What is a KPI (key performance indicator)

Hypothetical example

An online store wants to close the quarter with 900 sales, paying no more than $80 to win each new customer. The KPIs for that goal are three: sales per month, customer acquisition cost (CAC) and website conversion rate.

Instagram followers, total visits and likes are still tracked, but as supporting metrics. If visits double and sales stay flat, the goal was missed, however good the traffic chart looks.

A KPI and a metric are not the same thing

A metric is any number you can measure: visits, clicks, opened emails, time on page. A KPI is the metric a company picked to decide whether it is winning or losing. The difference is not in the number itself but in the job it does.

A practical test: if this number got 20% worse tomorrow, would anyone change a decision? If not, it is a metric. If someone moves budget, pauses a campaign or reshuffles the week, it is a KPI.

Metric vs KPI

	Metric	KPI
What it is	Any measurable data point	The metric tied to a goal
How many	Dozens, sometimes hundreds	A few per goal
Has a target?	Not always	Always, with a number and a deadline
Has an owner?	Not required	Yes, someone is accountable
Example	Website visits	Sales per month

How to choose a good KPI

A well-chosen KPI passes five tests. If it fails any of them, it becomes report decoration:

• It is tied to a goal. The target comes first (sell more, keep customers, cut costs), then the number that shows progress.
• You can measure it with data you already have. A KPI that depends on a spreadsheet rebuilt by hand every month usually dies in month two.
• It has a numeric target and a deadline. "Grow sales" is a wish. "900 sales by the end of the quarter" is a goal.
• It has an owner. One person answers for the number and explains when it moves.
• It is comparable over time. If the formula changes every month, the chart shows the rule change, not the business change.

KPI examples by team

KPIs change with each team's goal. The table below shows common examples and the question each one answers:

Common KPIs by team

	KPI	Question it answers
Marketing	CAC, conversion rate, ROAS	How much does a customer cost, and what does each ad dollar return?
Sales	Average order value, close rate	What is each sale worth, and how many proposals become contracts?
Retention	Churn, LTV	How many customers stay, and how much does each one bring over time?
Support	NPS, first response time	Would customers recommend us, and are they helped quickly?
Finance	Margin, cash flow	Is the operation profitable and paying its bills on time?

Lagging KPIs and leading KPIs

There are two kinds of KPI, and a good dashboard has both. A lagging KPI shows what already happened: monthly revenue, new customers. It is final, but it arrives late, when the month can no longer be changed.

A leading KPI shows what is likely to happen: proposals sent, qualified leads, visits to the pricing page. It is less precise, but it warns you early. If qualified leads halve in the first week, the month's revenue is already at risk, and there is still time to act.

Common KPI mistakes

• Measuring everything. A dashboard with thirty indicators has no KPI at all, because nobody knows which one decides.
• A KPI with no target. A number that moves with no reference point cannot tell you whether the result is good.
• Picking a vanity number. Likes and followers are easy to grow and rarely pay the bills.
• Changing the KPI every week. When the result is uncomfortable, the indicator gets swapped, and no comparison survives.
• Looking only at the average. A healthy average CAC can hide an expensive channel. Break the number down by channel, campaign or product.

KPI, OKR and the Balanced Scorecard

A KPI is the indicator. An OKR (objectives and key results) is a method for setting objectives and the results that show progress, in short cycles. The key results of an OKR are often KPIs, but the OKR is the plan and the KPI is the ruler.

The idea of tracking a few balanced indicators, not just the financial result, gained ground with the Balanced Scorecard, proposed by Robert Kaplan and David Norton in the Harvard Business Review in 1992. The model groups indicators into four perspectives: financial, customer, internal processes, and learning and growth.

Frequently asked questions

What does KPI stand for?

KPI stands for key performance indicator. It is the number chosen to show whether a goal is being reached.

What is the difference between a KPI and a metric?

Every metric is a number you can measure. A KPI is the metric tied to a goal, with a target, a deadline and an owner. Website visits are a metric; monthly sales, when there is a sales target, are a KPI.

How many KPIs should a company have?

There is no right number, but the practical rule is a few per goal, usually one to three. If nobody can name a team's KPIs from memory, there are too many.

What are some examples of KPIs?

Common examples are customer acquisition cost, conversion rate and ROAS in marketing, close rate in sales, churn in retention and NPS in customer support.

Are KPIs and OKRs the same thing?

No. An OKR is a method for setting objectives and key results over a cycle. A KPI is the indicator that measures performance. A key result can be tracked by a KPI, but they play different roles.

Related terms

• CACCAC (customer acquisition cost) is how much a business spends, on average, to win each new customer. You add...
• ROIROI (return on investment) is the percentage that shows how much an investment earned beyond what it cost...
• LTVLTV (lifetime value, also called CLV) is the value a customer generates for a business over the entire time...
• ROASROAS (return on ad spend) is how much revenue your campaigns generated for each dollar spent on media. A ROAS...

Sources

• Kaplan and Norton: The Balanced Scorecard, Measures that Drive Performance (Harvard Business Review, 1992)

Rodrigo Fávaro

Founder of ROO3, a marketing and technology agency in São José do Rio Preto, Brazil. Builds AI products running in production (Tobia, gerar.app, Pense Mercado) and maintains the AI Benchmark, a public ranking of AI models.

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