Is your business moving on the right track toward the desired direction? Or things are not going too well? Every business needs distinctive metrics that define its position from its goals. The KPI Metrics are the best tools that give your business the 360 overview it needs for better performance. Which KPIs are most important? And how can you perfectly utilize them?
What Is a KPI?
A Key Performance Indicator, or as we call it in short KPI, is a metric that describes a certain status (Good, Moderate, or Bad) for performance within a set time frame. Every KPI is considered a checkpoint of a specific objective the business needs to achieve.
Every department uses KPIs metrics for every strategic operation, which is a long-term process that extends from a month to many years. Sales, marketing, finance, HR, and other departments have specified KPIs, depending on their roles.
For sales, the major Key Performance Indicator metric is direct revenue the salespersons have gained this month.
For marketing, the number of leads the last marketing campaign attracted is a crucial KPI that any marketing manager should care about.
Why Are KPI Metrics Important for a Company?
The primary purpose that KPI metrics seek to achieve is to guide individuals in perfectly doing their tasks and assignments and helping them to perform the related goals, using the best practices, strategies, and methods, based on the outcomes they result in every period of time.
Above all, these metrics lead the entire organisation towards achieving its goals.
As a result, every manager is able to easily take a data-driven decision based on the insights the KPIs provide, employees clearly recognise the target of each task, and the higher board will get the overall picture and accurately determine the progress of each project or mission.
KPI metrics take into account time, quality, and budget to reach the highest performance that approaches the desired objectives. In this way, KPIs develop a correlation between employees in all departments and business goals.
What’s the Difference Between a KPI and a Metric?
In short, every KPI is an advanced metric, while not every metric is a KPI. A Key Performance Indicator is a metric that gauges the performance and progress of each department based on objectives and business goals set.
While a metric has a more generic overview related to business health, which makes it untied to any strategic objective, contrary to a KPI.
A lead-to-conversion ratio, for example, is a metric that marketers use to know how many leads have ended to a conversion to check the quality of leads.
How to Measure KPI Metrics in a Company
To properly understand Key Performance Indicators, there are many categories of KPIs, each has its own usage, conditions, and insights to check, this drove experts to differentiate KPIs based on three main characteristics:
- Type of data
These variables represent the core differences between the various types of KPIs.
A Key Performance Indicator should have a quality that a goal has, which is a smart format.
It makes a KPI specific, measurable, and relevant.
A time frame bounds any KPI to give it a time dimension and limits.
The type of data is a distinctive characteristic that differs a KPI from one another, this data could be related to employees, clients, or others.
Now we can divide KPI metrics into three main groups:
1- Qualitative and Quantitative KPI Metrics
When we mention qualitative KPIs, they are metrics that define a status, a condition, or even a feeling. Employee satisfaction is a clear example.
A quantitative KPI is bounded by numbers. This could also include the number of sales achieved by a sales representative, the number of leads generated by a marketer, the percentage of completion related to assigned projects and tasks, etc.
2- Lagging and Leading KPI Metrics
Lagging and leading KPIs take time into consideration. They could be an indication of past events like employees who are terminated or resigned.
The best lagging KPI will be the turnover rate in this case. Time to Proficiency is a crucial leading indicator for the employee’s future performance.
According to the time he has consumed in gaining the required knowledge in addition to skills through training.
3- Input and Process KPI Metrics
An Input KPI deals with projects through resources, where every project needs a certain time, money, knowledge, and talents to be perfectly done.
A number of employees could be a strategic example of input KPIs.
A process KPI certainly represents a fact referred to the business’s current performance, like the average time of closing a deal by a salesperson.
In other words, every KPI metric helps the company in finding the best way to analyse its current status, developing suitable solutions, and adding new techniques to be part of the operations.
3 Company Crucial KPI Examples
There are many KPI metrics that are essential for any company. So, we’ll discuss three major metrics that directly indicate the success or failure of the corporation.
Employee Turnover Rate
Turnover rate is a lagging KPI metric that deals with the number of employees who have left the company over a certain period of time divided by the total number of employees at the beginning of this period.
