KPI and metric are different terms, but many professionals use them interchangeably, considering these terms are similar. However, both terms are different.
In this blog post, we will discuss and clarify the difference between these two important terms.
KPIs are key performance indicators; they are a set of metrics that help businesses track their performance. Metrics are data points used to measure KPIs.
What is a KPI?
A KPI, or key performance indicator, is a metric used to measure and track progress. There are many KPIs, but they have one goal: to help businesses understand their performance and where they can improve.
There are KPIs for every aspect of business, for example, sales, marketing, finance, operations, etc. To choose a KPI, understand what you will measure, then select metrics that align with your goals.
For example, if a goal is to increase sales, you might track KPIs such as conversion rate or customer lifetime value. If the goal is to improve customer satisfaction, you might track KPIs, such as Net Promoter Score or customer churn rate.
KPIs are dynamic; they should be reviewed and updated regularly to ensure that they are aligned with business goals.
There are four main types of KPIs:
- Leading KPIs are predictive and show if the future performance is on track. For example, a leading KPI for a sales team might be the number of sales-qualified leads generated per month.
- Lagging KPIs measure past performance and are used to assess whether goals have been met. For example, a lagging KPI for a marketing team might be the number of website visitors who converted into customers last month.
- Input KPIs measure the resources used to achieve results. For example, an input KPI for a manufacturing company might be the number of hours worked per week.
- Output KPIs measure the results of an organization’s actions. For example, an output KPI for a customer service team might be the number of complaints resolved per month.
By tracking the right KPIs, you can gain valuable insights into the business performance and identify areas for improvement. However, note that KPIs are only one piece of the puzzle; they complement other data sources to get a complete picture.
What Are Metrics?
Metrics are the quantifiable measures of a business’s performance. They are used to track progress, assess effectiveness, and identify areas for improvement.
There are four main types of metrics: financial, customer, operational, and employee.
Financial metrics focus on a company’s bottom line and include measures such as revenue, profitability, and cash flow.
Customer metrics track customer satisfaction, engagement, and loyalty. Operational metrics measure a company’s efficiency and productivity.
Employee metrics assess employee morale, retention, and engagement.
Each metric provides valuable insights into a company’s business performance. By tracking the right mix of metrics, you can identify areas of strength and weakness, set goals, and track progress over time.
What are the Differences Between KPIs and Metrics?
- KPIs are measures that indicate whether a company is achieving its key business objectives. Metrics, on the other hand, are measurements or data points.
- KPIs tend to be high-level indicators of success, while metrics provide insights into how to achieve that success. KPIs are the goals, and metrics are the means of achieving those goals.
- KPIs have a specified timeframe, and metrics are recorded in real-time. For example, a KPI for a company might be “increase revenue by 30% in the next fiscal year.” The metric associated with this KPI could be the “conversion rate of website visitors.”
- KPIs are quantifiable measures that evaluate the success of an organization, employee, or some other aspect of performance. Metrics are the tools used to track and measure progress towards a goal. To set KPIs, metrics must be relevant.
- KPIs are specific to an organization’s goals and objectives, while metrics can be used by any organization to measure performance. This means that KPIs will differ from one organization to the next, while metrics are standard.
- KPIs are actionable; they indicate steps taken to improve performance. Metrics, on the other hand, are simply data points that provide performance information.
- All KPIs are metrics, but not all metrics are KPIs. KPIs are a subset of metrics that help organizations track progress and determine whether they are meeting their objectives. Metrics are a broader category that can be used for any measurement.
While KPIs and metrics are different, both are essential for a business that wants to track and improve its performance. Tracking the right KPIs shows businesses if they are on track to meeting their objectives. By tracking metrics, businesses can identify areas of improvement and optimize their performance.
KPIs Vs Metrics: Examples
KPIs are specific and measurable, for example, “increase web traffic by 20% in the next quarter” or “achieve a Net Promoter Score of 75.”
Metrics, on the other hand, are simply the data points that businesses want to track to measure progress toward their KPIs. So in the example above, web traffic would be a metric.
