Full Guide to KPIs: Best Practices and Examples

KPI or Key Performance Indicator

Master your KPI-finding skills: learn what KPIs are, how to come up with the best ones, get inspired by a long list of indicators.

Key Topics:

Introduction to KPIs

Let’s start the discussion around KPIs. I believe the buzz word “KPIs” is now everywhere, and some of you might doubt their usefulness:

  • For some reason, top managers are not satisfied with “just doing things,” but they want to see some KPIs.
  • You might know people who hate KPIs and know how to game the system.
In my opinion:

KPIs done in the right way are not just a helpful business tool but an excellent way to make everyday jobs easier and more transparent.

What is a KPI?

I gave a formal definition of KPI in the previous article. We tracked the path of KPIs from “quantification” to “metric,” “measure” and “indicator.”

The problem is that formal definition has nothing to do with business realities.

Our practical definition is the following:

KPI is a quantification of an important business challenge.

This definition explains the nature of a KPI (it is an indicator, a numerical value), and it underlines the importance of the connection between KPI and real business challenges.

Why use KPIs?

Sometimes, we see that organizations sabotage the use of KPIs. They do KPIs formally but don’t benefit from them. Look at the statements below; probably, some of them will sound familiar to you:

Statement:

We have some KPIs, and we look at them regularly.

Yes, we are tracking our performance! We have a dashboard with some nice charts!

We have found the list of some good KPIs for customer support, and we are now tracking them {but there were no actual changes}.

Reality:

We have some KPIs, and we look at them once a year.

Yes, we are tracking our performance! We have a dashboard with some nice charts that we use for presentation slides only!

We have found the list of some good KPIs for customer support, and we are now tracking them, but we don’t act on them.

So, what’s wrong with KPIs? And how to do KPIs in the right way?

Intuitive Indicators in SMB

If I had a choice to:

1) run a business with bad KPIs

or

2) run a business using the intuition of my team only

I’d prefer the second choice! Bad KPIs are really harmful and demotivating!

Ask any small business (SMB) owner – how does he or she decide about buying some ads?

You will learn that the decision is actually fact-based, and there are probably some hidden indicators implied.

Those intuitive indicators are often much better than those that one can find on the Internet.

Numbers don’t lie

Have a look at this picture. Which line looks longer?

That’s a simple demonstration that shows that our perception of things is not the best one (the lines actually have the same length).

We are not programmed to make precise measurements, and that’s why sometimes our intuition fails and takes us to the wrong conclusions.

We need to measure things!

You think you don't need to measure things? Have a look at this picture. Which line looks longer?

Indicators help to define things

Let’s get back to the previous illusion example.

  • What line were you measuring?

I did not ask you about the length of horizontal lines!

That’s another use of good indicators.

When we define the way to measure something, we actually agree about the meaning of the measured subject.

Are you talking about the abstract idea of “quality” or are you talking about a very specific idea of “number of critical problems found by users within the last 6 months”?

Feeding vs. Teaching to Fish

There is a saying:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Applying this idea to the KPIs, I could compare ready-to-use KPIs with a fish, and your skills in finding good indicators with an ability to fish.

  • One can pick the ready-to-use KPIs (see the KPIs library below),

But

  • A much better choice would be to learn to find tailor-made KPIs.

I won’t decide for you. Below, you will find the long list of KPIs that you can use to get some inspiration about ways to quantify and track your challenges. If you prefer to master your ability to fish, I would recommend you start with this 12-Step KPI System.

12 Step KPI System

Why Standard KPIs Don’t Work

It’s easy to find a long list of KPIs on the Internet. Here are some reasons why standard KPIs won’t work for you.

KPI is a model of reality, not the reality

Let’s take “unit market share” as an example. In the “Tim Cook: The Complete Interview” by Sam Grobart, Apple’s CEO shared his thoughts on measuring success:

“I don’t measure our success in unit market share,” “… We’re not in the junk business.”

Tim Cook’s recipe is to focus on doing the right things.

Customer retention rate will certainly tell some story about your business, but excellence in customer service cannot be achieved by simply looking at those metrics.

Most standard KPIs are lagging indicators

In other words, these KPIs are very good at telling the story of what has already happened but don’t help much to improve.

