What Is a Key Performance Indicator (KPI)?

What is a KPI?

KPIs are measurable values that reveal whether a company is achieving its key business objectives. Think of a KPI as a compass that guides the company toward its strategic goals. A KPI can highlight performance, identify areas for improvement, and keep a business focused on what matters most.

The importance of KPIs in business

KPIs play a crucial role in modern businesses for several reasons:

• Performance measurement: KPIs provide objective data that let a company assess and manage how it’s performing in specific areas
• Performance improvement: KPIs guide employees to better performance, motivating them with clear targets and a sense of achievement
• Goal setting: KPIs help businesses set realistic, common targets for teams and individuals to work toward
• Decision making: By monitoring KPIs, businesses can make sound decisions, allocate resources effectively, identify trends, and anticipate challenges
• Accountability: KPIs create a sense of responsibility among employees by showing how their actions contribute to the success of the organization
• Communication: KPIs facilitate communication within the organization, ensuring that everyone is on the same page

How to choose the right KPIs for your business

Like Goldilocks, you’re looking for the KPIs that are just right. By selecting the right KPIs, you can accurately track your progress toward success. Here are some tips on choosing the most relevant KPIs for your business:

• Align KPIs with your strategic objectives: Link your KPIs directly to your business goals and vision
• Keep things simple: Focus on a limited number of KPIs that provide the most significant insights
• Make them measurable: Choose KPIs that can be quantified and tracked over time

• Ensure relevance: Your KPIs should be relevant to your industry, business model, and target audience
• Regularly review and update: As your business evolves, you’ll want to review and update your KPIs

KPI metrics: Categories and types

KPIs can be categorized by the aspect of business they measure. Here are some common categories and examples of KPIs:

Financial KPIs

• Gross profit margin: The percentage of profit generated from sales after accounting for the cost of goods sold
• Net profit margin: The percentage of profit remaining after accounting for all expenses
• Return on investment (ROI): The ratio of profits generated from investments relative to their cost

Operational KPIs

• Production efficiency: The ratio of output produced to the resources used in production
• Inventory turnover: The number of times inventory is sold and replaced within a specific period
• Order fulfillment time: The average time taken to complete and ship an order to a customer

Customer KPIs

• Customer satisfaction (CSAT) score: A measure of how satisfied customers are with a product or service
• Net promoter score (NPS): A metric that gauges customer loyalty by asking how likely they are to recommend a product or service to others
• Customer churn rate: The number of customers who cease doing business with a company during a certain period

People (human resources) KPIs

• Employee engagement: The level of commitment and enthusiasm employees have toward their work and organization
• Turnover rate: The percentage of employees who leave the company during a specific period
• Training effectiveness: The degree to which training programs improve employee skills and performance

Innovation and learning KPIs

• New product development time: The average time needed to bring a new product or service to market
• Patents: The number of patent applications filed by an organization
• Employee skill development: The improvement in employee skills and capabilities over time

KPI cascading: Aligning KPIs across the organization

Kind of sounds like a waterfall, right? You’re not far off. KPI cascading is the process of aligning KPIs from top-level strategic objectives down to employee goals. Cascading ensures that everyone in the organization is coordinating their efforts.

Here’s how to cascade your KPIs:

• Set clear strategic objectives at the top level
• Break down strategic objectives into departmental and team goals
• Assign individual goals that support team and departmental objectives
• Regularly review progress toward goals and adjust as needed

Setting and tracking KPIs

It’s important to set SMART targets to make KPIs specific, measurable, achievable, relevant, and time-bound. Also, be sure to conduct regular performance reviews to track progress toward KPI targets and identify areas for improvement. These reviews should:

• Involve relevant stakeholders
• Be based on accurate, current data
• Include an action plan to address any performance gaps
• Be conducted at regular intervals to ensure ongoing progress monitoring

To effectively use KPIs, your business needs to set and monitor targets. Here’s how to do it:

• Be realistic: Base your KPI targets on historical data, industry benchmarks, and your organization’s capabilities — and make the targets realistic
• Communicate targets: Clearly communicate KPI targets to relevant teams and individuals, ensuring everyone understands their role in achieving them
• Monitor progress: Regularly track and analyze KPI data, identifying trends and making adjustments to stay on track
• Report and review: Share KPI progress reports with high-level stakeholders, discussing successes, challenges, and areas for improvement

KPI dashboard: Tracking and visualizing KPIs

It’s not just a matter of scribbling your KPIs down in a notepad — you need a proper way to visualize them.

