August 9

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What Is A Key Performance Indicator (KPI)? Best Practices And Examples In Business

By Hanson Cheng

August 9, 2022


KPI stands for key performance indicators. A key performance indicator is a metric that helps you understand how well your business is doing in relation to a specific goal. While knowing the KPI meaning is a helpful process for all types of businesses, it's also essential to understand how to use KPIs and make the most out of them.

As such, the relationship between knowing what a KPI is and using it effectively when measuring online success is essential for any business.

In this article, I'll dive deep into what KPI is in terms of business performance measurement, and I'll also provide some examples of KPIs that you can use to track your business progress.

Let's get right into it.

What Are KPI Metrics? Different Types Of KPI Examples

While knowing about various past KPI examples can be helpful to running a business, it's also essential to understand how to use KPIs to make the most of them.

There are two types of KPI metrics: financial and non-financial. Financial KPIs focus on revenue, profit margins, and return on investment (ROI). Non-financial KPIs, on the other hand, focus on measures such as customer satisfaction, employee turnover, and safety incidents.

The real KPI meaning in business ultimately comes down to how the business owner uses the chosen metrics to improve performance.

What Are KPI Metrics? Different Types Of KPI Examples

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Understanding why KPI is important will help you set better goals and objectives for your business.

Let's look at some KPI examples to help you understand how the KPI definition can help with the chosen KPI goals.

What Is KPI In Revenue Growth?

Having KPI goals related to revenue growth is essential for any business. After all, revenue is the lifeblood of any business.

An excellent way to measure revenue growth is to track year-over-year (YOY) sales. This will give you a good idea of whether your business is growing (or not).

What Is A KPI In Net Profit Margin?

Your net profit margin is a good indicator of your business's efficiency. It measures how much profit your business makes after all expenses have been paid.

A high net profit margin means that your business is doing well, while a low net profit margin means that your business needs to improve its efficiency.

Return On Investment (ROI)

Another KPI analysis example is ROI. This is a measure of how much profit you're making in relation to the amount of money you're investing in your business.

Let's say that you're in the process of creating a website, and you've invested $10,000 in the project.

If your website generates $100,000 in sales over the next year, then your ROI would be 1,000%.

Depending on the industry you’re in, this might be considered either a good or lousy ROI.

Customer Satisfaction Rating

It's essential to keep your customers happy if you want them to keep doing business with you. As a result, various KPI software dashboards can track this type of KPI.

One way to measure customer satisfaction is to use these dashboards to send out surveys after a set number of transactions and ask customers to rate their experience on a scale of 1 to 10.

You can also track customer satisfaction by monitoring the number of customer complaints you receive.

Employee Turnover Rate

Knowing what the KPI metrics are based on the industry you're in is also essential, especially when it comes to employees.

This particular example is vital for businesses that have a lot of employees.

Employee Turnover Rate

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If you have a high employee turnover rate, it means that your business is having a hard time retaining employees. This can signify various problems, such as poor working conditions or low pay.

Safety Incidents Per Million Hours Worked

Various KPI dashboards exist to measure safety aspects.

The KPI definition can be applied to safety in different ways but is usually defined as a way to measure how often accidents happen in the workplace.

This particular metric is essential for businesses that have employees working in dangerous conditions.

You can track the number of safety incidents by keeping a record of all the accidents that occur in your workplace, while also putting better measures in place that reduce this number to as close to zero as possible.

How To Measure KPIs

Whether you want to track your email marketing KPIs, social media KPIs, or any other type of KPI, there are specific methods you can use to measure them.

Here are some general tips on how to do this.

Use Data From Multiple Sources

It’s good to realize that KPI metrics meaning might be different than one expects in a specific industry.

This is why it's essential to use data from multiple sources when measuring KPIs. This will give you a more accurate picture of what's going on.

What Is KPI Reporting And How Do You Use The Right Tools?

Defining what a KPI report is and how it applies to your business is essential, but it's also important to have the right tools to measure your KPIs. Various software programs can help you track and measure KPIs accurately.

Set Goals

When it comes to marketing KPI examples or any other type of KPI, it's essential to set goals.

This will give you something to strive for and help you track your progress. Goals can be short-term or long-term (or both), depending on what you're trying to achieve.

Monitor Progress

Once you've set your goals, monitoring your progress is essential. This will help you see how well you're doing and make necessary changes along the way.

In terms of progress, performing the proper market research and market validation will help you determine your business' best course of action in every step of your journey.

KPI Chart

While a dashboard KPI can be helpful, it's also essential to create a KPI chart.

This will provide you with a visual representation of your KPIs and help you track your progress over time.