For example, if a company has a 200-employee workforce, within a year 10 employees have left, here the turnover rate is 5%.
This represents a healthy corporate case; noting that temporary employees do not exist in the equation.
A high turnover has many reasons, therefore you should know the trigger that results in most exit cases.
For example, a stressful work environment is a primary reason in many turnover cases. Finding the main reason is solving a part of the problem.
This will need to make decisions and form policies that meet the organisational culture to decrease the employee turnover rate.
Measuring employees’ satisfaction with their work is essential to achieving higher productivity with minimum errors and superb performance.
In conclusion, A happy individual is a productive employee. You could also use surveys and polls to gain the data that indicates how satisfied the employees are.
In addition, suitable employee satisfaction could diminish the high turnover rate, it could be even forecasted from the number of absences and lateness cases every employee has.
It’s a qualitative KPI metric; however, this doesn’t mean that it doesn’t need numbers to support it.
An employee net promoter score eNPS measures the degree to which the employee would recommend this workplace on a scale from 1 to 10, where below 6 is a negative indicator.
Also, other rates will help, like absenteeism rate and employee satisfaction index ESI.
You can calculate the absenteeism rate by dividing the number of unexcused absent days in a certain period of time by the total number of work days in the same period.
While the employee satisfaction index can be easily determined when an employee answers 3 simple questions:
- How satisfied is the employee with the workplace?
- How well does the workplace meet the employee’s expectations?
- How close is the workplace to the employee’s ideal job?
The answers to these questions are a number from 1 to 10, where 1 is dissatisfied at all, and 10 means super satisfied.
By adding the three values together, you’ll get the question mean value (QMV), which is put in the following equation to find ESI:
Human Capital ROI
It’s a metric that evaluates the employee from a financial point of view.
An employee in this metric is considered a group of skills, competencies, qualifications, behaviour, and knowledge; all this combination forms a human capital.
In conclusion, Human Capital ROI is a KPI metric that needs intensive analysis and evaluation.
It also links every penny paid for the human capital and each penny gained due to paying the first penny.
Costs include all compensations and benefits the employee gains, like salaries, bonuses, insurance, …etc.
For example, if a company develops an initiative for the employees’ health care, it has cost 200,000 £, this protects employees from serious illness threats, which caused a higher revenue equals 400,000 £.
Here, the human capital ROI equals = 400,000-200,000/200,000= 2.
Also, Human Capital ROI could be a way of measuring the outcomes of increasing an employee’s productivity.
If an employee extends their effectiveness to another 10 minutes of his 8-hour workday. We can calculate the increase as a sort of percentage using this equation: (10/(60*8))*100=2.08%.
This could affect a business with a 1 Million £ revenue to increase by 20833£.
3 Steps to Determine Your Critical KPI Metrics
After illustrating and fully understanding the KPI Metrics, you can now choose the metrics that suit your business and industry, this depends on three easy steps:
Commit to the Business Objectives and Success Targets
Your business objectives are the main engines, you should keep them in mind before picking the suitable Key Performance Indicators.
The strategic objectives are the goals by achieving them your business optimises competitive advantage that results in a bigger share in the market and more impact on the community and clients.
Each strategic objective has success factors, seeking to accomplish these successes lead directly to the objective.
Therefore, success targets should be part of any equation or measurement used for KPI metrics.
Choose the Most Suitable Source for Measurement
Gathering the right data could be an exhausting step if you haven’t well managed the knowledge related to the company from the beginning.
Data that forms the input of KPIs can be gathered from solutions like CRM, tools like Google ads, forms employees fill manually, or even one-to-one interviews.
Formulate Your Own KPIs
Your KPIs are surely related to the business model you adopt. Not every KPI used by any business could meet your company’s needs.
Formulate Key Performance Indicators that represent the unique identity of the company. However, you can get inspirations from previous experiences of other businesses.
Eventually, you can differ between the useful KPIs and useless ones through experience, multiple times of trial and error will make the job done as you wish.
Your employees, as a factor in every KPI, represent precious assets that you need to invest in them and accurately select them. If you are in need of hiring the best candidates to gain the perfect KPI metrics, try now our Recruitment and Selection services.