Do you know what KPI is ? Or how using metrics can help you run your business and get better results every day? Find out here.
Do you know the KPI s ? Anyone in the business world has certainly heard of this term. Or at least this old quote from Peter Drucker:
“What cannot be measured cannot be managed.”
KPIs are indicators that measure business performance in a specific process, strategy or action. The constant evaluation of KPIs is essential for the company to achieve the desired results and to understand where it is and how it can improve.
In this article, you can find more information about what KPI is, what is the difference between indicators and metrics, and how to define indicators to measure your business.
To start: what is the KPI?
In English, the acronym KPI stands for Key Performance Indicator , i.e. Indicator Key Performance .
These are the indicators or quantitative values that can be measured, compared and tracked , in order to expose the performance of processes and work on the strategies of a company. It’s about measuring results in numbers to bring real information to decisions, not just ideas and guesswork.
But the truth is that with technology, almost any process can be measured , right? You can find out, for example, how many people have accessed your site, which suppliers have the best cost-benefit ratio, which employees are the most productive and efficient, among other things.
The thing is, more than metrics, KPIs are the numbers or percentages that are truly valuable to an organization’s strategy and competitiveness.
By establishing a plan with objectives, management can define what processes will be measured and how it will be done. In addition to being measured, KPIs must be able to generate information for continuous business improvement.
What is the difference between KPI and metric?
In the business context, it is common to use “the KPI” and “metrics” in the same sentence or even as if the two things were synonymous. However, the two concepts are different .
Although both are related to strategic business planning, one is the foundation of the other. That very! Metrics are used to structure the KPI.
In general, it can be said that the metric is numerical information, whereas the KPI uses this measure, until then in its raw state, to measure the results of the company.
Some simple examples can help you better understand the difference between KPI and metrics, let’s look at them:
- Website click-through rate : The metric is the number of raw clicks to the company’s website. The indicator can measure the percentage increase in clicks over a given period of time and what rate turned into sales.
- Number of employees: Although the metric indicates that the company has 100 employees, the KPI can measure how many these people can produce in X hours.
Conclusion: Metrics are just something to measure, while metrics actually measure business performance.
Primary and secondary indicators
It is not always easy to define the best indicators for the company. Therefore, it is important to better understand the KPI categories to start designing a more assertive strategy . KPIs are divided into primary and secondary. We explain what each category consists of below:
Primary
The primary KPIs are the main ones to evaluate the performance of the business and help understand if, in fact, the business is on the right track and optimizing its efficiency.
They are related to customer acquisition cost, conversion rate, total revenue, average ticket per purchase, among other metrics.
Secondary
Secondary KPIs – also known as tactical indicators – will show how results are being achieved. That is to say, they accompany each stage of the defined strategy, analyzing complementary indicators and supporting the primary indicators.
They reinforce the primary indicators and they always go hand in hand! Examples include cost per transaction, how many people subscribe to the newsletter , where people visiting the site are from, etc.
How to make a good KPI?
KPI management is based on constant, real-time monitoring of indicators. A good KPI should:
- Be aligned with the organizational strategy and be relevant to the objectives;
- Have a responsible person who manages it and can monitor progress;
- Obtain current data and also show its trend in order to project into the future and prepare for uncertainties;
- Be easily understood by all concerned, since the activities carried out by the professionals will be measured;
- Be periodic , i.e. measured from time to time for the purposes of comparison and analysis;
- Be reliable within an acceptable variation range . If the values are much higher or lower than this range, a solution to the problem must be found;
- Be standardized for comparison.
What are the main KPIs?
There are different types of KPIs and they vary by company. In general, it is possible to list a few main key indicators , which fit into any organization and can be divided into secondary indicators:
1. The quality KPI
Quality KPIs show value delivery to the customer. They also allow you to identify errors, unforeseen events and production bottlenecks that can be corrected to improve the process. Some examples are:
- Percentage of defective products;
- Customer complaint index;
- Production efficiency;
- Efficiency of finished products.
2. Financial KPIs
Financial KPIs measure the performance of the business in relation to finances. They monitor the entire financial health of the company , from profitability to resource savings, including expenses, income, losses, among others. We can cite, among the main ones:
- Profitability (net profit / gross revenue x 100);
- Profitability, which refers to the performance of an investment;
- Billing, which is the sum of revenue over a period of time;
- Costs, the amount the business spends to maintain its operations.
3. The KPI applied to the client
These indicators measure the customer’s relationship with the brand, from the image, through the experience with the product, to the service offered. Here are some examples of this type of KPI:
- Satisfaction index;
- Customer retention rate;
- Net Promoter Score, which measures how willing the customer is to recommend the brand to others (measures loyalty).
These indicators are very important because they reflect the performance of the company in relation to consumers.
