Every company experiences lagging systems at some point, making it crucial to have access to valuable metrics to identify which departments are underperforming.
Key performance indicators (KPIs), also known as key success indicators (KSIs), are measurements used to define a business's overall performance over a specific timeframe. This enables management to create actionable insights that improve their financial, operational, and marketing strategies.
By monitoring business KPIs, companies are able to measure their progress towards long and short-term goals, such as increased sales, revenue, or customer retention. However, KPIs often vary between businesses, as different industries prioritize various functions.
For example, a software company may focus on their year-over-year (YOY) income growth, while retailers closely monitor their customer satisfaction and retention rates.
Whether they focus on financial, customer, or process metrics, every type of business can benefit from tracking KPIs.
18 Key Performance Indicators
There are several types of KPIs that businesses should consider tracking in order to maintain financial health and performance. However, the primary metrics that companies should monitor include-
Financial Key Performance Indicators
1. Profit remains the most crucial metric for every business. However, profit KPIs depend heavily on gross and net profit margins. Therefore, management must also track the dependent KPIs to fully understand how well their company can generate income.
2. Cost simply measures expenses and determines how a business can reduce its costs.
3. Revenue vs. Target is the comparison between a company's actual revenue and their estimated income. By cross-examining these two metrics, management can see how well each department performs and how it impacts generated revenue.
4. Cost of Goods Sold (COGS) totals all production costs required to create a product line, giving businesses an idea of how markups can affect profit margins.
5. Day Sales Outstanding (DSO) divides a company's accounts receivable (AR) by total sales and multiplies the value by the number of days within a specific timeframe. This metric determines how long it takes to sell products. Therefore, the lower the KPI, the better a company is at turning stock.
6. Sales by Region analyzes the performance of a company's various locations by measuring each store's sales, feedback, and how well they can meet objectives.
7. Expenses vs. Budget compares an organization's overhead costs and their forecasted budget to understand how to improve budgeting techniques.
Customer Key Performance Indicators
8. Customer Lifetime Value (CLV) determines the value of long-term loyal customers by measuring which sales channels generate the most shoppers for the lowest cost.
9. Customer Acquisition Cost (CAC) divides a business's total acquisition costs by the number of new customers within the examined timeframe to determine the effectiveness of marketing campaigns.
10. Customer Satisfaction and Retention measures repeat customers and satisfaction scores to determine a company's ability to keep shoppers happy. This metric is also an important indicator for stakeholders, as it shows longevity and stability.
11. Net Promoter Score (NPS) measures long-term growth by collecting quarterly surveys to determine customer advocacy. Once a benchmark is established, management can implement strategies to boost the NPS score.
12. Number of Customers counts the number of customers a company loses or gains within a specific timeframe. This helps businesses determine if their products and services are adequately meeting shopper's expectations.
Process Key Performance Indicators
13. Customer Support Tickets count and compare the number of new, resolved tickets, as well as the resolution time to help improve customer service.
14. Percentage of Product Defects divides the number of defective items by the total number of units within a specific period. Businesses should aim to lower this metric as much as possible to reduce expenses.
15. Efficiency Measure is different for every industry, as internal processes vary. For example, manufacturers measure the number of units they produce each hour. While distributors focus on how fast they are able to fulfill orders correctly and the daily order fulfillment benchmark.
People Key Performance Indicators
16. Employee Turnover Rate (ETR) divides the number of employees who left a company by the average number of employees. Therefore, the higher the ETR, the more employees tend to depart. Companies with high ETR should examine their workplace environment, benefits, and culture to determine how they can improve employee satisfaction and loyalty.
17. Percentage of Response to Open Positions measures a business's outreach and marketing skills when it comes to new hires. With a high percentage, companies will receive a large volume of applications for open positions. This shows how well they can maximize the brand's exposure to the appropriate applicants.
18. Employee Satisfaction is a metric that uses routine surveys containing questions and ratings to determine staff satisfaction levels. Studies show that happy employees work harder, therefore, companies should aim to boost satisfaction. If management notices low scores, they should evaluate the targeted department's work environment and organizational health.
Monitoring KPIs is an excellent way for organizations to track their performance and progress towards goals. When management notices digressing metrics, they can promptly address these issues and make improvements.