A KPI dashboard is a visual tool that helps organizations track and analyze their key performance indicators. Dashboards provide real-time insights into performance so organizations can make data-driven decisions and adjust strategies as needed. Here are some benefits and key components of a KPI dashboard:

Benefits of KPI dashboards

KPI dashboards offer several benefits:

• Real-time data: Access up-to-date information on performance to make timely decisions
• Customization: Tailor the dashboard to display the most relevant KPIs for each user or department
• Data visualization: Highlight complex data in an easily digestible format through charts, graphs, and other visual elements
• Collaboration: Share dashboards with team members to promote transparency

Key components of a KPI dashboard

A KPI dashboard should include the following characteristics:

• Relevant KPIs: Choose KPIs that relate to the organization’s strategic objectives
• Simplicity: Keep the dashboard clean and uncluttered, focusing on the most important information

• Interactivity: Enable users to interact with the dashboard, filtering and drilling down into the data as needed
• Mobile compatibility: Make the dashboard accessible on all devices for use on the go

KPI dashboard tools and software

Various software tools are available to help businesses create and manage KPI reports. These platforms offer features such as data integration, customizable visualizations, and real-time updates. Some popular KPI dashboard tools include:

• Tableau
• Microsoft Power BI
• Domo
• Sisense
• Klipfolio

Wrike’s Tableau integration allows users to connect their Wrike data with Tableau to create powerful visualizations and in-depth analysis. Additionally, Wrike has its own robust dashboards and reporting features that provide users with real-time insights into their projects and team performance.

When selecting a dashboard tool, consider factors such as ease of use, integration capabilities, and scalability to ensure it meets your organization’s needs. 

Common challenges and pitfalls in KPI management

Initially, you may face challenges as you try to manage your KPIs. We’ve outlined some common challenges below.

• Choosing the wrong KPIs: Focusing on irrelevant or poorly defined KPIs can lead to wasted resources and efforts
• Focusing on too many KPIs: Organizations should prioritize those KPIs that directly impact their strategic objectives in the long term
• Inaccurate or outdated data: Bad data can lead to incorrect analysis and poor decision making
• Lack of accountability: Improvements can be difficult to make if KPIs have no clear ownership
• Relying solely on lagging indicators: Combining leading and lagging indicators provides a more comprehensive view of performance
• Failing to adapt KPIs as business conditions change: Regularly reviewing and updating KPIs keeps them relevant to the organization’s goals
• Not clearly communicating KPIs to employees: It’s virtually impossible to manage KPIs when employees don’t know which KPIs they’re responsible for or understand how they contribute to the organization’s success

Tips for successfully implementing and managing KPIs

To overcome the above challenges and implement KPIs, consider the following tips:

• Align KPIs with strategic objectives: Ensure that KPIs directly support your specific business goals and vision
• Prioritize and focus: Select a few KPIs that provide the most significant insights into your organization’s performance
• Involve employees: Let employees help choose and monitor KPIs to create a sense of ownership and commitment
• Establish clear accountability: Assign responsibility for KPIs to specific individuals or teams to ensure progress
• Regularly review and update KPIs: As your business evolves, review and update your KPIs to be sure they make sense in light of your objectives

Set and track your KPIs with Wrike

So, now you know your KPIs from your OKRs and your ABCs.

If you want to measure performance, set goals, and make informed decisions in your business, try using KPIs. By selecting relevant KPIs and monitoring progress, you can achieve your strategic objectives and evolve your business.

Wrike offers customizable and pre-built templates for goal setting, easy collaboration across teams, and powerful dashboards to visualize progress. By using Wrike, you can document all the KPIs for your organization in one place and track progress in real time. Why not try it for yourself?