In this Let us discuss about Types of KPI, What is a key performance indicator and Why are KPIs important
What is a Key Performance Indicator (KPI)?
One kind of statistic that aids in quantifying your company goals and tracking your progress towards them is a key performance indicator, or KPI. KPIs should assess the outcomes that are most crucial to your company, as the name suggests. They monitor your advancement towards your overarching strategic objectives.
Why are KPIs important?
One of the finest methods to quickly and quantitatively assess your company’s progress is through key performance indicators. Setting up KPIs allows you to monitor if your company is moving closer to your definition of success.
Whether customer happiness, profit margin, sales growth, brand loyalty, or something else is your top objective, the appropriate KPIs will be focused on that goal and the measurements that accurately reflect your progress.
Without KPIs or by concentrating on the incorrect KPIs, you risk wasting your time and energy on an ineffective approach to reaching your goals. Metrics that don’t genuinely provide the desired results or even steer you in the incorrect way may catch your attention. For example, monitoring brand awareness indicators like site traffic or video views may divert your attention from your primary performance goals if your objective is to increase client acquisition.
Don’t undervalue the significance of KPIs for your staff and company executives. Your team may utilise KPIs to assess how their work relates to key strategies as they make strategic decisions, prioritise tasks, and strive to accomplish specified targets. Employee engagement may increase as a result of people realising the value of their contribution to the company.
Types of KPI
There are many Types of KPI, and the ones that are best for you will rely on the priorities and nature of your company. As a result, it is impossible to compile a comprehensive list of every KPI that might be used. Rather, you can see many KPI kinds in the 12 categories listed below. Keep in mind that these are 12 descriptors that illustrate the many ways KPIs function rather than 12 distinct categories. This might help you create and choose your own KPIs.
Quantitative KPIs
The initial pair of categories are general classifications that may intersect with the remaining ten. Aspects of company performance that are objective and based on numbers are measured by quantitative indicators. Financial KPIs like quarterly revenue or customer lifetime value may come to mind first, but marketing metrics like click-through rate, social media following, and email open rate are also included. Internal performance metrics like personnel retention or turnover are also quantifiable KPIs.
Qualitative KPIs
Non-numerical performance metrics, such staff happiness and customer feedback, are referred to as qualitative indicators. Unlike quantitative indicators, which are clear-cut, objective statistics, these measurements are frequently reliant on opinion or interpretation. You should still look for methods to gauge success in these areas, though. Customers can be asked to rate reviews on a scale of 1 to 5, for instance, or you can classify written evaluations as either good or negative and monitor the proportion of positive reviews.
Leading KPIs
Based on patterns, leading indicators assist you in predicting what is likely to occur in the future. You may consider a decline in rating as a possible leading sign of customer attrition using the customer reviews example above.
Lagging KPIs
Lagging indicators allow you to monitor progress and identify patterns by tracking performance that has already occurred. For instance, your lagging KPI can be the rise in product sales over time if you are running a display ad campaign to promote one of your items.
Input KPIs
Input indicators assist you in monitoring the resources such as funds, machinery, and personnel that you must use to achieve the intended outcomes.
Output KPIs
Output indicators, which monitor the effects of the inputs, are located on the opposite side of input indications. You may be able to reduce client wait times by increasing the number of employees in your contact centre.
Process KPIs
You can gauge how well and efficiently your firm is operating by using process indicators. For instance, you may examine your whole video ad campaign production process from conception to design to implementation and search for methods to enhance team communication or combine efforts to decrease costs or time.
Practical KPIs
You may examine how your company’s operations affect other areas of your business by using useful indicators. A subpar procedure might lead to resource waste, a rise in extra hours, or the need to redo or reverse earlier work in the case of the video ad creation process mentioned above.
Directional KPIs
Positive or negative trends throughout time are measured by directional indicators. The amount of sales is the velocity, and the rate of rise or decline is the acceleration the directional KPI if you’re tracking monthly sales, to take a metaphor from physics. You can examine patterns in the success of your company relative to others in the industry.
Actionable KPIs
Internal business changes are measured via actionable indicators. How well does your organisation implement improvements like enhancing employee happiness or corporate culture?
Financial KPIs
When talking about quantitative KPIs, That made reference to the financial metrics mentioned above. These KPIs monitor the stability or sustainability and economic growth of your company. Net profit margin and revenue growth are two instances of financial KPIs.
Outcome KPIs
Outcome indicators examine the effects of your company’s actions. Consider the output KPI example: a reduction in customer wait times (output) brought about by the addition of more call center employees (input). Enhanced customer satisfaction is one possible outcome indicator.
How to create and define a KPI
There are several phases involved in creating a valuable KPI. Here are some guidelines for getting that process started for your company’s goals.
Identify your business goal
You may develop and specify your own KPIs by knowing how KPIs and OKRs relate to one another. You will create a KPI based on your long-term business objectives, so choose one of your broad goals.
Determine a key metric
You may now choose a performance metric that you must use to track your progress towards those goals. Don’t forget to include both internal (like employee engagement) and external (like sales) performance.
Make it measurable
Understand how you will assess the KPI’s success or failure. What kind of improvement in this measure are you hoping to attain? How long will it take to make that improvement? Are your staff members able to comprehend how their job affects it?
Keep track of it
Establish a routine for monitoring the KPI. You may decide to use monthly or bimonthly updates if you have a one-year time period. You may track your progress with marketing KPIs by using analytics or reporting tools like Amazon Attribution.
After completing this procedure and generating a number of KPIs, think about developing a KPI dashboard that offers an aggregated perspective of your progress.