a sale. A company
can divide the number of successful engagements by the total number
of content distributions to understand what percentage of customers
answered the call to action.
 Articles published: The number of blog posts or print articles a
company publishes in a given timeframe, such as a month or a quarter.
 Click-through rates: The number of specific clicks that are performed
on email distributions. Programs may track how many customers
opened an email, how many opened the email and clicked on a link,
and how many clicked on the link and followed through with a sale.

IT Metrics
Any department within a company can be improved to increase efficiency and
employee satisfaction. This includes how the internal technology (IT)
department is operating. These KPIs can indicate whether the IT department
is adequately staffed. Examples of IT KPIs include:

 Total system downtime: The amount of time that various systems

must be taken offline for system updates or repairs. While systems are
down, customers may be unable to place orders or employees may be
unable to perform certain duties, which can slow operations and harm
customer service.
 Number of tickets/resolutions: The resolution of tickets related to
internal staff requests such as hardware or software needs, network
problems, or other internal technology problems. This is similar to
customer service KPIs.
  Number of developed features: Quantifying the number of product
changes to internal software or systems in order to measure internal
product development.
 Count of critical bugs: The number of critical problems within systems
or programs. A company will need to have internal standards for what
constitutes a minor vs. major bug.
 Back-up frequency: How often critical data is duplicated and stored in
a safe location. Management may set different targets for different bits
of information depending on record retention requirements.

Sales Metrics
The ultimate goal of a company is to generate revenue through sales.
Though revenue is often measured through financial KPIs, sales KPIs take a
more granular approach by leveraging nonfinancial data to better understand
the sales process. Examples of sales KPIs include:

 Customer lifetime value (CLV): The total amount of money that a

customer is expected to spend on your products over the entire
business relationship.
 Customer acquisition cost (CAC) : The total sales and marketing cost
required to land a new customer. By comparing CAC to CLV,
businesses can measure the effectiveness of their customer acquisition
efforts.
 Average dollar value for new contracts: The average size of new
agreements. A company may have a desired threshold for landing
larger or smaller customers.
 Average conversion time: The amount of time from first contacting a
prospective client to securing a signed contract to perform business.
 Number of engaged leads: How many potential leads have been
contacted. This metric can be further divided into mediums such as
visits, emails, phone calls, meetings, or other contacts with customers.

Management may tie bonuses to KPIs. For salespeople, their commission

rate may depend on whether they meet expected conversion rates or engage
in an appropriate number of leads.
Human Resource and Staffing Metrics
Companies may also find it beneficial to analyze KPIs specific to their
employees. Ranging from turnover to retention to satisfaction, a company
generally has a wealth of information available about its staff. Examples of
human resource or staffing KPIs include:
  Absenteeism rate: How many dates per year or specific period
employees are calling out or missing shifts. This KPI may be a leading
indicator for disengaged or unhappy employees. It can also help
managers plan for seasonal staffing variation, such as times of year
when employees are more likely to be sick.
 Number of overtime hours worked: The number of overtime hours
worked to gauge whether employees are potentially facing burnout or if
staffing levels are appropriate.
 Employee satisfaction: A gauge of how employees are feeling about
various aspects of the company, often performed via survey. To get the
best value from this KPI, companies should consider using the same
survey questions every year to track changes from one year to the next.
 Employee turnover rate: How often and quickly employees are
leaving their positions. Companies can further break down this KPI
across departments or teams to determine why some positions may be
leaving faster than others.
 Number of applicants: How many applications are submitted to open
job positions. This KPI helps assess whether job listings are adequately
reaching a wide enough audience to capture interest and lure strong
candidates.

How to Create a KPI Report

It can be difficult to sort through the vast quantities of information collected by
a company and determine which KPIs are most useful and impactful for
decision-making. When beginning the process of pulling together KPI
dashboards or reports, consider the following steps:

1. Establish goals and intentions. KPIs are only as useful as the users
make them. Before pulling together any KPI reports, establish specific
goals, then pick the KPIs that will inform achieving those goals.
2. Draft SMART KPI requirements. Vague, hard-to-ascertain, and
unrealistic KPIs serve little to no value. Instead, focus on what
information you have that is available and SMART (specific,
measurable, attainable, realistic, and time-bound).
3. Be adaptable. As you pull together KPI reports, be prepared for new
business problems to appear and for further attention to be given to
other areas. As business and customer needs change, KPIs should
also adapt, with numbers, metrics, and goals changing in line with
operational evolutions.
4. Avoid overwhelming users. It may be tempting to overload report
users with as many KPIs as you can fit on a report. At a certain point,
 KPIs start to become difficult to comprehend, and it may become more
difficult to determine which metrics are important to focus on. Create
separate reports if necessary, each focusing on a specific problem or
goal.

