What are Key Performance Indicators (KPIs)? - Definition & Business Importance

Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

What are Key Performance Indicators and why are they important? In this lesson, more about these metrics, including what they are and what they mean to a business.

Acronyms Help Out

Do you know your company's NPS, ETR, or CAC? Wait, you don't even know what those mean? Rest easy, you're not alone. Those acronyms are just three of countless Key Performance Indicators, or KPIs, that savvy businesses monitor. Why do you need to know about KPIs? Read on!

What are Key Performance Indicators?

By definition, Key Performance Indicators are measurable values that a business tracks to determine how successful it is at reaching its goals and objectives. Want to know how much money you're making on your marketing efforts relative to how much you're spending? You need ROI (Return on Investment). Curious about your customers' experiences? Look no further than NPS (Net Promoter Score). What about understanding how much each of your new sales leads costs? You guessed it, there's a KPI for that too, known as CPL (Cost Per Lead).

Businesses today are capable of generating lots of data inside the company and out. KPIs provide a way to analyze and track that data so companies know where to focus more attention and identify what's working. Simply, KPIs help you seek out ways you can improve your business.

Choosing which KPIs to track depends on what your objectives and strategies are, as well as other factors like which department you work in and what industry you serve. It will also change based on what type of business you're in and which areas of your business that you're focused on.

Characteristics of KPIs

When selecting which KPIs you want to track (in addition to considering your business goals), use SMART metrics.

  • Specific: What is it measuring?
  • Measurable: Can it be tracked?
  • Achievable: Is this measurement attainable?
  • Realistic: Are we looking at a practical KPI?
  • Timely: Can we look at this in a reasonable period of time?

Examples

Like we said in the lesson's opening, there are literally thousands of KPIs that businesses can choose to monitor. You have to decide which ones are the best fit for your company. Here are a few of the more commonly tracked KPIs that different departments may look at:

  • Sales: New revenue, average sale amount, overall revenue, monthly sales targets
  • Marketing: marketing return on investment, cost per acquisition, bounce rate
  • Customer service: overall satisfaction, average resolution time, average on-hold time, customer retention
  • Human resources: turnover rates, absenteeism, workplace accidents, time to fill open positions

Why are KPIs Important?

KPIs in business are important for a number of reasons. First, they are critical for performance management. If you want to know what's succeeding (or what isn't), how will you know unless you're measuring with appropriate indicators? KPIs help departments determine what they're doing well and what needs work.

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