KPI Chart

Image credit: https://www.simplekpi.com/

The right KPI measurement can be more easily obtained with charts since they make it easier to see patterns and trends.

This also helps with the question of how to determine KPI targets, as being able to visually see where you've been and where you want to go is very helpful.

How To Use KPI In Real-Life

If you are starting an online business and want to know if you're on the right track regarding your KPIs, you can do a few things.

Let's consider various types of industries that can make use of KPIs to help them use KPIs in their daily operations.

eCommerce Businesses

One type of business that can make use of KPIs is an e-commerce business.

There are various KPIs that an e-commerce business can track, such as conversion rate, bounce rate, and average order value.

These KPIs will help the business owner determine if they’re on the right track and can simplify the question of how to make money online with eCommerce.

Therefore, having the right knowledge when it comes to how to calculate KPI in eCommerce is critical.

Startups

Another type of business that can make use of KPIs is a startup. Startups need to track their progress closely to ensure they are on the right track.

Various startup KPIs can be tracked, such as customer acquisition costs and churn rate (the annual rate at which customers stop being so).

KPI analytics can help startups determine if they are on the right track and make necessary changes along the way.

SaaS Businesses

A KPI business that can benefit from focusing on the right metrics is a SaaS business.

Offering software as a service can be a great way to make money, but it's important to track your progress.

Various SaaS KPIs can be used to monitor different aspects of your business' performance.

Some SaaS companies focus on getting customers in at a price point that is profitable for them, while others focus on customer churn rates.

Marketing Agencies

One type of business that must use KPIs is a marketing agency.

Marketing KPIs that should be considered include website traffic, lead generation, and conversion rate.

Monitoring these KPIs will help you determine if your marketing campaigns are successful and where you need to make improvements.

KPI Analytics And KPI Management: Manual Or Automatic?

Tracking the right metrics for your specific business can help with your KPIs' analytics and management.

Various software programs include KPI templates that can be customized for your business.

This is great for businesses with a lot of data that want to ensure they make the most efficient use of their resources.

As such, there are times when going down the manual route can be best.

For businesses that do not want to spend much money on software or want more control over their data, manually tracking KPIs can be the way to go.

Doing things manually is also great when starting, as it can help you understand what data is essential and how to track it effectively.

Once you have a good understanding of your KPIs, you can then start looking at ways of automating the process.

What Is A Key Performance Indicator - FAQ

What Is The Importance Of KPI In Business?

Knowing why KPIs are important will help you select the right ones to track in your business.

KPIs are important because they:

  • Help you track progress towards your goals
  • Provide insights into what's working and what's not
  • Help you make data-driven decisions
  • Can be used to improve processes and performance
  • Can help motivate employees
  • Can help you identify areas for improvement

What Are KPI Examples?

It’s difficult to consider one example of a KPI by itself as KPIs usually work together to form a clearer picture. That said, a few examples of common KPIs are:

  • Website traffic
  • Sales revenue
  • Number of new leads/customer
  • User engagement (time spent on site, number of page views)
  • Social media metrics (shares, likes, comments)

Knowing What Are KPI Goals For Business

Various KPI concepts will apply to different businesses, so choosing KPIs relevant to your company's goals is essential.

For example, if you're a B2B company, website traffic might not be as important as the number of new leads. If you're an eCommerce site, sales revenue will be one of your most important KPIs.

User engagement is essential for all businesses, as it can give you an idea of how people use your site or product. Social media metrics can also be helpful, especially if you're trying to increase brand awareness or reach a new audience.

What Is A KPI Report?

A KPI report is a document that contains information about your company's KPIs.This report can be used to track progress, identify areas for improvement, and make data-driven decisions.

What Is A Specific Definition Of KPI For Business?

A specific definition of KPI for business can be difficult to pin down as there are so many different types of businesses.

What Is An Example Of A KPI That Affects Employee Morale?

A few examples of KPIs that can affect employee morale are:

  • Number of sick days taken
  • Number of accidents/injuries
  • Turnover rate
  • Employee satisfaction score

Conclusion

Key performance indicators are essential for any business.

They help you track progress, identify areas for improvement, and aid in making data-driven decisions.

There are many different types of KPIs, so choosing ones relevant to your company's goals is essential.

Whichever route you choose, using the proper KPIs can help you understand your data better and ultimately take your business to the next level.

Last Updated on August 30, 2022 by Hanson Cheng

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Hanson Cheng

About the author

Living in Bali with my Fiancee and puppy, (Alina and Pickles).
Scaling online businesses and sharing lessons learned on this website and in our email newsletter.

Always happy to hear from you, so find me on Instagram if you want to say hi!

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