KPI is the acronym for “key performance indicator.” Sometimes incorrectly used interchangeably with the term, metric, a KPI measures how businesses, projects, departments, or individuals preform versus established goals. When properly tracked, Key Performance Indicators allow managers and other stakeholders to gauge business performance and take actions.
Why are KPIs and metrics dissimilar? Unlike metrics, KPIs are measured against, or linked to, targets. Metrics, in contrast, are just measures of performance. For instance, a company may have a metric that shows its sales per employee to be $250,000, but the KPI would measure that same ratio versus a strategic target, of say, $350,000. A subtle difference, perhaps, but one with far reaching managerial implications. KPIs can be far more valuable to managers because they:
- Assess Business Performance
KPIs help managers and employees to see immediately how the organization is performing. Is it as profitable as it should be? As liquid? And KPIs go well beyond such financial tracking. Are employees happy? A KPI showing increased employee turnover could indicate a problem. - Communicate Objectives
Key Performance Indicators set common goals. Expectations and priorities are clear and are made still more so as KPIs are reviewed. - Enable Managers to Act
With KPIs in place it is easier for managers to see trends and take action. For instance, if accounts receivable collections are shown as slowing versus a 45 day target, have customers been contacted? Should sales terms be changed? What about factoring? KPIs bring these and other discussions to the forefront.
The best KPIs are those that are properly communicated and reviewed on a consistent basis. Remember, KPIs should evolve. Covid, for example, changed how many businesses operate. KPIs showing inventory turnover, inventory lead-times, sales per employee, and benefits expenses/employee became more important for many firms. Also, businesses should have Key Performance Indicators that measure both short term and long term objectives. And, finally, consider using programs that help design and track your KPIs. I like to use Fathom, but there are other apps and extensions that are equally effective and that integrate seamlessly with accounting, inventory management, CRM and other programs.
Contact me at Worldwide Local Connect. We can work with you to write clear objectives that can be tracked by actionable Key Performance Indicators. We’re here to help. Drop us a line.
