Metrics vs Key Performance Indicators: Introduction
Performance tracking and management help to spot any over or underperformance and then take corrective action. In fact, according to findings by Passive Secrets in their ultimate list of 2022 performance management statistics and trends, 98% of businesses believe performance management is essential in business operations. Performance tracking can be done using Key Performance indicators (KPIs) and metrics.
In everyday business contexts, KPIs and metrics are frequently regarded as synonymous. Although they function similarly, they are not used for the same reasons. Remember that while not every metric is a KPI, all KPIs are metrics. Having said that, this paper will discuss the topic of metrics vs Key Performance Indicators and provide some examples and advice for effectively measuring performance using metrics and KPIs.
Definitions: Metrics vs Key Performance Indicators
According to Investopedia, a Key performance indicator (KPI) is a quantifiable measurement to gauge a company's long-term performance. Key Performance Indicators are specifically dedicated to 'Key' objectives and thus act as measurable benchmarks for long-term goals that support an organization's strategy.
Metrics are quantifiable measurements, but unlike KPIs, they are used to measure the performance of specific business processes at an operational level. While some metrics closely accompany business objectives, they are not the most important indicators of your business performance. According to The Corporate Finance Institute, metrics are used to measure a business process' performance or a characteristic of it; thus, they monitor how well various corporate activities are performing.
Importance of tracking metrics and KPIs in business
In today's competitive and dynamic business environment, tracking metrics and key performance indicators (KPIs) to measure and improve your performance is essential. A study by Umeå School of Business and Economics proves that the general business environment has a significant impact on the strategic decisions of organizations, therefore, businesses that track their metrics and KPIs have a competitive advantage.
Some of the benefits of tracking metrics and KPIs are:
- They provide clarity and focus on what matters most for your business.
- They enable you to communicate your vision and expectations to your team and stakeholders.
- They facilitate data-driven decision-making and problem-solving.
- They foster accountability and transparency within your organization.
- They motivate and inspire you and your team to strive for excellence.
Tracking metrics and KPIs is not a one-time activity but a continuous process that requires constant review and refinement. Doing so can ensure that you are on the right track to achieve your business goals and deliver value to your customers.
Metrics vs Key Performance Indicators: Metrics
Metrics are quantitative measurements used to monitor the effectiveness of particular business activities at the operational level. They aid in contextualizing the achievement of important business goals but do not play a crucial role in their success like KPIs do. Metrics are not the most crucial indicators for tracking strategic actions, even though some may be related to organizational objectives. They are, however, still useful for informing firms about the status of their various activities. For instance, a vital indicator to monitor for a firm is the number of users visiting its website. However, it does not directly contribute to your company's success. Therefore, it might not be worth bringing up to the board of directors. Metrics are still useful for monitoring development and for making wise choices.
Simply put, metrics are any data collected from regular company activities. Therefore, defining long-term KPIs for your firm can be done using a combination of specific metrics. Metrics are crucial in business for the following reasons:
- Metrics allow you to compare business performance to that of competitors and gain in-depth insights into the effectiveness of specific campaigns, strategies, and activities.
- Metrics also assist organizations in identifying the KPIs that are most crucial to their success and show how they relate to one another.
Types of metrics used in business
The following are the different types of metrics used in business:
1. Goal metrics
The metrics specify how a goal will be evaluated. These measures are used for performance monitoring, strategic management, and goal setting.
2. Quantitative metrics
Quantitative metrics are measured numerically and are often computed using a particular formula.
3. Qualitative metrics
These metrics do not measure numerical values and are usually based on human judgement, for example, customer satisfaction.
4. Actionable metrics
The outcomes for these metrics can be directly linked to particular activities. Actionable metrics show what is working and what isn't in your operations.
5. Vanity metrics
These metrics are impressive but not useful and have no real value as indicators of the progression of the organization. If you operate an online store, for instance, and receive many daily visitors to your website, this may give you the false impression that people like your product. However, if traffic is high but conversion, which is more crucial for an e-commerce business, is poor, this indicator is meaningless.
