What is a Key Performance Indicator?
A Key Performance Indicator (KPI) is typically a measurable value that demonstrates how a company is performing and how well it is achieving the key business objectives. KPIs are used by organizations to evaluate their success at reaching targets. There is no ultimate set of KPIs that should follow. KPIs must be tailored towards the operations and the specific goals of the company.
What makes a good KPI?
To be effective, a KPI should:
- Be well-defined and quantifiable.
- Be thoroughly communicated throughout your organization
- Focus on indicators/parameters that aid in improving results
- The KPIs need to be simple but be able to provide timely information
- Should be correlated and aligned with the objectives of the company
Types of KPIs
There are many types of KPIs that a business could use. Some typical KPIs include:
- Quantitative indicators that can be presented with a number.
- Qualitative indicators that can’t be presented as a number.
- Leading indicators that can predict the outcome of a process
- Lagging indicators that present the success or failure post hoc
- Input indicators that measure the amount of resources consumed during the generation of the outcome
- Process indicators that represent the efficiency or the productivity of the process
- Output indicators that reflect the outcome or results of the process activities
- Practical indicators that interface with existing company processes.
- Directional indicators specifying whether or not an organization is getting better.
- Actionable indicators are sufficiently in an organization’s control to effect change.
- Financial indicators used in performance measurement and when looking at an operating index.
Examples of KPIs
KPIs also differentiate within the same company between department. There is an endless list of KPIs a busines could use, the following are some examples of some across various business functions:
Project Management KPIs
- Actual cost of work done – It is the metric that helps a company identify the actual cost of activities performed up till completion.
- Percentage of milestones missed – It helps managers keep track of the percentage of projects that have missed milestones.
- Estimate at Completion – Sum total of the actual cost of completion and the estimated cost to complete the remaining work.
- Cost of managing processes – This is a measure of a periodic cost. It helps determine the cost of full time management function employees needed to man a project.
- Deviation of net present value -The difference in value between the planned baseline against the actual net present value. NPV is a method used in discounted cash flow analysis to find the sum of money representing the difference between the present value of all inflows and outflows of cash associated with the project by discounting each at a target yield.
- EV/EBITDA – The ratio between the Enterprise value vs the Earnings before Interest, taxes, depreciation and amortization. EV/EBITDA helps you analyze the debt value of a company
- Return on Investment – It’s considered as the most frequently used probability ratio. It is defined as a parameter that evaluates the performance of a business by dividing net profit by net worth.
- Debt-Equity ratio – Also known as risk ratio, it measures the proportion of shareholders equity to the debt used to finance the company’s assets.
- Operating margin – A measure of a company’s pricing strategy and its operating efficiency. It is calculated as the ratio between the operating income and net sales.
- Return on Assets/Return on Equity – ROE this is a measure of the money raised from shareholders. Comparisons of ROE must be done within the same industry. While ROA is an indicator is a measure of the company’s profitability to its assets.
Human Resources Performance
- Revenue per employee – An indicator of the productivity of the company’s workforce. It measures the amount of sales per employee and also measures the efficiency of utilization of human resources.
- Employee satisfaction index – Helps understand how satisfied employees of a firm/department are.
- Salary competitiveness ratio – This helps to gather data on competitor pay or industry average pay and allows you to compare this with your company’s own salary levels.
- Human Capital ROI – Measure of return on capital invested as pay and benefits.
Supply chain and operational performance
- Order fulfillment cycle time – Another metric to improve customer experience. It determines the time taken from ordering a product to manufacturing and finally delivering it to your customer. It is one of the metrics used to improve customer metrics and responsiveness. This helps companies measure the time taken to complete a manufacturing order.
- Yield – The percentage of correctly manufactured products without rework or scrap; quality is improved when the yield is measured.
- Throughput – Measure of movement of production process inputs and outputs.
- Earned value – Measures performance and can be used to schedule costs and control systems; measurement of work done in a project.
Consumer insights and marketing
- Market growth rate – Analyzes the change on size of a given consumer group in a particular market, over a period of time.
- Customer satisfaction index or NPS – Defined as a measure of how products and services meet or surpass customer expectation.
- Social networking footprint – Identifies the extent to which a company is present on social media.
- Brand equity – The value premium that a brand name provides to the product; this can be done by measuring loyalty, awareness, retention, etc.
- Customer life time value – The revenue expected to be generated from a customer throughout their entire relationship with the company; Revenue by customer minus the gross margin on revenue divided by probability of cancellation of customer gives you the CTV.
- Customer acquisition cost – The ratio between the sum of marketing and sales spend to the number of new customers in a particular period.
IT Operations and Project execution
- Mean time between failure – Tracks the time elapsed between two failure scenarios.
- Ratio of project overhead and ROI
- Estimate to complete – The amount still needed to complete a project.
- Dollars spent per month – As the name suggests, it calculates the amount spent per month on the current project.
- Average Initial Response Time – The average time taken for a service desk to respond to an incident reported by the user.
E-commerce related KPIs
- Site Traffic– helps to understand the popularity of a website, landing pages or separate sections within a site.
- Traffic sources like Search, Direct, Referrals, Advertising (PPC and other), Social Media. This will help you to see which channel sends the most visitors/the most profitable traffic.
- Bounce rate – take a look if the keywords your website is ranking for are a good match with your site, also check what pages people land on, the content and the layout of the sit
- Conversion Rate – the conversion rate tells how effective the company is at closing deals, i.e (Number of Sales) / (Number of Visits)
- Average Cost Per Acquisition – is the Total Cost of Marketing Activities divided by the number of Conversions
Other online marketing KPIs that could be useful:
- Number of Leads Generated
- Contact Form Conversion Rate
- Number of Pages Visited (on Average)
- Referral Traffic Sources
- Time on Page
- Traffic Growth Over Time
- Click-Through Rate
- Engagement Rate
- Shopping Cart Abandonment Rate
- Average Cost Per Click
Which KPIs Should Roo’Bar Use?
The purposes of Roo’Bar’s crowdfunding campaign is to raise 3M BGN, equivalent to approximately 1.75M USD.Taking this into consideration, Roo’bar’s first KPI becomes obvious — Sum of Funds Raised. Since Roo’Bar’s goal is financial in nature, it is self-explanatory why the KPIs would contain financial and quantitative indicators. In terms of crowdfunding it is important to have KPIs that monitor the progress towards the achievement of the goals set. There a few KPIs that would would help achieve this, such as: