Every organisation measures something, but not every organisation measures the right thing. A KPI, or Key Performance Indicator, is one of the best-known management concepts and at the same time one of the most misused: many companies call every number on a dashboard a KPI, while a real KPI is something specific. This page explains exactly what a KPI is, how to choose and formulate one, and how to use it to genuinely steer towards results.
Organisations without KPIs steer on gut feeling. Organisations with too many, or the wrong, KPIs drown in numbers without overview. The goal of this guide is to make that middle ground concrete: which KPIs are relevant, how do you formulate them, and how do you avoid the well-known pitfalls.
What is a KPI?
A Key Performance Indicator is a measurable value that shows to what extent an organisation, department or team is achieving a predetermined goal. The word "key" is the most important part: a KPI is not an arbitrary number, but an indicator directly linked to a strategic or tactical goal.
KPI versus metric
Not every number you measure is a KPI. A metric is any measurable value: the number of website visitors, time on page, the number of likes on a social post. A KPI is a metric that has been selected because it directly says something about achieving a goal. In short: every KPI is a metric, but not every metric is a KPI.
Meaning: if you measure everything, nothing carries meaning. A KPI only gains value through its link to a goal.
KPI versus critical success factor (CSF)
A critical success factor is a condition that must be met for a goal to be achievable, for example "strong brand awareness" or "an efficient order process". A CSF is qualitative. The KPI is the measurable proof that this success factor is in order, for example "brand awareness within the target audience" or "average order lead time". CSFs answer the question of what needs to be right; KPIs answer the question of how you measure that.
KPI versus target
A KPI is the indicator itself, for example "conversion rate". A target is the concrete value attached to it, for example "a conversion rate of 3%". Without a target, a KPI is a thermometer without a scale: you measure, but you do not know whether the result is good or bad.
Types of KPIs
KPIs can be classified in several ways. These classifications are not mutually exclusive; a KPI can be leading, non-financial and operational at the same time.
Leading versus lagging indicators
- Leading indicators predict future results. They can be influenced early, for example the number of leads this month or the average response time to a quote request.
- Lagging indicators measure results after the fact. They are reliable but can no longer be adjusted at the moment of measuring, for example last quarter's revenue or customer churn over the past year.
A balanced set of KPIs combines both: leading indicators to steer in time, lagging indicators to judge the end result.
Financial versus non-financial
Financial KPIs express results in money: revenue, margin, cost per acquisition. Non-financial KPIs measure the underlying drivers of that result: customer satisfaction, employee engagement, lead times. Financial KPIs show what has happened; non-financial KPIs often show why.
Strategic, tactical and operational
- Strategic KPIs measure progress at organisation level, over a longer period, for example market share or annual revenue growth.
- Tactical KPIs measure progress at department or programme level, for example the number of marketing-qualified leads per quarter.
- Operational KPIs measure daily or weekly execution, for example the number of support tickets processed per day.
In short: the higher up in the organisation, the more abstract and slower-moving the KPI; the lower down, the more concrete and direct.
Formulating KPIs the SMART way
A good KPI meets the well-known SMART principle:
- Specific: it is clear exactly what is being measured and why.
- Measurable: there is a reliable source or method to determine the value.
- Accepted: the KPI is supported by the people who are held accountable for it.
- Realistic: the associated target is achievable given resources and market conditions.
- Time-bound: there is a clear period over which it is measured and reported.
An example of a non-SMART KPI is "more customer satisfaction". Formulated SMART, this becomes: "an NPS score of at least 40 at the end of each quarter, measured via the quarterly survey among active customers."
How many KPIs should you choose?
A common mistake is tracking too many KPIs at once. The more KPIs, the more attention is diluted and the greater the chance that no one truly feels responsible. As a guideline: three to six KPIs per team or goal is usually enough to maintain focus without creating blind spots. You may well track more figures as background information, but then do not call them KPIs — reserve that term for the indicators actually steered on.
KPI examples per department
The tables below give commonly used KPIs per department, with the formula where relevant. Which KPIs are actually relevant always depends on the specific goals of the organisation.
