A Key Performance Indicator (KPI) is a business metric that demonstrates how effectively your business is doing in achieving its goals. These are the metrics used by the company management to manage its operations and growth.
Key performance indicators means factors by reference to which the development, performance or position of the business of the company can be measured effectively.
Based on what’s important for them, companies build KPI dashboards that help in keeping their teams informed and aligned around the important KPIs.
While building a KPI dashboard the starting point is to choose which performance indicators are key to a particular company. These KPIs must be aligned with the metrics used by the management for actually running the business. For example, most management executives will be interested in the financial performance indicators along with sales performance indicators. They may also be interested in building strategies for maximizing customer experience and retaining the best employees. The KPI dashboards should bring all these KPIs together so that they can be viewed easily and everyone talks about and aligns around the same metrics.
KPIs by Industry
The choice of key performance indicators is also affected by the industry type. For example, for a retail store, the indicators matter the most:
- Capital expenditure
- Store portfolio changes
- Expected return on new stores
- Customer satisfaction
- Same store/like-for-like sales
- Sales per square foot/metre
Another example is banking where the important KPIs would be something like below:
- Customer retention
- Customer penetration
- Asset quality
- Capital adequacy
- Assets under management
- Loan loss
How Many KPIs?
It is impossible to suggest how many KPIs a company should track. This depends on many factors such as the company’s strategy, the industry, and the competitive landscape the company operates in. Based on our experience suggests that most types of companies will have four to ten indicators that will be important for them. It is also important that the readers are provided multiple KPIs along with clear explanations of what they mean and why they are important for business.
Communicating the KPIs
The best way to report the KPIs is to build online dashboards using an analytics tool and provide access to all the key stakeholders. This provides many benefits:
- A dashboard provides great visibility into the performance of your business.
- It saves time because the dashboard software automatically compiles all the data, cleans it, transforms it and calculates the KPIs for you. This also ensures accuracy of metrics.
- Since a dashboard is live and connected to your data sources, all this is happening in real-time, and you always have the latest numbers.
- Everyone logs into the same platform and sees the same numbers resulting in a single source of truth for everyone.
- You can set up dashboards to benchmark performance against industry peers or your own budgets/targets.
We have found that no single company communicates every desirable aspect of KPI content. However, carefully planning and building a KPI dashboard can help you steer your business in the right direction at a faster pace.