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What is KPI? (Key Performance Indicator) Complete Guide to Key Performance Indicators

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KPI is an essential tool when measuring and managing performance in business. What is KPI and how is it used?

What is KPI?​

KPI (Key Performance Indicator) is a quantitative indicator that measures the degree of goal achievement of an organization or individual. It provides essential data needed to judge business success and make decisions.

Simply put, it's "an indicator that shows in numbers whether we're doing well".

Characteristics of KPI​

  • Measurable: Can be measured with clear metrics.
  • Goal-linked: Directly connected to the organization's strategic goals.
  • Action-inducing: Leads to specific actions and improvements.
  • Time-based: Tracks performance during specific periods.
  • Comparable: Can be compared with past data or target values.

Types of KPI​

1. Financial KPI​

Measuring profitability and financial soundness

  • Revenue
  • Net Profit
  • Revenue Growth Rate
  • Operating Margin
  • ROI (Return on Investment)

2. Customer KPI​

Measuring customer satisfaction and loyalty

  • NPS (Net Promoter Score)
  • Customer Satisfaction Score (CSAT)
  • Churn Rate
  • Customer Lifetime Value (LTV)
  • Customer Acquisition Cost (CAC)

3. Operational KPI​

Measuring work efficiency and processes

  • Productivity
  • Quality Metrics
  • On-time Delivery Rate
  • Inventory Turnover

4. Digital/Marketing KPI​

Measuring online performance

  • Website Traffic
  • Conversion Rate
  • Click-Through Rate (CTR)
  • Bounce Rate
  • Engagement Rate

How to Set Good KPIs: SMART Principles​

S - Specific (Specific)​

Should be clear and specific.

  • ❌ "Increase sales"
  • ✅ "Increase monthly sales by 30%"

M - Measurable (Measurable)​

Should be measurable with metrics.

  • ❌ "Improve customer satisfaction"
  • ✅ "Achieve customer satisfaction of 4.5/5.0"

A - Achievable (Achievable)​

Should be realistically achievable.

  • ❌ "Increase sales by 1000% in one month"
  • ✅ "Increase quarterly sales by 25%"

R - Relevant (Relevant)​

Should be related to business goals.

  • ❌ "Office coffee consumption" for e-commerce company
  • ✅ "Average order value" for e-commerce company

T - Time-bound (Time-bound)​

Should have a clear deadline.

  • ❌ "Reach 10,000 customers someday"
  • ✅ "Reach 10,000 customers by end of 2024"

KPI Usage Examples​

E-commerce Company​

Goal: Increase sales

  • Monthly GMV (Gross Merchandise Value)
  • Average Order Value (AOV)
  • Repeat Purchase Rate
  • Cart Abandonment Rate

SaaS Startup​

Goal: Increase and retain subscribers

  • MRR (Monthly Recurring Revenue)
  • ARR (Annual Recurring Revenue)
  • Churn Rate
  • Average Revenue Per User (ARPU)

Content Media​

Goal: Increase engagement

  • Monthly Active Users (MAU)
  • Average Session Duration
  • Page Views
  • Social Shares

Configuring KPI Dashboard​

An effective KPI management requires a dashboard:

Step 1: Select Core Metrics​

Choose 3-5 most important KPIs.

Step 2: Visualize​

Express intuitively with graphs, charts, and numbers.

Step 3: Real-time Updates​

Update data in real-time whenever possible.

Step 4: Display Target Line​

Display target values to clarify progress.

Step 5: Share with Team​

Make it accessible to relevant team members anytime.

Advantages and Disadvantages of KPI​

Advantages​

  • Objective evaluation: Enables data-based evaluation rather than subjective judgment.
  • Clear goals: Clear about what needs to be achieved.
  • Quick decision-making: Can make rapid decisions with real-time data.
  • Early problem detection: Can quickly detect abnormal signs.
  • Motivation: Clear goals motivate the team.

Disadvantages​

  • Number obsession: May miss the essence while focusing only on numbers.
  • Short-term oriented: May focus on short-term numbers rather than long-term value.
  • Gamification: May use negative methods to achieve KPIs.
  • Context ignorance: May overlook context and reasons behind numbers.

Differences Between KPI and OKR​

CategoryKPIOKR
PurposePerformance measurementGoal setting and achievement
NatureMaintenance/management focusChallenge/growth focus
ScopeSpecific indicatorsGoal + result set
ChangeMaintained long-termQuarterly changes
Achievement rate100% expected60-70% also success

Using together: Many companies use KPI and OKR together. Set challenging goals with OKR, and monitor daily performance with KPI.

Frequently Asked Questions​

Q: How many KPIs are appropriate?

A: 3-7 are appropriate. Too many dilute focus, too few make it difficult to grasp overall performance.

Q: How often should KPIs be checked?

A: Depends on KPI type. Important indicators like sales should be checked daily or weekly, customer satisfaction monthly or quarterly.

Q: Should all employees have KPIs?

A: If possible, all employees should have KPIs related to their role. This clarifies individual contribution.

Q: What should be done if KPI falls short of target?

A: First analyze the cause, then adjust action plan. If necessary, review whether the KPI itself is appropriate.

Q: What's the difference between leading and lagging indicators?

A: Leading Indicator predicts future performance, Lagging Indicator measures past performance. Example: Number of sales activities (leading) vs Revenue (lagging)

Conclusion​

KPI is like a dashboard showing business health status. By setting and continuously monitoring the right KPIs, you can make data-driven wise decisions. What's important is not being buried in numbers but understanding the meaning and context behind KPIs!