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I read a lot about goals and it has always annoyed me when people use the terms metrics, KPIs and Key Results interchangeably, as if they all mean the same thing. In this article, I’ll try to create some clarity by explaining what each of these terms mean, how they differ and why many people confuse them.
Let’s start with metrics.
Metrics
The Oxford Dictionary defines a metric as “a system or standard of measurement”. Specifically for businesses, they use the definition “a set of figures or statistics that measure results”.
As you can see, the word measure is encapsulated in the term metric. Historically, that makes sense, since the word metric is originally derived from the Greek word métron (μέτρον), which means “measure” or “something used to measure”.
In other words: a metric is a tool to measure something.
Example metrics
Let’s say you want to measure the success of your product. There are different metrics you could look at to measure this, such as:
- Customer Renewal Rate (or Customer Churn Rate)
- Monthly Active Users
- Net Promoter Score
If you want to measure the financial performance of your organization, you could use metrics such as:
- EBIT
- Cashflow
- Burn rate
Current value
A metric will always have a current value, which is simply the value that your metric has at this moment.
For some metrics, the way the current value is calculated may differ from organization to organization. For example:
- When calculating the current value for Customer Renewal Rate, you can use:
- Customers that renewed this month / Customers that were up for renewal this month
- Customers that renewed this month / Total number of customers
- Customers that renewed this quarter / Total number of customers
- Or, when calculating the growth of your website traffic, you can use:
- Unique visitors this month / Unique visitors last month
- Unique visitors this month / Unique visitors in the same month last year
- Sessions this quarter / Sessions previous quarter
However, you calculate the current value, it is critical that everyone who will be looking at the metric understands how it is calculated.
A metric is neither a KPI nor a Key Result
Metrics are being used in both KPIs as well as Key Results, which is probably where a lot of the confusion comes from. However, a KPI or Key Result consists of more than just a metric—so you can’t use the different terms as synonyms.
Let’s have a closer look at KPIs.
KPIs
KPI is an abbreviation for Key Performance Indicator. Whilst setting your KPIs, you are defining what the key areas of your business are, and you are using a metric (as well as a target value) to indicate how that key area is performing.
The components of a KPI
A KPI consists of the following elements:
- Metric
- Current value
- Target value
- Title
Metric and Current value
These are already explained above. If you are a Perdoo user, I recommend you to store the formula for the current value on the KPI itself (read how).
Target value
The target value is the minimum or maximum value that you want that metric to have.
Title
The title should consist of the metric and the target value. Right above the title, you can then display the current value, and that’s all the information someone needs to see what the KPI is and if the KPI is healthy or not.
Here is how the Perdoo Sales Team have set up their KPIs in Perdoo:
For more information about the anatomy of a KPI, check out this article.
Note
If something is designated as a key area of your business, it is likely something that you’ll constantly need to work on and monitor. In other words: it becomes your business as usual. Therefore, a KPI defines what is your critical business as usual, and it enables you to easily monitor how it’s performing.
Everything you need to know about Key Performance Indicators
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Key Results
Key Results always belong to an Objective. They kill two birds with one stone: (i) they remove ambiguity by clarifying and quantifying what success for an Objective looks like, and (ii) they help you measure progress towards that Objective.
An Objective usually has 2-3 Key Results for the same reasons that a GPS needs 2-3 satellites to accurately pinpoint your location. Each Key Result is designed to positively impact a certain metric.
The components of a Key Result
The anatomy of a Key Result is very similar to that of a KPI, except that a Key Result always has a target value that is different from the start value (remember: a Key Result is designed to positively impact a certain metric).
A Key Result consists of the following components:
- Metric
- Current value
- Start value
- Target value
- Title
Metric and Current value
These are already explained above. If you are a Perdoo user, I recommend you to store the formula for the current value on the Key Result itself (in the Description field).
Start value
The start value is the value that your metric has at the start of a certain timeframe.
Target value
The target value is the value that you want that metric to have at the end of that timeframe.
