What is a key performance indicator? Meaning, types, and uses.
Are you looking for a way to measure and compare the performance of your business across different departments? Key performance indicators, or KPIs, are effective metrics that can help you understand how well your company is doing. But what is a key performance indicator (KPI)?
KPI’s provide companies with visibility into essential areas of their operations, often resulting in better decision-making and improved enterprise outcomes.
In this blog post, our experts here at OurlinQ will give you the low down on what key performance indicators (KPIs) are, give examples that businesses can use to benchmark against other businesses in their industry, and explain why they’re so important to track.
So read on if you want to learn more about making the most out of KPIs – it could be just the information you need to take your business success up a notch!
Before we get into the details, let’s start with the mini answer first so you can get a better understanding of what a KPI is.
Key Performance Indicators (KPIs) are an important tool used to measure progress and success in organizations. KPIs provide visibility into essential areas of business operations. Examples of KPIs include cash flow, average order value, lead conversion rate, and employee retention.
Ok, so with the brief answer covered, let’s dive further in, to answer the question ‘what is a Key Performance Indicator’ with an overview.
What is a Key Performance Indicator? – An overview
Key Performance Indicators often referred to as KPIs, are an important tool used to measure progress and success in organizations. They’re measurable values that allow an organization to evaluate its performance against predetermined goals.
KPIs are centered around quantifiable metrics and can focus on any area of a business, from financial to operational success.
They can be used to track tangible aspects such as sales or intangible elements like customer satisfaction, employee engagement, and more. But it’s also important to understand the distinction between performance and productivity.
Using KPIs allows for insight into the effectiveness of business strategies plus also creates friendly competition among teams and employees!
Ok so now we’ve got a better understanding of what KPIs are, let’s take a look at their background and where they originated.
What are KPIs? The History
Key Performance Indicators, or KPIs, have been around in one form or another since the 1950s when they were first used by management professionals as a way to track the success of a business operation.
A way for factory owners to track production
They started out as internal measures of efficiency and performance specific to individual companies and we can trace their roots as far back as the Industrial Revolution.
At this time they were a way for business owners to record the costs and production speed of factories.
By tracking these numbers over time, managers could anticipate changes in demand and arrive at strategies for improvement.
Today, many KPIs are used to measure both financial and non-financial data such as customer satisfaction ratings or headcount growth.
They also evolved into more general metrics like cost per sale and customer satisfaction rates that were popular across many different industries.
To find out more head over to our other helpful article – What Are KPIs Used For?
KPIs are an invaluable tool
Today, KPIs are an invaluable tool for tracking a company’s overall performance and helping guide decisions with hard data.
Despite being around for more than 65 years now, they remain just as useful today as when they originated in the mid-20th century.
In our modern world, everyone from small businesses to Fortune 500 companies employs KPIs to track progress and crucial performance.
Though our understanding of KPIs has evolved significantly over the years, their purpose remains the same. They are an effective way for companies to measure inputs and outputs related to an organization’s success.
Now that we’ve looked at the history around Key Performance Indicators, let’s find out more about why you should utilize them for your business needs.
Why should my business use KPIs?
If you’re looking to track your progress and make sure you’re working towards achieving your business goals, key performance indicators (KPIs) are the answer.
By carefully measuring progress against specific objectives, KPIs help businesses stay focused, drive successful operations, and create better strategies.
They can also be adapted to meet individual company needs – this means that a KPI tailored to your values and particular activities will offer greater insight into how efficiently you are running your business or project.
With greater visibility, understanding, and clarity comes efficiency …meaning KPIs can save both time and money in the long run.
Here are the 5 types of KPIs that you could use for your business needs.
5 types of Key Performance Indicators
We’ve outlined that key performance indicators are a great way to measure the progress and overall performance of your organization.
In order for them to be the most effective, KPIs need to be properly selected and monitored over time.
Key performance indicators (KPIs) are incredibly useful tools for measuring progress in any given workspace.
As they act as signposts, monitoring KPIs enables us to track our successes, identify weaknesses and plan better for the future.
By understanding all five KPI types, organizations are able to craft an efficient performance measurement plan that will help them make better decisions in the long run.
There are five main types of KPIs that act as building blocks for measuring operational success.
- Financial: This type of KPI is the most commonly used and usually tracks things like revenue and costs.
- Customer-focused: Customer KPIs help you understand how loyal or satisfied your customers are with your business.
- Process: These KPIs are tied closely with the day-to-day function of running a company – such as the efficiency of production processes.
- Employees: Employee KPIs help monitor morale and employee engagement while identifying areas where improvement might be necessary.
- Innovation-based indicators: innovator/strategic KPIs look at long-term desired outcomes that could shape the company’s future. They also help measure creativity and progress toward improving business strategy.
These five types of KPIs all give valuable insight into areas that need improvement within the organization and crucially, help to create future action plans and decisions.
Still now sure how to choose the right KPI for your company? Download our free guide: 5 Key’s to Setting Effective KPI’s
Let’s take a look below at how KPIs can drive your business with some examples.
Examples of KPIs
Whether you’re looking to track sales revenue, customer satisfaction, or employee productivity, KPIs can help you better understand operations and find areas of opportunity.
For instance, if a company wants to boost its revenue growth in the fourth quarter, an easy KPI to track is cash flow.
That way, managers can easily measure how much money is coming in and out versus the previous periods.
Sales teams can also use KPIs to analyze customer trends or monitor their own performance; numbers such as average order value and lead conversion rate provide valuable insights into the effectiveness of a sales strategy.
Finally, tapping into data such as employee retention or average feedback scores can help identify where quality and efficiency need to be improved internally.
No matter what direction your company’s goals may take you – KPIs, along with an efficient incentive scheme, can play an essential role in getting there!
What is a Key Performance Indicator? Meaning, types, and Uses – And finally…
A key performance indicator is a type of measurement that helps you understand how well your company is achieving its goals.
By definition, KPIs are specific, measurable, attainable, relevant, and time-bound. In other words, they help you track progress and identify areas of improvement in order to meet objectives.
There are many different types of KPIs that can be used to measure success in various areas of business as we’ve discovered.
The most important thing is to choose KPIs that align with your company’s goals and objectives.
Combine your KPIs with an efficient and easy-to-manage incentive program tailored to your business. Check out our quick 15-minute demonstration, or simply contact us now.