It’s good to know revenue per employee of your business; probably, you can benchmark it to other companies and find out that it is too high, but it doesn’t automatically result in the improvement. You need to:

  1. Analyze the situation
  2. Understand the reasons for the challenge that you are facing
  3. Define success factors
  4. Quantify them if possible (leading metrics!) and
  5. Act

With standard KPIs, you skip the first three steps, and that’s the reason the action plans based on standard KPIs often fail.

Goals Come First

To finalize the introduction to the KPIs, I’d like to make a simple statement:

Business goals should come first!

KPIs that appear on the scorecard/dashboard should appear there only when you have got a clear idea about the current goals of the organization and how they are connected.

The best practice is to create a strategy map first, map your goals, and only then start looking for the ways to measure them. That’s what we have discussed in the Four Perspectives of the Balanced Scorecard

KPIs Library

KPI Library Here is a KPI library.

  • Use it to get some inspiration about KPIs and support in some way the discussions around your strategy.
  • If you have found some KPI that looks interesting but doesn’t resonate with your goals – skip it.

Here is what you will find here:

6 Essential KPIs

6 Essential KPIs to Ensure Business Survival

Let’s start small.

If you had limited time and resources, what KPIs would you track?

How would you find them? I would recommend looking at these two:

  • Look at how things are working now and try to find bottlenecks
  • Look at where the money is coming from and what are the success factors of this magic.

That’s basically what we did in the 6 Essential KPIs to Ensure Business Survival article.

What were the results?

  • KPI 1. Leads generated. Acquisition numbers.
  • KPI 2. Conversion rates. The most critical ones: like conversions from lead to sales; from first-time purchase to return purchase.
  • KPI 3: Impressed customers, %. It’s just about customer service; it’s about powering your word of mouth marketing.
  • KPI 4: Perceived product/service quality. We discussed what perceived means in the customer perspective of the Balanced Scorecard.
  • KPI 5: Team success index. A set of metrics to track the challenges of your team. Can be just one “retention rate,” or you can define success factors and come up with something interesting.
  • KPI 6: Financial health index. A set of financial metrics that make sense in your case – can be just two – acquisition cost (CAC) and customer lifetime value (LTV).

In the original article, you will find some more details and explanations.

Standard KPIs

Below, you will find some standard KPIs from different domains. We have compiled the list of these KPIs from different articles published on our website, so if you want to know more about some of them or understand the business context, just follow the “read more” link.

Customer Service KPIs

  • Cost per inbound contact
  • First-line resolution rate
  • Self-service completion rate
  • First contact resolution rate
  • Average speed of answer
  • Satisfaction by the customer service
  • Agent training hours
  • Agent occupancy
  • Agent satisfaction
  • Turnover rate among top performers

Learn more in the customer service scorecard example.

Marketing KPIs

  • Sales qualified lead (SQL)
  • Total Leads
  • Marketing qualified lead (MQL)
  • Lead to Marketing Qualified Lead (MQL) Ratio
  • SQL to Sale
  • Cost of Customer Acquisition (COCA)
  • Marketing Expense per Employee
  • Marketing Expense as a Percentage of Revenue
  • ROI by Marketing Channel
  • Customer lifetime value (CLV)
  • Revenue per Marketing Qualified Lead (MQL)
  • Deals closed
  • Media mentions
  • Owned reach
  • Brand awareness
  • Website SEO metrics
  • Adjusted Bounce Rate
  • Email Marketing Metrics
  • Cost per lead (CPL)
  • MQL to SQL Ratio
  • Net promoter score (NPS)
  • Returning visitors
  • Referrals and reviews
  • Customer Retention

Learn more in marketing scorecard example.

HR KPIs

Top 5 HR KPIs:

  • Staff engagement
  • Commitment to talent management
  • Diversity
  • Quality of leadership
  • Adaptability

10 Standard HR KPIs:

  • Performance of New Hire in 6 months
  • Speed of Hire
  • Quality of Hire
  • Time To Productivity
  • Percentage difference in productivity before and after training
  • Percentage of employees that participate in career coaching
  • Profit per employee
  • Voluntary turnover
  • Involuntary turnover
  • Involuntary turnover high performers

HR Hire KPIs:

Focused on quality:

  • % of employees coming via referral
  • Performance level of new hire after 1 year
  • Performance level of new hire after 3 years
  • % new hires completing probationary period
  • % of new hires present after 1 year

Focused on time:

  • Cost To Hire
  • Time to Hire
  • Profitability of new hire

Aligned HR KPIs:

Shared HR service:

