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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.
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.
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:
- Burn rate
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.
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:
- Current value
- Target value
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).
The target value is the minimum or maximum value that you want that metric to have.
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.
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.
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:
- Current value
- Start value
- Target value
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).
The start value is the value that your metric has at the start of a certain timeframe.
The target value is the value that you want that metric to have at the end of that timeframe.
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.
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.
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.