1. What is a key performance indicator (KPI)?
KPIs (Key Performance Indicators) are those important numbers that measure how your business is doing overall in the long term. They are like a GPS that shows you whether you are achieving your strategic, financial and operational goals. They also help you see how you compare to other companies in the same industry – the key data that tells you if you’re succeeding or not!
2. KPI categories
Most KPIs fall into four different categories, each with its own characteristics, time frames and specific users.
2.1. Strategic KPIs
They are the highest level and provide an overview of how a company is doing in general. Although they provide an overall picture, they do not provide much detailed information. These KPIs are often used by executives and examples include return on investment, profit margin and total company revenue.
2.2. Operational KPIs
They focus on a narrower time frame and measure the month-to-month (or even day-to-day) performance of different processes, segments or geographic locations. This type of KPI is mainly used by management to analyze questions derived from strategic KPI analysis. For example, if the company’s total revenue is declining, you can investigate which product lines are being affected.
2.3. Functional KPIs
They focus on specific departments or functions within a company. For example, the finance department may track the number of new vendors that register in its accounting information system each month, while the marketing department may measure the number of clicks each email blast receives. These KPIs are valuable to a specific set of users and can be strategic or operational.
2.4. The main KPIs/ lagging KPIs
Leading or lagging KPIs describe the nature of the data being analyzed and whether they indicate something that is coming or something that has already occurred. For example, the number of overtime hours worked may be a leading KPI if the company begins to notice a decline in manufacturing quality. On the other hand, profit margins are a lagging indicator, as they are the result of past operations.
3. How to create a KPI report
As companies collect more and more data, it can be overwhelming to sort through the information and determine which KPIs are most useful for making decisions. Here are some steps to keep in mind when compiling KPI reports:
- Talk to your business partners about goals and intentions. KPIs are only as valuable as the users make them. Before developing any KPI report, it is important to understand what you or your trading partners are trying to achieve.
- Define KPI requirements in an intelligent (SMART) way. KPIs should be constrained and linked to specific, measurable, achievable, realistic and time-bound metrics. Vague, hard-to-determine or unrealistic KPIs are of little value. Focus on available information that meets SMART requirements.
- Stay adaptable. As you compile KPI reports, be prepared to address new business issues and pay more attention to different areas. As business and customer needs change, KPIs should also adapt, with certain numbers, metrics and targets to match operational developments.
- Avoid overwhelming users. It can be tempting to include as many KPIs as possible in a report, but there is a point at which they become difficult to understand and it is harder to determine which metrics are important to focus on. Avoid overloading users with too many KPIs and instead, focus on the most relevant and meaningful ones.
4. The 20 most common KPIs
4.1. Business metrics
4.1.1 ARPA (Average Revenue Per User)
The average revenue per account is the average of what all customers pay, divided by the total number of customers in a month.
4.1.2 NPS (Net Promoter Score)
It is the overall satisfaction indicator about the business customer experience. To learn more you can visit our articles about Net Promoter Score.
4.1.3 Churn or customer abandonment rate
Rate of resignation or cancellation of a product or service (lost customers / total customers).
4.1.4 Drop off
Metrics that reveal the number of abandonments of a flow, without converting (e.g., average number of users who abandon the checkout process at the checkout page).
Market share covered by a company for a given segment. It is one of the most evaluated strategic indicators.
4.1.6 MRR (Monthly recurring revenue)
Monthly recurring revenue indicates the average value that a company receives for the payment of subscriptions. It is different from sales, because MRR considers the revenue obtained from upselling. It is calculated by multiplying ARPA by the total number of customers.
4.1.7 Net Profit Margin
Net profit margin, to measure a product’s ability to generate more money than it costs to deliver. The most common is obtained by dividing the net profit of a product by its revenue.
4.1.8 Revenue growth
The amount of money earned by the business during a given time period, compared to the same amount in the previous period.
Financial ratio that compares the benefit or profit obtained in relation to the investment made. It can be calculated as follows:
- Subtract the initial value of the investment from the final value of the investment (net return).
- Divide this number (net yield) by the cost of the investment and multiply by 100.
4.2 Customer indicators
4.2.1 Client retention rate
As its name suggests, the CRR is the percentage of customers who remain customers after a given period. It can also be applied to employees, to measure labor retention.
This KPI measures satisfaction with the experience of a product or service.
4.2.12 Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the cost of gaining a customer to buy a product or service. It includes sales and marketing expenses.
The Net Promoter Score is an indicator that measures how much a product or service would be recommended. It is evaluated with different scales. For example: How likely is it that you would recommend us to a friend? Answer from 1 to 10.
Time it takes for users to perform a task.
4.3.1 AHT (Average Handling Time)
The attention time is a KPI for call centers, which indicates the average time that customers have to spend on each contact.
4.3.2 ARPU (Average Revenue Per User)
Revenue generated per user, on a monthly or annual basis, for new and existing accounts.
4.3.3 CRV (Customer Request Volume)
The CRV refers to customer service requests received during a given period.
4.3.4 TTM (Time to market)
Also known as “speed to market”, the TTM is the time from product conception to market launch.
4.4 Indicadores de recursos humanos
Number of employees who decide to resign from the company.
4.4.2 eNPS (Employee Net Promoter Score)
Indicator of how likely an employee is to recommend his or her workplace to a friend. In the same sense, there is also “employee advocacy”, a group of indicators related to the promotion of the workplace by the workers themselves. For example:
- Percentage of employees who share the company’s content on their social networks.
- Proportion of employees who participated in a given promotional event
- Number of people completing the brand training program
5. How are KPIs measured?
It depends on the type of KPI being evaluated. In general, companies use business analysis software and reporting tools to measure and track KPIs. These tools range from collecting data from trusted sources, securely storing the information, cleaning the data to standardize its format for analysis, to actual numerical calculation. Finally, KPIs are often reported using visualization or reporting software.
We hope this article has helped you clear up some doubts about what KPIs are and why you need to make them an essential part of your business.
6. Keep learning with these articles
Hopefully, by now you have a solid understanding of what KPIs are, you can continue reading more articles that will help your brand or business on our Blog.