4. Productivity KPI
As the name suggests, this type of KPI evaluates the productivity performance of the business. These indicators provide a better understanding of the use of resources and the points that can be improved to ensure more satisfactory results. We can cite:
- Revenue rate per salesperson;
- Hours worked on a project, assessing delays and efficiency opportunities;
- The capacity index, which measures the company’s ability to respond to certain processes, such as the number of products a machine can pack over a period of time;
- Churn rate (number of customers who cut their relationship with the company).
5. The Human Resources KPI
It is also very important to measure employee satisfaction. After all, a satisfied team tends to be more motivated, to produce more and to speak well of the brand to the external audience. Some of the main clues for an HR department are:
- Absenteeism (percentage of absences);
- Turnover rate (turnover of employees). This index is very important to improve the quality of the selection process;
- Talent retention rate, after all, the company invests time and resources to develop its employees;
- The organizational climate, which assesses the general level of satisfaction with the company and its impact on daily life.
6. Strategic KPIs
Strategic KPIs, on the other hand, show how the company’s relationship is with its objectives. They are responsible for evaluating the performance of each strategy.
- Monthly business growth;
- Higher profitability;
- Market share rate ( market share).
It is important to remember that looking at the KPI separately may provide insufficient information. You need to analyze multiple metrics together to get real intelligence.
Do you now know what the KPI is? To understand better, look at this example:
If one of your strategic objectives is to sell more, because you need to increase your revenue, your KPIs could be the number of sales made by each employee of the sales team , the percentage of new customers who consumed your product (conversion rate), the ticket means that the customer is spending or increasing their income.
Actual and long-term KPIs
It is also important to highlight the frequency of measurement of these KPIs. On the one hand, we have the long-term indices and, on the other hand, those that are measured in real time.
Long-term KPIs
Long-term ones, usually with a measurement time of six months to one year , are those that provide information relevant to the company’s macro and business intelligence strategies .
An example would be measuring the time it takes to complete a step of a process in the business . If it is higher than expected and fixed in the indicator, it can be readjusted to gain efficiency.
real-time KPIs
This type of indicator must be measured in real time, that is, compared to a minute, an hour or a day. The information extracted from these analyzes helps in day-to- day management and enables rapid identification and response to any problem, increasing business agility.
Thanks to this it is possible, for example, to compare the number of sales from day to day and understand their reasons or whether a new tool has brought improvements or not.
How to define important KPIs for the company?
Each activity and each segment requires different results and, therefore, different indicators that accompany them. But there are a few key characteristics when defining a company’s KPIs:
It must be measurable
A good KPI should be specific, measurable and achievable . This means that the definition should be objective, with clear guidelines and capable of being measured quantitatively. And of course, the team must be able to do it!
In practice, it is about setting goals that, in fact, contribute significantly to the business and generate value for the end product.
it must be relevant
There is no point in defining measurable KPIs if they are not relevant to the business . Indicators must support decision-making and be able to truly measure the quality and effectiveness of strategic actions.
It must be verifiable
Another characteristic observed in good indicators is the possibility of being revised periodically. Reviewing KPIs frequently allows you to make adjustments along the way and come up with more effective improvements.
Should improve decision making
The KPI should also contribute to better decision-making by managers. After all, performance is measured on the basis of hard data, which should guide the company on the best path.
What makes a KPI effective?
For the KPI to really make a difference in the company, in addition to the characteristics already mentioned here, it must ensure more value to the company’s products and services.
At the same time, it must be part of corporate communication, extend to all sectors and be part of daily activities.
Leaders must agree on the definition of these objectives and, more than that, all teams must be 100% committed to achieving them.
The Growth team and KPI monitoring
The Growth team focuses on growing the business, with proposals to improve customer acquisition and sell more.
It is essential that this team closely monitors the key performance indicators of the company. This way, you can clearly understand the state of the business and devise increasingly sophisticated strategies to boost business results.
KPIs in BPMS: what are the main advantages?
You already understand what a KPI is. Now let’s talk a bit more about KPIs in BPM strategies . How can a BPMS help you measure and track your indicators?
Business Process Management ( BPM ) involves the entire enterprise and is process-based, comprising a sequence of activities that permeate all ends of the value chain.
With the use of a Business Process Management Suite (BPMS – Business Process Management Suite ), these processes are automated, allowing results to be controlled and KPIs to be monitored in real time, with greater ease and precision. i.e. more approachable and assertive.
In this way, the management is able to detect at any time the performance of the execution of its business processes, which allows a faster analysis and adjustments of these processes.
BPMS also makes it possible to determine who is responsible for processes and their activities , to monitor KPIs and create notifications if they reach a previously configured value, and to make KPI comparisons through graphs and dashboards. updated in real time, depending on the execution of the processes.
One of the components of BPMS is the rules engine, also known as BRMS (Business Standards Management System), which automates business rules and integrates them into processes.
This means that the platform is able to understand the logics that guide decision-making and, thus, automate processes in a more qualified way, following the business strategy defined in the KPIs.
