Basics of KPI or Key Performance Indicators: Define Your Goals

As we know, the business world has expanded to a large extent. A business organization houses several departments, each with its own goals and objectives that they have to fulfill. Now, these goals may be financial or non-financial. 

To trace the success of the non-financial measures, such as operations or decision-making, KPI or key performance indicators are used. In this blog, we will explore the ins and outs of key performance indicators and will also discuss strategies on how to develop one for your business.

Additionally, enrolling in an Online MBA in Digital Marketing helps you understand and track Key Performance Indicators (KPIs), crucial metrics that measure the success of your campaigns. This program equips you with AI-driven skills to set measurable goals, analyze performance data, and optimize strategies for better engagement, higher ROI, and continuous improvement in digital marketing efforts.

What are KPIs or Key Performance Indicators?

KPI or Key Performance Indicators are those elements of your organization’s plan, that quantify the outcomes you seek. It is also a tool by which you can measure your success. They are the quantifiable statements by which you can evaluate the success of your organization against particular goals. 

Accordingly, KPIs create a foundation for sound decision-making whilst focusing on strategic and operational efficiency. They can also be used to judge a company's progress against a benchmark of past performance. 

Why are KPIs or Key Performance Indicators important?

As we have already discussed, KPIs are the means through which you can measure how far your goals have become successful. Now, let's look into a few reasons why KPIs are considered to be important:

Serves as a measurement of company health: KPIs provide an overview of how well the company is performing. This is done by tracking metrics that align with the company's objectives. 

1. Measures progress of goals: KPIs enable an organization to keep track of its goals and objectives and how far they have been achieved. This provides a basis through which managers can identify areas that need improvement.
2. Helps identify the adjustment areas: KPIs help an organisation to identify the key areas that need improvement and adjustments. It reveals patterns and trends that are concerning and need adjusting. This information can be used to rectify the areas of concern. 
3. Helps improve employee morale: In a company, people have KPIs for which they’re responsible. When those targets and goals are achieved, it fosters a sense of pride and ownership in the employees. This, in turn, helps to improve employee morale and overall employee efficiency. 

Provides a basis for understanding customer needs: KPIs can provide accurate data on customer needs and preferences. A business can track key metrics related to consumer satisfaction, such as post-purchase surveys and reviews, to identify what the customer wants. This can also help a company find flaws in its products or services. 

Also Read: Understanding Conversion Rate & Its Relevance as a Digital Marketing Metric

Examples of KPIs

Now, let us take a look at some KPIs or key performance indicator examples.

Employees: 

Some KPI examples for employees are,

• Attendance and punctuality.
• Employee turnover rate.
• Employee absenteeism rate.
• Employee engagement.

Retail:

Some retail key performance indicators are,

• Sales per Square Foot.
• Average Transaction Value.
• The volume of sales achieved per retail store.
• Inventory Turnover.
• Conversion.

Sales:

Some KPIs relating to sales are,

• New Inbound Leads
• Response Time per Lead
• Lead Conversion Percentage
• Total Value of Pipeline
• Average Order Value
• Average Sales Cycle Time
• Sales Target Percentage

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Marketing:

Examples of KPIs related to marketing include,

• Marketing Qualified Leads (MQLs)
• Sales Qualified Leads (SQLs)
• New Customers
• Conversion Rate
• Cost per Lead
• Total Revenue 
• Revenue Segregated by Product or Service
• Net Promoter Score (NPS)

Finance: 

Examples of KPIs related to finance include,

• Gross Profit Margin
• Net Profit Margin
• Operating Expense Ratio
• Debt-to-Equity Ratio
• Quick Ratio
• Current Ratio
• Cash Flows
• Return on Assets

How to Create and Define KPIs or Key Performance Indicators?

Creating and defining KPIs is an important step as it is the cornerstone through which you will be able to measure your business’s success. Here are four steps on how to do it.

Step 1 - Determining Your Objectives

The first step to creating a KPI is the determination of objectives. You'll first need to determine which objective of your business you're trying to measure. One example of a strategic objective would be to increase customer satisfaction and retention rate by the end of the fiscal year. 

Step - 2: Defining Success

The next step is to quantify success in measurable terms. You'll need to identify what the success of each objective looks like to you. Let's stick to the same example used in step 1. If your objective, for instance, is to increase customer satisfaction and retention, then success would mean increasing the positive feedback received from customers. It would also mean decreasing the overall customer churn rate by say, 15%. 

Step - 3: Measuring the Success

Once you're done with step 2, the next step is to decide on the metrics of measurement. You'll need to choose a metric that not only is quantifiable but also can be updated regularly. That way, you'll be able to keep track of your progress. Using the same example as mentioned above, you can measure customer satisfaction using tools like Post-Purchase Surveys and Net Promoter Score (NPS).

Step - 4: Writing the KPI

After completing all the steps given above, you can finally start writing the KPI. However, KPIs must follow the SMART format. It is a goal-setting framework that states that the goals should be:
 

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound
   

An example of the same would be, "Increase customer satisfaction score to 90% by March 31, 2025."

Final Words

KPIs, or Key Performance Indicators, are those metrics that help you measure the success of your goals. In today's world, where several companies are engaged in cut-throat competition against each other, it is essential to set and measure your goals and standards against your competition.

Now, setting these goals and using relevant metrics to measure them is a challenging task. However, with Amity Online University's online MBA program, you can learn to do that easily. Not only that, you will also get practical exposure and access to world-class infrastructure. Enroll now.