What is a KPI? Detailed Guide to understand Key Performance Indicators

What is a KPI? Detailed Guide to understand Key Performance Indicators and Various Industry wise KPI dashboards example

What is a KPI? Detailed Guide to understand Key Performance Indicators

What is a KPI? A Guide to Key Performance Indicators with Examples

Any business depends on aspiration and ethical behavior. But how can you evaluate the company's state of health and course? The solution is in KPIs (Key Performance Indicators)

The following ideas will be explored in this article:

  • What are the features of a KPI?
  • How to establish KPIs for your particular company
  • Different KPIs
  • Examples of KPIs for various industries

Any business depends on aspiration and ethical behavior. But how can you evaluate the company's state of health and course? The solution is in KPIs (Key Performance Indicators)

What is an KPI?

Key performance indicators, or KPIs, are quantifiable metrics that can be used by businesses to track advancement and gauge effort toward a certain business goal.

Most likely, you already use some KPIs to manage your company. In your industry, they may be referred to as objectives, benchmarks or goals but you are undoubtedly focusing on them.

A Key Performance Indicator has three aspects by definition.

  • A KPI is quantifiable, which entails that a number may be assigned to it.
  • A KPI is measurable -may be compared to past trends and future estimates because it is measurable.
  • A KPI is essential. They ought to be fundamental to the operation of the company by nature.

The SMART framework is another one that is now in use for KPIs.

Let's dissect SMART to highlight its attributes.

Specific: The KPI you're examining ought to be sufficiently specific so that the data collected will be pertinent and offer information that you can act on. The harder it is to determine why you are succeeding or failing in that area, the broader the indicator.

Measurable: The finest KPIs are numerical or have a quantitative measurement. You can choose a percentage or enter a value that instantly displays performance so you can compare it to previous and projected figures.

Attainable: KPIs are not the place for lofty objectives. Make sure your KPIs are both attainable and not overly straight forward to prevent you from making any progress.

Realistic: Your KPIs must be a measurement that accurately reflects both the current state of your business and your short-term goals. You can move the objectives as you accomplish them, but your long-term goals shouldn't be here.

Timely: The timetable for achieving KPI must be decided. Managers, for instance, can establish employee KPI at the beginning of the year. Other indications can require weekly or monthly inspection.

How to define KPIs for your own business?

Similar KPIs are not required by every business. KPIs for a start-up should be substantially different from those for an established business.

For instance, a startup will worry about its profitability, which turns into a crucial KPI for it. Sales growth, however, might be a more significant KPI for a company with more experience. KPIs might therefore differ from firm to company.

To get to a KPI, you can follow the procedures shown below.

1. Define the Objective

This entails focusing on the KPI that will be assessed and that is pertinent to company. It's crucial to distinguish between metrics and KPIs.

Metrics are merely a method of measurement. KPIs are a way to keep track of the most important elements of your business so you can decide what steps to take next. Additionally, KPIs are frequently developed from two or more metrics.

Here are two metrics as an illustration:

  • Website traffic
  • Number of sales

Now, a well-liked KPI known as "conversion rate" measures how these two variables relate to one another.

2. Outline the Scope

What will the KPI be useful for? Which specific trends will be compared when comparing KPI? What would be the evaluation phase after that? It's crucial to gain clarity on them so that the procedure can be conducted with sufficient rigors.

3. Project the Findings

Projecting the KPI to essential stakeholders after receiving it is crucial. Here, KPI reporting and KPI dashboards are crucial.

What are various types of KPIs?

The list of KPI kinds that are available is described below.

1. Long Term or Strategic KPI's

These KPIs are concentrated on long-term goals derived from organizational objectives. They aid in determining whether or not a strategy is effective and on target. This time frame is long-term to intermediate.

2. Short Term or Operational KPI's

The clear and timely information provided by these KPIs is utilized to make daily decisions, improve performance, or change a process. Due to the usage of formulae and data from several sources, these KPIs are frequently complicated.

3. Lagging KPI's

The outcome of previous performance, such as production, volume, or a result, is determined by lagging KPIs. They are simple values that are generally used to gauge how well a process is operating, making them straightforward to measure. For instance, lagging KPIs include "number of website views" and "sales this month."

4. Leading KPI's

Leading KPIs are employed to forecast or affect upcoming performance. They are more challenging to set up because they depend more on outside actions, like process changes or infrastructure investments, to influence outcomes. For instance, the marketing KPI "market share" depends on outside variables like category sales.

Examples of Industry-specific KPIs

E-commerce KPIs

1. Shopping Cart Abandonment Rate

 In e-commerce, the phrase "cart abandonment" refers to customers who add things to their shopping carts but subsequently leave the store without making a purchase.

By dividing the total number of completed purchases by the total number of shopping carts produced, the shopping cart abandonment rate is determined.

2. Conversion Rate

The percentage of visitors to your website who convert refers to your conversion rate. This action could be anything, like completing a purchase or signing up for an email newsletter.

Divide the number of conversions by the total number of visitors to your store to determine your conversion rate. Then multiply the result by 100 to obtain the percentage.

3. Cost of Customer Acquisition

Customer acquisition cost, or CAC, is the sum of money required to "purchase" a customer.