When preparing KPI reports, start by showing the highest level of data (i.e.,
company-wide revenue). Next, be prepared to show lower levels of data (i.e.,
revenue by department, then revenue by department and product).

Advantages of Key Performance Indicators

A company may wish to analyze KPIs for several reasons.

 Encourage actionable goals: Tracking and analyzing KPIs effectively

requires knowing what you are trying to achieve. This can encourage
businesses to set specific, actionable goals and create systems that
help meet those goals, rather than creating systems without knowing
what purpose they serve.
 Data-driven solutions: KPIs help inform management of specific
problems and find solutions for them. The data-driven approach
provides quantifiable information useful in strategic planning and
ensuring operational excellence.
 Improve accountability: KPIs help hold employees accountable.
Instead of relying on feelings or emotions, KPIs are statistically
supported and cannot discriminate across employees. When used
appropriately, KPIs may help encourage employees as they realize
their numbers are being closely monitored.
 Measure progress: KPIs connect business goals to actual operations.
A company may set targets, but without the ability to track progress
toward those goals, there is little to no purpose in those plans. KPIs
allow companies to set objectives, and then monitor progress toward
those objectives.

Limitations of Key Performance Indicators

There are some downsides to consider when working with KPIs.

 Time commitment: There may be a long time frame required for KPIs
to provide meaningful data. For example, a company may need to
collect annual data from employees for years to better understand
trends in satisfaction rates.
 Require regular follow-up: KPIs require constant monitoring and close
follow-up to be useful. A KPI report that is prepared but never analyzed
serves no purpose. In addition, KPIs that are not continuously
 monitored for accuracy and reasonableness do not encourage
beneficial decision making.
 Subject to manipulation: KPIs open up the possibility for managers to
“game” KPIs. Instead of focusing on actually improving processes or
results, managers may feel incentivized to focus on improving KPIs tied
to performance bonuses.
 Risk of incentivizing wrongly: If management seems to care more
about numbers than actual results, quality may decrease as managers
are hyper-focused on productivity KPIs. Employees also may feel
pushed too hard to meet specific KPI measurements that may not be
reasonable.

Pros
 Encourage actionable goals

 Data-driven solutions

 Improve accountability

 Measure progress

Cons
 Time commitment

 Require regular follow-up

 Subject to manipulation

 Risk of incentivizing wrongly

What Does KPI Mean?

A KPI is a key performance indicator: data that has been collected, analyzed,
and summarized to help decision-making in a business. KPIs may be a single
calculation or value that summarizes a period of activity, such as “450 sales
in October.” By themselves, KPIs do not add any value to a company.
However, by comparing KPIs to set benchmarks, such as internal targets or
the performance of a competitor, a company can use this information to make
more informed decisions about business operations and strategies.
What Is an Example of a KPI?
One of the most basic examples of a KPI is revenue per client (RPC). For
example, if you generate $100,000 in revenue annually and have 100 clients,
then your RPC is $1,000. A company can use this KPI to track its RPC over
time.

What Are 5 of the Most Common KPIs?

KPIs vary from business to business, and some KPIs are more suitable for
certain companies compared to others. Five KPIs that are commonly used
across a variety of business are:

1. Revenue growth
2. Revenue per client
3. Profit margin
4. Client retention rate
5. Customer satisfaction

What Makes a KPI Good?

A good KPI provides objective and clear information on progress toward an
end goal. It tracks and measures factors such as efficiency, quality,
timeliness, and performance while providing a way to measure performance
over time. The ultimate goal of a KPI is to help management make informed
decisions.

The Bottom Line

Key performance indicators are metrics that businesses track and analyze to
understand performance and meet actionable goals. Commonly used KPIs
include financial, customer service, process, sales, and marketing metrics.

By understanding exactly what KPIs are and how to implement them

properly, managers are better able to optimize the business for long-term
success.

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