Definition
KPI is an abbreviation of the phrase ‘key performance indicator’.
The term KPIs (key performance indicators) is simply the plural of the same word.
Key performance indicators are used to evaluate the success or performance of an organisation or project based on predetermined goals and expectations.
Examples of KPI / KPIs
Measuring a company’s KPIs provides a quantitative determination of the performance of the company as a whole or of specific processes within. In essence, KPIs are used as a numerical expression to verify whether or not a company is approaching their set goals.
In an online business environment, a KPI might take the form of the following:
- average purchase value,
- time spent on the website,
- number of returns, and so on.
For example, you set the business a goal to increase the number of orders by 35% in 6 months. You will primarily support sales with PPC campaigns and advertising on social media.
You will start tracking the performance of campaigns through various metrics (number of orders, number of clicks, advertising costs, etc.). However, these are not performance indicators, but metrics that evaluate the success of daily activities. They affect the result, but are not a critical indicator.
KPIs measure key objectives that have the greatest impact on overall business results. In the example of an increase in the number of orders through advertising, the main KPI should be the price for obtaining an order (CPA, Cost per Acquisition).
That’s the only way you’ll find out if you underestimated your expenses. An increase in orders must bring not only turnover, but also profit.
Finding the most meaningful one in a sea of metrics is not easy. A KPI should be a metric which, when changed, has a significant impact on the entire business.
How to set a KPI?
Performance indicators are closely related to objectives. Therefore, there is no such thing as a universal indicator for all companies.
- Link indicators to strategic goals. Assign one, or a maximum of two, performance indicators to each goal.
- Formulate KPIs as SMART goalsSMART is a proven method for correctly setting goals. You can use its principles and rules in marketing, project management and everyday life. What ar... More. Make sure they are specific, measurable, achievable, relevant and time bound.
- Don’t overdo it with setting lots of performance indicators. Thanks to a wide variety of analytical tools, companies nowadays have access to a lot of data, so they often measure anything. The fewer KPIs you have, the better overview you will gain and the easier the evaluation process will be.