What are KPIs and Why are They Important?

We’re sure you’ve heard of the term KPIs, but maybe you aren’t sure exactly what they mean. Or perhaps you know what they mean but aren’t sure how to use KPIs in your business or what kind of KPIs you should have. 

In this article, we’ll talk about the importance of KPIs, or Key Performance Indicators, and how they can affect your business outcomes and productivity. 

What is a KPI? 

A KPI, or Key Performance Indicator, as mentioned above, is a measurable metric that shows how well an organisation or company is performing against its key business objectives. It measures the organisation’s success versus a set of business objectives, targets, or industry peers.  

KPIs can be financially-focused, customer-focused, or process-focused.  

Financial KPIs are usually about revenue and profit margins. Many companies focus on these KPIs to track how much profit the organisation has made, or in other words, if the company is actually making money. Some examples of common financial KPIs are net profit, liquidity ratios, or total debt-to-assets ratio. 

Customer-focused KPIs relate to customer satisfaction or customer retention. These KPIs are often set by organisations that are highly customer-centric and want to provide the best customer service possible. One example of a KPI in this area is average response time or the amount of time required for a customer service agent to answer a customer’s request. 

On the other hand, process-focused KPIs measure operational performance across an organisation. These key performance indicators analyse how tasks are completed and monitor whether there are quality, productivity, process, or performance issues. One example of a process-focused KPI is total cycle time; the total amount needed to complete a process from beginning to end. Often, manufacturing firms have these types of KPIs.  

While the KPIs above are the most common, an organisation may also have set KPIs in other areas. For example, a marketing KPI can measure a specific email campaign’s clickthrough rates (CTR) and aim for a certain average CTR across all campaigns. There can also be IT, HR (Human Resources), and Sales key performance indicators. 

Any metric can be a KPI if it is measurable and leads towards a company’s business goals. 

Why are KPIs important? 

Knowing an organisation’s KPI is crucial in determining whether it is on the right path toward meeting its business objectives, whatever it sets them to be.  

Here are several reasons why it’s important to have KPIs: 

1. Measure a company’s progress 

Typically, KPIs are set quarterly and tracked weekly. For example, your goal is to reach a certain net profit this quarter. Every week, you can check if your sales and profits are heading in the right direction. Is it increasing weekly? Are the strong weeks in sales making up for the slower weeks? Having KPIs to measure, allows you to see if the company is progressing toward its business objectives. 

 2. Adjust and stay on track 

Based on the weekly or monthly KPI tracking, whichever works better for your organisation, you can adjust what the company is doing to get closer to your business objectives. For example, if your sales dipped this week, you might have to launch a new marketing campaign to help sales pick up.  

3. Analyse patterns 

When a company measures the same KPIs month on month, or quarter over quarter, patterns may begin to emerge. These patterns can help you plan and execute various business strategies, typically to increase sales or boost productivity. For example, by tracking your KPIs, you learn when your slowest month is and plan a sale or special event to increase sales during this time. Patterns could also be employee related. Maybe you notice that a team member performs over their quota, and therefore you can give them an incentive or a promotion.  

If a company doesn’t have KPIs to measure, whether financial, operational, or customer-focused, it won’t have a clear understanding of what it’s trying to achieve. If you don’t know what success looks like, how will you know if you’re succeeding or failing? Your organisation or business will just be on auto-pilot without a destination.  

Many businesses make the mistake of not having KPIs, or trying to measure too many KPIs simultaneously. If there are no KPIs or too many of them, you won’t be able to measure efficiently, or you might be too spread out trying to reach all the KPIs you’ve set. 

The key is to set KPIs you can measure objectively, monitor regularly, and lead toward your desired business outcomes and objectives. 

KPI Management Tools 

Typically, organisations and businesses track and measure KPIs using business analytics software and various reporting tools. These management tools help organisations to manage, visualise, and analyse their KPIs. The software then presents the KPIs on a dashboard so all stakeholders can monitor the company’s performance. 

Here are several examples of popular KPI management tools you can use in your own organisation: 

1. Tableau 

Tableau is one of the most popular KPI management tools. In its own words, Tableau “helps people see and understand data.” It is an integrated business intelligence  with BI analytics software that helps organisations analyse business data and develop insights. Companies use Tableau to easily keep track of their KPIs because it can gather data from different sources, such as spreadsheets and Google analytics.  

2. TrueOI 

TrueOI is an Operational Intelligence (OI) Platform that allows all team members to see how the company performs in real-time, from any device, and at any time. It  enables various people in the company to manage their areas of responsibility. The platform can also initiate automated system activity based on pre-programmed performance goals, which helps keep track of KPIs and business objectives. 

3. Sisense 

Sisense is a software that allows organisations to embed analytics into any application or workflow. More than just a dashboard, Sisense offers Sisense Fusion. This highly customisable, AI-driven analytics cloud platform gives users access to actionable insights from anywhere. The company ranks as the number one Business Intelligence company, in terms of customer success. 

KPIs are crucial for understanding the performance of a company and in meeting an organisation’s business goals. Ensure that your organisation has KPIs in place to guide it toward success. 

To learn more about how you can grow your business and your networks, visit the District32 website here. 

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