Title
A good title bundles all the components of your Key Result. For example, a good title would be “Increase NPS from 20 to 40”, where your metric would be “NPS,” your start value “20” and your target value “40.”
For more information about the anatomy of a Key Result, have a look at this article.
Note
As you can see, a Key Result is anatomically a bit different from a KPI. Also, a KPI and a Key Result each serve a different purpose. It, therefore, is important that you don’t mix up these terms. It can happen that the metric used in a KPI is also used in a Key Result, for instance when the KPI is above or below its target value. This article further explains how KPIs and key Results can work together.
Conclusion
For results-driven organizations, metrics, KPIs and Key Results are indispensable tools. However, they can be slightly confusing, since there is some overlap between them:
- A metric is a tool to measure something.
- A KPI is a tool to keep track of how a key area of your business is performing. A KPI always contains a metric to measure the performance of that key area.
- A Key Result is a tool to positively impact the performance of a certain metric. Therefore, a Key Result also always makes use of a metric.
If you’ll only remember one thing from this article, just remember that KPIs and Key Results make use of a metric, but they consist of more than just a metric.
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- What is a metric in a business context?
In a business context, a metric is a quantifiable measure that is used to track and assess the status of a specific business process. It’s widely used across all industries, enabling businesses to monitor their progress, make informed decisions, and improve performance over time.
There are several types of business metrics, including:
- Sales Metrics: These are probably the most common. Examples include total sales, sales per employee, the average size of orders, and rate of contact conversion.
- Financial Metrics: These include various types of financial performance measures, such as revenue, profit, return on investment (ROI), return on assets (ROA), and return on equity (ROE).
- Marketing Metrics: These measure the effectiveness of marketing efforts. Examples include customer acquisition cost (CAC), customer lifetime value (CLV), conversion rate, churn rate, and brand awareness levels.
- Operational Metrics: These measure the efficiency of operations. Examples include order fulfilment times, inventory levels, and productivity rates.
- Customer Metrics: These are used to gauge customer satisfaction and loyalty. Examples include Net Promoter Score (NPS), Customer Satisfaction (CSAT), and Customer Effort Score (CES).
- Employee Metrics: These measure the performance and engagement of employees. Examples include employee turnover rate, employee satisfaction, and the number of training hours per employee.
These metrics are often tracked in dashboards, reports, and other types of business intelligence tools. By regularly monitoring and analyzing these metrics, businesses can identify trends, spot problems, and plan for future growth.
- What is a Key Performance Indicator (KPI)?
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving its key business objectives.
KPIs are used by organizations to evaluate their success in reaching specific targets across various aspects of their operations. They serve as a valuable tool for decision-makers to identify areas of improvement and allocate resources efficiently. KPIs can be used at various levels within an organization, from high-level strategic goals to departmental or individual performance.
To be effective, KPIs should be:
1. Specific: KPIs should be clearly defined, with a particular focus on the desired outcome.
2. Measurable: KPIs should have quantifiable metrics that can be tracked over time.
3. Achievable: KPIs should be realistic and attainable within the given resources and constraints.
4. Relevant: KPIs should be aligned with the organization’s overall goals and objectives.
5. Time-bound: KPIs should have a specific time frame for achieving the desired outcome.Some common examples of KPIs include revenue growth, customer satisfaction, employee retention, and operational efficiency. By monitoring these indicators, organizations can make informed decisions and take necessary actions to remain competitive in the market and achieve long-term success.
- How is a metric different from a KPI?
A metric is a measurable value that represents progress, while a KPI is a specific metric that directly relates to a strategic business objective.
A metric, or a key measure, is a quantifiable value that helps evaluate and track the performance of various processes, operations, or functions within an organization. Metrics can be used to monitor various aspects of a business, such as sales, customer satisfaction, or employee performance. They provide insights into the overall health of the organization and help identify areas of improvement.
On the other hand, a Key Performance Indicator (KPI) is a type of metric that directly relates to a company’s strategic objectives and goals. KPIs are carefully chosen and designed to measure the success of specific initiatives, projects, or campaigns. They are used to gauge progress towards achieving critical business objectives and are often tied to key targets or benchmarks.