  • Hiring costs
  • Number of HR admin per head
  • Time spent on HR administration
  • Case Handling Time
  • Employee Satisfaction with Case Management
  • % of Cases Solved
  • Reduced employee turnover
  • Time spent training HR SSC staff

HR during M&A:

  • % of mission critical employees retained during the M&A process
  • % of mission critical employees retained 6 months after the M&A process
  • % of mission critical employees retained 2 years after the process
  • Decline in staff engagement during the M&A process
  • Decline in productivity during the M&A process
  • Time taken to return to pre M&A productivity and engagement levels
  • Number of value added roles created during the M&A
  • Increase in concentration of exam qualified staff after M&A

Sales KPIs

  • Reach rate
  • Pas rate
  • Conversation to lead conversion rate
  • Qualified leads close rate
  • Conversion rate to sales
  • Quantity of leads needed in sales funnel
  • Conversion to qualified leads
  • Average sales cycle time
  • Time to answer a prospect’s query
  • Total cost to gain a new customer
  • Revenue per sales rep
  • Customer lifetime value
  • Returning customers, %

Learn more in sales scorecard example.

IT KPIs

  • IT expense as a percentage of total expense
  • IT expense per employee
  • Support expense per user
  • The number of critical problems reported by user
  • Business system use
  • Time to register a new account
  • Account creation success rate
  • Availability (uptime)
  • Downtime related to security issue
  • Mean Time Between Failures (MTBF)
  • Mean Time to Repair (MTTR)
  • The number of returning problems
  • Restore success rate

Learn more in IT scorecard example.

Innovation KPIs

  • Idea generating and capturing budget
  • Hypothesis testing budget
  • R&D budget
  • Revenue from new projects
  • Royalty income
  • Costs optimized
  • Perceived value metric (external clients)
  • Perceived value metric (internal clients)
  • Innovation pipeline index
  • Diversity of ideas sources
  • Number of touch points with stakeholders
  • The number of improvement points found during the review
  • Behavior change metric
  • Ideas generated
  • Idea to systematic discussion rate, %
  • Discussion to hypothesis rate, %
  • Hypothesis to tested hypothesis rate, %
  • Tested hypothesis to implemented rate, %
  • % of employees who passed training for innovation
  • Training engagement index, %
  • Minimal training exam score rate, %
  • Innovation training behavior change index
  • Time spent on discussing hypothesis
  • Tools and funds availability

Learn more in Innovation scorecard example.

Employee engagement

  • Resources and Tools Availability
  • % of task with high expertise and involvement
  • Number of feedback sent to employee
  • Number of recognition received by employee
  • % of ideas from employee reviewed in details

Learn more in Employee engagement scorecard example.

KPIs Implementation

Learn more about the best practices in implementing KPIs.

Owning KPI vs. Tracking KPIs

The key component of the successful implementation of the measurement system is a proper performance measurement culture.

What is the best measurement culture like?

  • The KPIs are the product of discussion
  • The KPIs are not mandated from the top but are organically suggested by your team
  • The KPIs help to solve real business problems, not just do routine reporting
  • The KPIs are clearly (unambiguously) defined
  • The KPIs are not perceived as punishment but a way to make things better

How to achieve this? I would recommend checking out this 5-step guide for measurement culture where we discuss the cultural challenges and the ways to address them.

KPI Calculation

Once you have the list of KPIs, you need to do some calculations. These can be basic calculations of the performance score or more advanced calculations of the scorecard. We have discussed the challenge of the KPI and scorecard calculation in this article. Here, you have an executive summary:

1. Define KPIs properly

Define KPI’s values properly: baseline, target, current value.

Don’t mix the idea of target and goal (“improve customer service performance” is the goal and “… by 10%” is the target).

Decide if you need to increase the value (increase profits) of the indicator or decrease it (decrease response time).

2. Normalize KPIs

To make different KPIs comparable, we need to normalize them first.
Think about website visitors measured in “visitors/month” and time on site measured in “minutes.” We need to put both indicators on a certain scale to make them comparable. Learn more about metric normalization.

3. Track Performance and Progress

It makes sense to track separately performance and progress. The difference was explained here.

4. Assign weight to KPIs

The weight of KPI shows the relevant importance of the KPI on the scorecard. KPIs with higher weight will contribute more to the total performance.

5. Automation software is a must

Although you can start with a spreadsheet, it would be hard to scale the project without professional tools like BSC Designer.

Frequently Asked Questions

Below, you will find some frequently asked questions about KPIs and our answers to those questions. Feel free to ask more questions in the comments at the end of this article.

