What is a KPI? How to use key performance indicators, with examples

KPIs, or key performance indicators, are a metric used to measure progress towards a business objective. They are a critical ingredient for successful project management, as a way to provide a tangible target to aim for.

KPIs are used across almost every function and in every sector, from marketing and sales to retail and finance. However, finalising them is not as simple as plucking a number out of thin air.

Targets must be kept relevant and valuable to users. They must be based on data, not guesswork, and monitored closely throughout implementation to ensure your team does not go off-course.

In the guide below, we’ll explain the do’s and don’ts of setting performance metrics. We’ll also take you through the various different formats of KPIs, to ensure they align closely with your objectives, and provide smart insights for future business decisions.

Key Performance Indicators (KPIs) explained

Key performance indicators (KPIs) are the nuts and bolts of an organisational plan. Once an abstract idea for success has been formed, KPIs concrete it into a specific business objective to aim for, explaining what you want to achieve and how you will get there. 

KPIs work because they break down a macro target, like ‘growing your business’, into smaller, standardised aims that everyone – workers, leaders, and stakeholders – can comprehend.

They can take various forms depending on your main objective. However, experts tend to classify them under three umbrellas:

• Broad number measures (eg. number of products sold)
• Progress measures (eg. tasks completed in an action plan)
• Change measures (eg. % increase in sales)

Once developed, KPIs can then be employed by individuals, teams, or companies to set a standard of success. Ideally, each goal should have an associated 4-5 KPIs which inform your stated ambition.

What is a KPI report?

Another important use of KPIs is in reporting. Analysing KPI data is an easy way to convey performance levels, as you can see the goal in sight and how far you have left to get there.

Many businesses will produce specialist, monthly KPI reports that give stakeholders updates on how the work is progressing, and what strengths and weaknesses can be seen within the results so far.

Why are KPIs important?

KPIs are like the business version of a support wall. You may not notice them when they’re there, but the whole place would certainly fall apart without them.

If a company does not set appropriate KPIs, it will be lacking data that is fundamental to the success of every area of operations: from human resources to customer satisfaction, business processes, and business strategy.

Here are four key benefits that KPIs bring to organisations:

1. Track progress towards goals

Whatever your KPI is monitoring, it should have a clear endpoint in mind. Each data point should then be tracked and adjusted regularly to ensure that the team is moving in the right direction.

2. Identify areas for improvement

Tracking progress also means that, if the person responsible for delivery identifies a bottleneck that may be impeding the process, they can seek out a tactical route to success that avoids wasted time, energy, and money.

3. Make data-driven decisions

KPI reports ensure that, instead of just making wild assumptions based on a whim, you can leverage real, verified data to make confident choices that are evidence-backed. Plus, being able to tap into a rich data source may inspire new and creative business ideas.

4. Communicate performance to the entire team

Another advantage of KPI reports is that, rather than reeling off a long spiel about where the team is up to, you can update clients and senior managers on project progress at-a-glance. 

This is an important part of working as a team. Keeping everyone informed will build trust, as well as increasing accountability for successful KPI delivery.

How to structure a KPI

Now you know how KPIs work, and why they are important, it’s time to think about developing your own to reach your business objectives. KPIs are usually written down as a single sentence that describes a desired outcome.

First and foremost, every key performance indicator – regardless of industry, intention, or business function – should lean on the SMART framework. 

SMART stands for Specific, Measurable, Achievable, Realistic, and Time-bound. Making sure your goals align with all of these requirements is a tried and tested method of setting goals for better results in project management.

Let’s imagine a retailer wants to build a new website. Here’s a brief explainer of how they might decide on a KPI that fulfils each of these criteria:

1. Specific – don’t be broad. State what will be achieved and who will do it. For example: The creative team will design a rebranded company website is better than We will get a new website.

2. Measurable – define what success looks like via a quantifiable metric. For example: The creative team will design a rebranded company website to boost user traffic year-on-year by X%.

3. Achievable – ensure that your goal is attainable given your current market position and available resources. For example: aiming to boost user traffic year-on-year by +10% might be more achievable than aiming for +60% uplift.

4. Realistic or relevant – think about whether the goal aligns with those of your team or organisation. What will the result give you? For example: if the retailer is a brick-and-mortar store, it makes more sense for them to focus on boosting foot traffic than website visitors.