Simply divide the total amount of money spent on marketing and sales by the total number of consumers those activities delivered to determine your customer acquisition cost.

4. Average Order Value

 Average order value, or AOV, is a measure used in online commerce that describes the typical sum of money spent by clients on each order.

Take your total income and divide it by the total number of orders to determine your average order value during a specified period of time.

5. Customer Lifetime Value

The average amount of net profit that each customer is anticipated to give to a firm over the course of the relationship is known as customer lifetime value (CLV), also known as CLTV or LTV.

You must have derived the following three additional averages from your metrics:

  • Average order value
  • Number of times a customer buys per year on average
  • Average customer retention time in months or years

6. Return On Ad Spend (ROAS)

ROAS is the amount of money a business is getting back in revenue for every dollar you spend on advertising to drive new revenue.

It gets derived from revenue from advertising and the cost of advertising.

Retail Industry KPIs

1. Sales per Square Foot

This measure relates to the quantity of sales produced per square footage of the store's sales area. Stockrooms and changing rooms are excluded from this.

2. Conversion Rate

The conversion rate is the ratio of customers who made purchases to customers that visited the store.

3. Average Transaction Value

This indicator provides a broad picture of how much money people are spending. A big dollar figure can indicate that customers are buying larger quantities or your more expensive products. 

You may find out from this metric how much customers typically spend in your store. This can be calculated by dividing Total Revenue by Transactions.

4. Stock turnover

To determine your ideal inventory levels, stock turnover is a crucial indicator. You run the risk of carrying slow or dead stock if your stock turnover is minimal, which indicates that you aren't clearing out your inventory quickly enough. If it's high, you must continue to keep an inventory.

Health Care Industry KPIs

1. Average Patient Wait Time

The Average Patient Wait Time is a highly helpful KPI for monitoring and measuring company goals related to capacity management and patient satisfaction. The average amount of time a patient must wait from the time they enter a hospital or healthcare facility until they are able to be seen by a healthcare provider can be used to calculate patient wait times.

2. Bed Occupancy Rate

The percentage of hospital beds that are occupied at any given time is measured by the bed occupancy rate. The number of beds occupied is a reliable indicator of a hospital's capacity to serve patients in a safe and efficient manner.

3. Average Hospital Stay

This KPI tracks the typical number of days patients stay in the hospital.

4. Average Treatment Charge

The average treatment fee calculates the cost of each patient's care at a hospital or healthcare facility

Social Media Management KPIs

1. Reach

Total Reach is the gauge. Total reach reveals the total number of distinct users who have viewed your content.

Total Impressions: Total Impressions are the sum of all the times that content from your page is shown. A larger community and increased engagement result from more impressions.

2. Community growth

Fan Adds/New Followers/New Subscribers: This is useful for counting how many new fans, subscribers, or followers you've acquired over a specific time frame.

Page Likes/Total Followers/Total Subscribers: It's important to keep track of your overall likes and followers.

3. Engagement

One of the most crucial social media marketing KPIs is engagement rate because it enables you to gauge how people interact with either a specific post or your entire page. It displays the community's or brand's true connectivity and involvement.

4. Conversion

If lead creation is a key goal, this is one of the most significant social media deliverables.

By paying attention to this crucial KPI, you can build a funnel that aids in future conversion as well.

Marketing KPIs

1. Revenue

How much money is being made after marketing efforts, whether they are offline or online.

2. Conversion Rate

The conversion rate, which is expressed as a percentage, is the number of conversions divided by the total number of website visitors or users of your product or service.

3. Cost of Customer Acquisition

The sum of money you pay to bring on a new customer is known as the cost of customer acquisition.

4. Share of Voice

The brand's market share in each medium as a percentage of the entire category

5. Market Share

Brand share expressed as a share of all sales for the category

SaaS KPIs

The most crucial KPIs for every SaaS company relate to customer acquisition, retention, and revenue.

1. Churn Rate

This represents the monthly client loss rate.

2. MRR - Monthly Recurring Revenue

MRR measures the monthly recurring revenue produced by all active customers.

3. CAC - Customer Acquisition Cost

The CAC calculates the direct cost of gaining a customer over a specific time period.

4. LTV - Life Time Value

Before a customer leaves the company, LTV calculates the overall income they brought in.

5. LTV to CAC Ratio

Whether unit economics are showing growth, stagnation, or regression is shown by the LTV to CAC ratio.

To understand more about these 5 crucial KPIs, see our post on SaaS KPIs.

Main Points

The story is over now. We went over KPIs in great detail and discovered how to define them as well as some crucial KPIs or measurements for various kinds of businesses.

KPI must be SMART and have a high degree of actionability.

The KPI you select for your company must be more than just a number in order to assist it in making vital decisions.

KPIs come in a variety of forms for both capturing the present and predicting the future.

Different industries have their own unique KPIs that show the aforementioned characteristics.

Conclusion

KPIs require periodic review or maintenance, just like any other business activity, to keep them operating at their peak. They have no worth by themselves.

According to Andrew Lang, most people utilize statistics more for support than for illuminating purposes.

Establishing regular review intervals will keep them current and offering the greatest advantage.

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