We are doing fine without any KPIs – do we need some?

It’s like using a GPS in your car. When you drive the route that you are used to driving every day, then most likely you won’t turn a GPS on. Does it mean that you don’t need it in more complex situations? The same can be said about KPIs. The more complex your business environment is, the more you need good KPIs. Above, we have discussed other reasons to use the KPIs.

Does “Implement new HR training program within 1 year” need a KPI?

Let’s look at the goal first. It sounds more like a milestone goal. At the end of the year, one can give a “yes/no” answer to the question of whether the program was implemented or not. The way that the goal is formulated now doesn’t imply an achievement of any performance results, so there is no sense in using key performance indicators.

If you would focus on improving the efficiency of HR training programs or reducing the operational costs, then this could be a good performance goal, and respectively, there can be used performance indicators.

What is a good KPI for “Improve employee morale by 15%” goal?

Let’s start with the way this goal is formulated. The goal, in this case, is “improve employee morale,” and “15%” is an improvement target. I would recommend dividing the goal and the measurement/target. The goal, in this case, is to “Improve employee morale.” A morale index might be used as a metric.

What KPI should we use for the “Double employee productivity” goal?

Many companies have such goals on their scorecards in order to motivate their staff. In my opinion, goals like this one have two major flaws:

  • The goal is unrealistic: why exactly do we need to double the productivity; why not increase it by 10% or 30% or by 12.75%?
  • It is not clear how to measure the productivity for tasks like marketing, software development, copywriting…?

Having said that, we need to update the goal to something like “Improve employee productivity” and get back to the basics and find proper KPIs.

Do we need software for our scorecard?

You are asking a vendor of such software, but I’ll try to be objective when answering… It depends on how serious you are about KPIs. If you need to maintain KPIs in several perspectives, calculate their performance, take into account their relevant importance, visualize them on strategy maps, then I would go for some professional software like BSC Designer.

I know some Excel gurus who can create a real state of the art scorecard, but the question is how hard is to maintain those scorecards? We have analyzed the cons and pros of this approach in a separate article.

If you don’t have a budget – start with BSC Designer Freeware, and then upgrading to the professional scorecard tool will be easier in the future.

Is a KPI that I have a “leading” or “lagging” one?

These terms are contextual; one KPI is leading or lagging only in the context of a certain business goal. To understand the difference, have a look at this article.

What is the correct term: KPI, metric or indicator?

When talking about terminology, there is a difference. It is a good idea to understand this difference and use the correct terms in each case. A practical experience, however, shows that the term “KPI” is used interchangeably. To stay on safe ground, I’d use “metric” or “indicator” as terms.

What KPI template do you recommend?

Actually, none of them. There are some popular industry-standard KPIs. Yes, they look very professional, and they might be a good starting point, especially if your boss just wants you to “find some KPIs.” The problem is that the impact of a few tailor-made KPIs designed by your team for your business goals is much higher than the impact of 50+ KPIs found on the Internet.

It feels like my team doesn’t accept new KPIs… What might be the reason?

Two most typical reasons are:

  • Those KPIs are not aligned with real business problems
  • The KPIs are not the product of the discussion

Have a look at the cultural aspect of performance measurement in your organization.

My employee allowed a KPI to move to the red zone. How should I react as a manager?

In my opinion, this situation is a chance to start a discussion about what can be done better in the future. That’s why we have KPIs: to understand our business better and to prevent problems in the early stages.

How do we cascade KPIs across the company?

Actually, we cascade by business goals. We’ve discussed this in detail in this article.

Do you recommend using KPIs for bonus calculation?

If you do it to control your team in a “carrot-and-stick” style, believe me, they are cleverer than you are, and they will find some ways to game the system. We have discussed possible approaches to the reward challenge in a previous article.

What number of KPIs do you recommend having on a scorecard?

Just a few KPIs will survive the proper discussion process. Others will be deleted or moved to the scorecards of the teams or individuals that work specifically on that problem. A good formula to have in mind is 1 business goal = 2 metrics (one leading/predictive and one lagging/result).

If you could give only one bit of advice about KPIs, what would you suggest?

Create and carefully maintain a proper measurement culture in your organization!

Related Articles

Scorecard Expert | Speaker | CEO. Aleksey Savkin (LinkedIn, @bscdesigner) is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs. New book by Aleksey: 10 Step KPI System

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