5. Time-bound – set a clear and achievable deadline for when your goal should be hit. For example: The creative team will design a rebranded company website to boost user traffic year-on-year by +10%, to launch in June 2024.

Examples of KPIs

KPIs can be divided into two distinct categories: high and low KPIs. High KPIs are used to target organisational change or improvement; low KPIs add structure to smaller projects, such as a marketing plan.

Naturally, a high KPI will likely be followed by numerous low KPIs, as the entire team develops its own strategy for reaching the overall business objective. Here’s an example of what that might look like for a small business seeking to grow its revenue:

Who should set KPIs?

Responsibility for developing a KPI will depend on whether it is high or low. C-Suite executives should be responsible for organisational strategising. They have a top-level view of how the company operates, making them best-positioned to identify growth opportunities.

With low, departmental KPIs, companies have more freedom. You can choose to give control to a cross-functional team, a direct manager, or the person responsible for the goal.

This selection should be judged on the priority level of the objective. If the outcome will have a significant impact on business operations and performance, it’s probably best given to senior-level employees who can handle that level of responsibility.

Once decided, leaders should delegate KPI ownership to a responsible individual. This person should update any headway made day-to-day, so they remain up-to-date and able to communicate relevant information to stakeholders at short notice.

Gathering the facts and figures should be the job of specialist data custodians. This group can use project management software to automatically produce reports, saving time on admin and data clean-up.

Common KPI mistakes

Developing, actioning, and measuring KPIs is a long process that can involve a lot of hard work and effort. If you don’t see the results you expect or desire, it can be incredibly disheartening for both team and owner.

Often, the problem is external. But occasionally it will come down to something you have done wrong in the KPI planning process. Here are the most common KPI mistakes made by businesses, so you can avoid the pitfalls and maximise your chances of success:

• Setting too many KPIs

KPI overload – essentially tracking too many data points – is a real issue that can end up wasting thousands of pounds in spent resources on metrics that are irrelevant or inconsequential.

When deciding which metrics to measure, concentrate on the most important business activities that drive profits and cash flow. Try not to have more than two high KPIs, and seven or eight low KPIs.

• Setting KPIs that are not aligned with goals

This is the ‘R’ of the SMART goal framework. If your stated KPI is not relevant to your business strategy, it will be more of a hindrance than a help.

Ensure that whoever is setting your KPIs – whether executive team member or a lowly junior employee – is aware of what you are trying to achieve. Have someone review the draft KPIs to ensure they are striving towards the same, common goal. 

• Not reviewing KPIs regularly

KPIs must be regularly reviewed by accountable parties to monitor performance, spot issues and opportunities, and make informed decisions.

For high KPIs, with a macro-outlook, how often you do this depends on factors like the company’s age, market influencers, data availability, and stakeholder feedback (see below). 

Nonetheless, it’s important for the business owner to review high KPIs at least once a month. Low KPIs can be appraised by the team carrying them out, with less transparency required as they have less of an impact on overall business performance.

It’s also a good idea to have a KPI owner who can monitor each metric daily. They are essentially the security guard for your KPIs, ready to flag any issues as and when they arise, and respond accordingly to threats.

• Not working closely with stakeholders

Updating others on the status and progress of KPIs is also a fundamental part of stakeholder management. Performance reporting needs to involve anyone who is interested or affected by the project’s outcome.

Firms can use a project management system to communicate regular updates on KPI data via dashboards or charts in a clear, concise, and visual way. Similarly, solicit and roll out feedback given to build trust and encourage their commitment.

• Not acting on KPI results

KPIs can tell you what you need to know about business performance – but if you don’t execute these learnings, you can’t expect to achieve your objectives.

Use project management software to produce a clear report of your company’s performance, to be shared with every stakeholder. Encourage the team to use this data to make decisions that push forward your strategy.

Conclusion

KPIs are a priceless tool for small businesses. Their benefits extend beyond mere metrics to influence the entire project pipeline from initial goal-setting and decision-making, to performance evaluation and review.

Crafting effective KPIs demands both a SMART and smart approach. Common pitfalls, like setting too many or without stakeholder involvement, must be avoided. It’s also a collaborative effort that should involve every stakeholder, worker, and manager in their creation, not just top management. 

Ultimately, KPIs can be thought of as an organisational compass; turning employee efforts into a logical map to success. That means with the right, strategic approach, they won’t just report on positive business performance, but ensure it as well.