6. Informational metrics
They merely offer a few interesting but insignificant facts. As the name suggests, they inform.
7. Key metrics
Key metrics are important for business and utilized to evaluate the organization's strategic objectives. They are commonly known as Key Performance Indicators.
Related: HR Metrics: Everything you Need to Know
Examples of metrics used in business
Some examples of metrics used in business are:
- Website traffic: The number of visitors to your website.
- Email open rate: This metric for email marketing calculates the percentage of emails that are opened.
- Customer churn rate: The percentage of clients who stop doing business with you during a specific period
- Revenue growth rate: This is the percentage increase in your revenue over a specific period
- Employee turnover rate: The percentage of employees who leave your organization over a given period.
Advantages and disadvantages of using metrics
Advantages of using metrics
- Metrics can give you relevant data to help you make business decisions.
- Metrics can help businesses become more productive and efficient. By collecting and analyzing data on various processes and activities, businesses may identify and decrease waste, make the most of the available resources, and streamline workflows.
- Metrics may help businesses empower and motivate their employees. Businesses can promote a culture of accountability and transparency among their employees by establishing and expressing clear and realistic goals and expectations.
Related: The Good Case for HR Metrics
Disadvantages of using metrics
- If metrics are not correctly specified, gathered, or assessed, they may be deceptive or erroneous. Businesses must ensure that the metrics they select are relevant to their goals and the environment in which they are used.
- If metrics are not balanced or prioritized, they can be overpowering or distracting and may divert employees from their day-to-day activities.
- Some business metrics risk being inaccurate, making them particularly risky to use. This is true for business KPIs that depend on projections or assumptions.
Metrics vs Key Performance Indicators: Key Performance Indicators (KPIs)
Key Performance Indicators or KPIs measure performance or progress based on specific business goals and objectives. According to KPI.ORG, Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. The word "key" is crucial because it denotes that they only track information pertinent to the company's strategic decisions. A solid KPI should assist you and your team determine whether you are making the best choices. They serve as a road map to business results and are the key strategic indicators that will advance the business.
Think of them as signposts. When you think of it, KPIs are just yardsticks indicating how far you've progressed toward fulfilling your business's goals. So, needless to say, when picking those yardsticks, you had better ensure they are pointing in the right direction. KPIs for a firm can change over time and must be flexible according to the operating environment. A study by ZS Consulting on how high-growth companies leverage sales and marketing KPIs to accelerate growth advises that when selecting KPIs, less is more. Settle on the right few, then evolve.
A good KPI should be:
- Well-defined and measurable: You should be able to clearly define what you want to achieve and how you will measure it.
- Relevant and realistic: You should choose KPIs that are relevant to your business goals and objectives and achievable within your resources and constraints.
- Time-bound and trackable: You should set a specific timeframe for achieving your KPIs and monitor them regularly.
- Actionable and adaptable: You should be able to take action based on your KPI results and adjust them as needed based on changing circumstances.
Types of KPIs Used in business
1. Quantitative Indicators
Quantitative indicators are the most straightforward KPIs. In short, they are measured solely by using a number.
2. Qualitative Indicators
Numbers do not measure qualitative indicators. Qualitative indicators tend to focus more on experiences or feelings and the intangible value we place on them. An employee satisfaction survey is a popular qualitative indicator used by companies. The measures depend on a person's opinion, even though some survey data would be classified as quantitative.
3. Leading Indicators
Leading indicators are used to predict the outcome of a change in a process and confirm long-term trends in data. Since leading indicators are foresightful and predictions, they allow you to influence the future.
4. Lagging Indicators
They are frequently used to evaluate past performance or analyze company decisions' effects. Businesses might use lagging indicators to assess if their actions contributed to the desired result. According to Forbes, lagging indicators are important in your performance management framework because they represent the undeniable truth.
