Definition:
A KPI, or Key Performance Indicator, is a measure selected to evaluate the progress of an activity, team or organisation in relation to a relevant objective.
A KPI may be expressed as a count, percentage, rate, time, cost or index. Its status as a key measure does not depend on the format but on its relationship with a decision and priority outcome. KPIs for a digital marketing campaign may therefore differ from those used in finance, operations or customer service.
Table of contents
KPI selection
Selection begins with the objective rather than the data available in a tool. The organisation needs to define which outcome it wants to achieve, which levers it can manage and which indicator will show whether progress is moving in the intended direction.
A dashboard may include lagging indicators and leading indicators. The former reflect outcomes already achieved, while the latter help monitor activities that may contribute to the result. The appropriate number depends on the decision level: too many indicators make it difficult to distinguish what is genuinely important.
How to identify KPIs
Defining a key indicator involves an explicit sequence:
- Formulate the objective: Specify the outcome to be improved and the period to which it relates.
- Choose the indicator: Select a measure that represents progress and can be interpreted consistently.
- Set the reference and target: Document the starting value, desired direction and, where appropriate, target value.
- Define its management: Assign the data source, formula, frequency, segmentation, owner and intended response to a deviation.
The SMART framework can help formulate objectives and targets, but it does not automatically make a measure a KPI. The indicator needs to be understandable, feasible and useful to the people who review it.
KPI scope
A metric is any measure used to describe an activity or outcome. A KPI is a metric selected as key because of its relationship with a specific objective and responsibility. The same measure can be a KPI for one team and contextual information for another.
For example, visit count may describe traffic but will not necessarily be a KPI if the objective is to improve profitability. An impressive figure disconnected from decisions can become a vanity metric.
How to find a good KPI
A useful KPI commonly has the following qualities:
- Relevance: It is linked to a priority objective.
- Stable definition: Its formula, scope and units are documented.
- Suitable data: The source has sufficient coverage, quality and freshness for the intended use.
- Comparability: It supports analysis over time, by segment or against references without mixing incompatible criteria.
- Actionability: The people reviewing it can make reasonable decisions in response to change.
- Context: It is interpreted with a reference, target and the limitations of the measurement.
Examples of KPIs
The following indicators can act as KPIs when they are connected with the corresponding objective:
Business KPIs
- Gross profit: Sales revenue minus the cost of goods or services sold.
- Revenue growth rate: The difference between current-period and previous-period revenue, divided by previous-period revenue and multiplied by 100.
Web analytics KPIs
- Return on investment: Net gain attributed to the investment divided by its cost. Attribution and included costs need to be defined.
- Cost per lead: Attributable cost divided by the number of leads meeting the agreed definition.
- Conversion rate: Conversions divided by the selected opportunity base, such as sessions, users or clicks, and multiplied by 100.
SEO KPIs
- Organic conversions: Valuable actions attributed to organic traffic under the measurement model.
- Search visibility: Change in presence for a defined set of queries, pages and markets.
- Organic CTR: Clicks divided by impressions for the analysed scope and period.
Paid advertising KPIs
- Cost per acquisition: Attributable spend divided by recorded acquisitions.
- Conversion value per cost: Value attributed to conversions divided by advertising spend.
- Paid conversions: Valuable actions attributed to paid campaigns, interpreted with their attribution window and model.