Let’s look at some examples of KPIs and metrics.
KPI: Increase web traffic from organic searches by 25% in the next quarter.
Metric: Web traffic from organic searches. (Other related metrics could include organic keyword rankings, click-through rate, etc.)
KPI: Achieve a Net Promoter Score of 75 by the end of the year.
Metric: Net Promoter Score. (Other related metrics could include customer satisfaction scores, number of complaints, etc.)
KPI: Increase conversion rate from website visitors to leads by 50% in the next quarter.
Metric: Conversion rate from website visitors to leads. (Other related metrics could include the number of website visits, number of forms completed, etc.)
KPI: Increase revenue by 30% in the next fiscal year.
Metric: Revenue. (Other related metrics could include gross margin, customer lifetime value, etc.)
KPI: Reduce customer churn by 50% in the next year.
Metric: Customer churn. (Other related metrics could include customer satisfaction scores, number of complaints, etc.)
KPIs are specific and actionable. They provide a target and help measure progress over time. Metrics are the data points that measure the KPIs.
Why Differentiate KPIs and Metrics?
So why is it important to distinguish between KPIs and metrics?
Metrics are important for measuring progress and performance. KPIs drive a business to achieve its goals. In other words, KPIs are leading indicators of success while metrics lag behind.
This means that by the time a business sees results from their metric data, it’s too late to change course. KPIs, however, can give an early warning sign that something isn’t going as planned and allow you to take corrective action.
Not all metrics are the same. Some metrics are more important than others in predicting success. For example, a metric for customer satisfaction is a good predictor of future revenue. This metric is more important than other metrics, like website traffic.
This is why it’s important to choose KPIs carefully. The best KPIs are linked to the company’s goals and are good predictors of success.
How to Set KPIs for Employees
When creating KPIs, consider the following questions:
- What goal is the business trying to achieve?
- Who is responsible for achieving that goal?
- What resources are available to help them achieve that goal?
- What timeframe are they working with?
After considering those factors, you can start developing KPIs.
Below are the steps to follow when setting KPIs for employees.
Step One: Draft a Goal Statement
The first step is to develop a goal statement. The goal should be a clear and concise statement outlining what the business intends to achieve.
For example, “Our goal is to increase sales.”
Step Two: Identify the Metrics to Measure Progress
After coming up with a goal statement, you need to identify the metrics to measure progress. This will vary depending on the business’s goals, but some examples might include measures like sales volume, conversion rate, or customer satisfaction.
Step Three: Set Targets for Each Metric
The next step is to set targets for each metric. These targets should be specific, measurable, achievable, relevant, and time-bound (SMART). After setting targets, you can create KPIs.
KPIs should be aligned with goals, and they should be used to measure progress towards those goals. For example, if the goal is to increase sales, a KPI might be sales per month.
Step Four: Assign KPIs to Employees
After developing KPIs, you need to assign them to employees. The employee must understand the KPI and its contribution to the goal.
Step Five: Track Progress and Adjust as Needed
The final step is to track progress and adjust as needed. This means regularly reviewing the KPIs and making changes if necessary. Businesses can adjust targets, KPIs, or goals if necessary.
By following these steps, organizations can develop KPIs aligned with their business goals, which will help them track progress towards those goals. Remember, KPIs should be reviewed and updated regularly to ensure they remain relevant and effective.
Tips when setting KPIs:
- Make sure the KPIs are specific, measurable, achievable, relevant, and time-bound (SMART).
- Make sure the KPIs align with the company’s overall strategy.
- Make sure they are relevant to business goals.
- Keep the KPIs simple – too many KPIs can be overwhelming and difficult to track.
- Assign KPIs to individuals or teams, depending on who is responsible for achieving the goal.
- Review and update the KPIs regularly.
It is important for businesses to understand the difference between KPIs and metrics and how they are useful to measure business performance. Selecting the right KPI with the most relevant metrics is important for tracking business performance.