In summary, while all KPIs are metrics, not all metrics are KPIs. Metrics provide a broad view of performance across various aspects of a business, whereas KPIs focus on measuring the success of specific goals and objectives.
- How are KPIs and metrics connected?
KPIs and metrics are interconnected as KPIs are specific performance measurements derived from metrics to evaluate the success of an organization.
To provide a more comprehensive understanding, let’s first look at the definitions of KPIs (Key Performance Indicators) and metrics. Metrics are quantitative measurements used to track and assess the status of a specific process, while KPIs are a subset of metrics that focus on how well an organization or individual is achieving their objectives.
The connection between the two is that KPIs are derived from metrics to assess whether the organization is on track to achieve its goals. Metrics serve as the basis for gathering data, and KPIs help in identifying the most important metrics that directly impact the organization’s success.
For example, a company might track various metrics like website traffic, average time on site, conversion rates, and customer satisfaction. Out of these, the conversion rate might be considered a KPI, as it directly relates to the company’s goal of increasing sales. To improve the KPI, the organization may analyze other related metrics to identify areas that need improvement and implement strategies accordingly.
KPIs and metrics are connected as KPIs are performance measurements derived from metrics, specifically focusing on the achievement of objectives and goals of an organization or individual. Metrics provide the necessary data, while KPIs help in prioritizing the most important metrics and driving improvement strategies.
- Can a metric become a KPI?
Yes, a metric can become a KPI.
For a metric to become a KPI, it must be directly tied to an organization’s strategic goals and objectives. As companies set their goals, they turn to specific metrics to measure their progress towards these goals. When a metric is chosen to evaluate the success of a strategic objective, it becomes a KPI.
For example, if a company’s goal is to increase customer satisfaction, they may use the metric “customer satisfaction score” as a KPI to track their progress. Similarly, if a business wants to improve its sales revenue, the metric “monthly sales growth” could become a KPI.
A metric can become a KPI when it is closely aligned with an organization’s strategic goals and is used to measure the progress towards achieving those objectives.
- Can a KPI be measured without metrics?
No, a KPI cannot be measured without metrics.
Without metrics, it would be impossible to assess the progress or success of a KPI, as there would be no data or evidence to support decision-making or to indicate whether the desired outcomes are being achieved. Metrics offer a tangible way to quantify progress, allowing for comparison and analysis of KPIs over time or against benchmarks.
For example, if a business has a KPI focused on increasing customer satisfaction, it would need to use metrics such as customer satisfaction scores, customer feedback, or net promoter scores to measure and track progress towards this goal. Without these metrics, the organization would be unable to determine if its efforts to improve customer satisfaction are successful or if adjustments need to be made.
Metrics are essential for measuring KPIs, as they provide the necessary data and evidence to evaluate progress and success in achieving key goals and objectives.
- What is an example of a metric that is not a KPI?
A non-KPI metric example: Number of website visitors.
Expanding on this, a metric is a quantifiable measure used to track and assess the status of a specific process. In this case, the number of website visitors is a metric that measures the total amount of traffic to a website. While it provides useful information, it may not directly align with the key performance indicators (KPIs) set by an organization.
KPIs are a subset of metrics, specifically chosen to measure the effectiveness of an organization’s progress towards its goals. They are quantifiable, tied to objectives, and have a significant impact on the business’ success. For instance, a KPI for an e-commerce website could be the conversion rate, as it directly reflects the proportion of website visitors who make a purchase, indicating the site’s effectiveness at generating revenue.
In contrast, the number of website visitors is not a KPI because it does not directly relate to the business’ objectives or gauge its success. While having more visitors can potentially lead to more conversions, the metric alone does not provide insight into the website’s effectiveness at generating revenue or achieving other specific goals.
- What is an example of a KPI?
Sales revenue growth rate is an example of a KPI.
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving its key business objectives. In this case, the sales revenue growth rate is a KPI that measures the success of an organization’s sales efforts. It is calculated by comparing the current sales revenue to the sales revenue from a previous period, typically on a monthly, quarterly, or yearly basis.