Marketing
| KPI | Formula | Type |
|---|---|---|
| Conversion rate | (number of conversions / number of visitors) × 100% | Lagging |
| Customer acquisition cost (CAC) | total acquisition costs / number of new customers | Lagging |
| Return on ad spend (ROAS) | revenue from ads / ad spend | Lagging |
| Number of marketing-qualified leads | count per period | Leading |
| Organic traffic | count via analytics | Leading |
Sales
| KPI | Formula | Type |
|---|---|---|
| Win rate | (deals won / total number of quotes) × 100% | Lagging |
| Average deal value | total revenue / number of deals closed | Lagging |
| Average sales cycle | sum of lead times / number of deals | Leading |
| Pipeline value | sum of value of open deals | Leading |
Customer service
| KPI | Formula | Type |
|---|---|---|
| Net promoter score (NPS) | % promoters − % detractors | Lagging |
| First response time | average time to first response | Leading |
| First contact resolution rate | (tickets resolved on first contact / total tickets) × 100% | Lagging |
| Customer satisfaction score (CSAT) | average satisfaction rating | Lagging |
Finance
| KPI | Formula | Type |
|---|---|---|
| Gross margin | ((revenue − cost of goods sold) / revenue) × 100% | Lagging |
| Cash flow | income − expenses over a period | Lagging |
| Days sales outstanding | (accounts receivable / revenue) × number of days | Lagging |
| Customer lifetime value (CLV) | average order value × purchase frequency × customer lifespan | Lagging |
HR
| KPI | Formula | Type |
|---|---|---|
| Staff turnover | (number of departing employees / average number of employees) × 100% | Lagging |
| Time to fill vacancy | average number of days between opening and hiring | Leading |
| Employee satisfaction | average score from employee survey | Lagging |
| Absence rate | (absence days / total available days) × 100% | Lagging |
E-commerce and website
| KPI | Formula | Type |
|---|---|---|
| Webshop conversion rate | (number of orders / number of visitors) × 100% | Lagging |
| Average order value | total revenue / number of orders | Lagging |
| Churn | (customers lost / total customers at start of period) × 100% | Lagging |
| Bounce rate | (single-page visits / total visits) × 100% | Leading |
For more depth on measuring these figures, see measurement in online marketing and conversion.
From strategy to KPIs: a step-by-step plan
- Determine the strategic goal. What does the organisation want to achieve in the coming period?
- Identify the critical success factors. What needs to be right to achieve that goal?
- Translate success factors into measurable indicators. These are the candidate KPIs.
- Test each candidate against SMART. Remove indicators that cannot be reliably or influentially measured.
- Assign an owner. Every KPI has one accountable person who is held responsible for the value.
- Set targets and reporting frequency. Define when a value is good, moderate or insufficient.
- Build the dashboard and evaluate periodically. Adjust KPIs as soon as the strategy or context changes.
Dashboards and reporting frequency
The reporting frequency of a KPI depends on its type and the decision-making rhythm around it. Operational KPIs are often reviewed daily or weekly, tactical KPIs monthly or quarterly, and strategic KPIs usually quarterly or annually. A dashboard is useful for showing KPIs visually and up to date, but a dashboard does not replace conversation: figures only lead to action once a team looks at them together, periodically, and connects them to next steps.
KPIs, OKRs and the balanced scorecard
KPIs are often mentioned in the same breath as OKRs (Objectives and Key Results) and the balanced scorecard. The methods overlap but have a different emphasis.
- OKR links an ambitious, often qualitative goal (Objective) to several measurable results (Key Results) that together determine whether the goal has been achieved. OKRs are usually more temporary and ambitious than KPIs, which tend to be tracked on an ongoing basis.
- The balanced scorecard is a framework that groups KPIs into multiple perspectives — often financial, customer, internal processes, and learning and growth — to prevent an organisation from steering one-sidedly on financial results.
In both approaches, KPIs form the yardstick: OKRs and the balanced scorecard mainly determine the structure within which KPIs are chosen and weighted.
Pitfalls when working with KPIs
- Vanity metrics as a KPI. Figures that look impressive but have no relationship with a goal, such as follower counts without a link to revenue or leads.
- KPIs without an owner. A figure that belongs to no one is followed up on by no one.
- Steering on a single figure. A single KPI never gives the full picture and can even trigger unwanted behaviour if pursued in isolation.
- KPIs that incentivise the wrong behaviour. A sales team judged solely on revenue may be inclined to give away discounts that hurt margin. A good set of KPIs balances volume, quality and margin.
- Too many KPIs. Overview disappears the moment every figure is granted KPI status.
- KPIs that are never revisited. Strategy changes; KPIs tied to an outdated strategy steer towards the wrong thing.
Frequently asked questions
What is the difference between a KPI and a goal?
A goal describes what you want to achieve, for example "become market leader in your region". The KPI is the measurable indicator with which you test whether you are approaching that goal, for example market share.
How many KPIs should a team have?
Usually three to six KPIs per team or goal is enough to maintain focus. You may track more indicators as background information, but without granting them KPI status.
Is a KPI always financial?
No. KPIs can be financial, such as revenue or margin, but also non-financial, such as customer satisfaction or lead time. Both types are needed for a complete picture.
What is the difference between a KPI and an OKR?
A KPI is an ongoing yardstick for performance. An OKR links an ambitious, often temporary goal to several measurable results. KPIs are often used as part of the Key Results within an OKR.
How often should you evaluate KPIs?
That depends on the type of KPI, but at least quarterly is common practice. When the strategy changes, that is also a moment to revisit the set of KPIs.
What is a good example of a poor KPI?
An indicator that is not linked to a goal, cannot be influenced by the team held accountable for it, or that encourages unwanted behaviour, such as steering exclusively on volume without regard for quality or margin.
Related pages and articles
- Measurement and attributionGA4, consent, CRM connection and numbers that never match exactly.
- Conversion optimisation (CRO)More result from the traffic you already have.
- What is CRM?From strategy to system, and how to drive adoption.
- Online marketingSEO, SEA, social and content in one coherent approach.
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