This KPI is important because it provides insight into the company’s financial health and its ability to generate revenue. A positive sales revenue growth rate indicates that the company is successfully attracting new customers, retaining existing ones, and increasing the overall value of its sales. This can be achieved by implementing effective marketing strategies, offering competitive products or services, and providing excellent customer service.
On the other hand, a negative or declining sales revenue growth rate may signal potential issues within the organization, such as poor product quality, inefficient sales processes, or strong competition in the market. Monitoring this KPI allows businesses to identify areas for improvement and take corrective action to enhance their overall performance.
- How do you choose the right KPIs?
Select the right KPIs by aligning them with your business goals, ensuring they are measurable, actionable, and relevant.
To choose the right Key Performance Indicators (KPIs) for your organization, you need to follow these steps:
1. Set clear business objectives: Start by identifying your organization’s key objectives and strategic goals. These may include increasing revenue, improving customer satisfaction, or reducing operational costs. Your KPIs should align with these objectives to help you track your progress towards achieving them.
2. Identify relevant metrics: Once you have defined your business objectives, determine the metrics that can help you measure progress towards those objectives. For example, if your goal is to increase revenue, you might consider metrics such as sales growth, average transaction value, or customer lifetime value.
3. Ensure measurability: Your KPIs should be quantifiable and easy to track over time. This may require setting up systems to collect the necessary data, such as using analytics tools or implementing new data collection processes.
4. Focus on actionable KPIs: Your chosen KPIs should directly relate to your business objectives and provide insights that help drive decision-making. Avoid choosing vanity metrics that look impressive but don’t drive meaningful change.
5. Set targets: Establish specific, measurable targets for each KPI, and regularly review your progress towards these targets. This will help you determine whether your strategies and tactics are effective or if adjustments are needed.
6. Monitor and review: Regularly review your KPIs to ensure they remain relevant and aligned with your business objectives. Be prepared to adjust or replace KPIs as your organization evolves or as new data becomes available.
By following these steps, you can select the right KPIs to track and measure your organization’s progress towards its strategic goals, enabling informed decision-making and continuous improvement.
- Why is it important to understand the difference between metrics and KPIs?
Distinguishing metrics and KPIs enables effective performance evaluation and decision-making.
Metrics and Key Performance Indicators (KPIs) are both important tools for evaluating performance and making data-driven decisions. However, understanding the difference between these two concepts is crucial for businesses to effectively measure their progress and make informed decisions.
Metrics are quantitative measures that provide information about a specific aspect of a business, process, or activity. They can be used to assess performance, monitor trends, and identify areas that need improvement. Examples of metrics include sales revenue, website traffic, and customer satisfaction ratings.
KPIs, on the other hand, are a subset of metrics that are directly tied to a company’s strategic objectives and goals. These indicators help businesses track progress toward achieving their targets and evaluate overall performance. KPIs are often used by organizations to prioritize resources, monitor the effectiveness of initiatives, and inform decision-making. Examples of KPIs include market share, customer acquisition cost, and employee turnover rate.
Understanding the difference between metrics and KPIs is essential for several reasons:
1. Goal alignment: KPIs are aligned with a company’s strategic objectives, while metrics provide more general performance data. By focusing on KPIs, businesses can ensure that their efforts are directed toward achieving their goals.
2. Resource prioritization: Distinguishing between KPIs and metrics helps organizations allocate resources more effectively. KPIs should receive more attention and resources, as they are directly linked to strategic objectives.
3. Performance evaluation: Metrics provide valuable information about specific aspects of a business, but KPIs offer a more comprehensive view of overall performance. By understanding the difference between these two concepts, businesses can better evaluate their progress and make data-driven decisions.
4. Decision-making: Focusing on KPIs ensures that decisions are aligned with strategic goals and objectives, while metrics provide supplementary information that can inform those decisions.
In conclusion, understanding the difference between metrics and KPIs is crucial for businesses to effectively measure their progress, allocate resources, evaluate performance, and make informed decisions that align with their strategic objectives.