5. Input Indicators
Input indicators estimate the resources required for a project or business activity. They are necessary for tracking resource efficiency. An example of an input indication is the amount of funding or more employees needed to attain the desired outcome.
6. Process Indicators
Process indicators show how well business processes are working and how efficient they are. The data can be used to influence changes in processes to improve efficiency.
7. Output Indicators
Output indicators are one of the most used KPI types. Output indicators assess the success or failure of a process or business activity. Examples of output KPIs include revenues, profits, or new customers acquired.
Examples of KPIs
Key performance indicators vary from business to business and industry to industry, but here are some examples across business functions:
Financial KPI examples
- $ Revenue: Revenue is one of the most tracked KPIs in business. In a 2022 survey among key business leaders in 35 countries, 88% of respondents used revenue as a key performance indicator (KPI) of their businesses.
- % Gross Profit Margin
- % Operating Profit Margin
- % Net Profit Margin
- # Quick Ratio (Acid Test)
- # Current Ratio
Sales KPI examples
- # New Leads
- % Lead Conversion Rate
- % Sales growth rate
- % Market share growth
Human Resources KPI examples
- % Absenteeism rate
- % Turnover
- % Employee satisfaction/engagement rates
- % Retention rate
Customer KPI examples
- % Customer Retention Rate
- % Customer review score
- # Average Response Time
- # Customer Complaints
- % Net Promoter Score
Related: Example Key Performance Indicators
Advantages and disadvantages of using KPIs
Advantages of Key Performance Indicators
- KPIs bring focus and clarity to the business's most important issues. They aid in bringing employees' day-to-day activities in line with the company's vision, mission, and strategy.
- Employees are encouraged to perform better and develop their abilities using KPIs. As a result of seeing how their job affects the company's performance as a whole, they foster a sense of accountability and ownership among the staff.
- KPIs encourage innovation and ongoing business improvement. They support developing new goals, exploring new ideas, and learning from prior experiences.
Disadvantages of Key Performance Indicators
- Accuracy demands time and dedication. It might be challenging to define and measure KPIs precisely. They demand precise definitions, data sources, methodologies, and standards, all of which can be difficult to establish and maintain over time.
- KPI management and implementation can be expensive and difficult. They need the necessary systems, tools, resources, and expertise to gather, store, process, analyze, and report performance data.
Metrics vs Key Performance Indicators: Differences between metrics and KPIs
Now that we have a solid understanding of metrics and Key performance indicators let us explore the topic of metrics vs Key Performance Indicators. As a manager or business leader in charge of a company or any business unit, you probably want to keep tabs on how the business performs. However, how can you decide which data points to pay attention to and which to ignore? How do you differentiate metrics vs Key Performance Indicators in your business operations? What makes metrics different from KPIs, and when should you utilize each?
Metrics and KPIs differ primarily in their level of focus and relevance. Metrics provide a general picture of your company's performance, but KPIs focus on the areas most crucial to your success. While KPIs can help you assess progress and impact, metrics can assist you in spotting trends and patterns. While KPIs might be valuable for strategic and directional objectives, metrics can be useful for operational and tactical purposes.
KPIs show how you're doing on strategic objectives. Strategic goals include precise business results like targeted monthly new clients or targeted quarterly revenue. Metrics support KPIs by visualizing the tactical procedures or actions required to meet the KPIs. Metrics monitor and assess progress toward goals for particular actions, like monthly website visits.
As opposed to measuring performance against targets like KPIs do, metrics are primarily there to explain why the KPIs appear the way they do. Therefore, most metrics are there to support Key performance indicators.
When to use Metrics vs Key Performance Indicators
Metrics support KPIs. So when should you use metrics vs key performance Indicators? Your aim and the circumstance will determine what you will do. When you want to analyze and evaluate the efficiency of your company processes on a more comprehensive level, metrics are the best tool to utilize. When you wish to track and evaluate the top-level performance of your business goals and objectives, you should utilize KPIs. When you want a complete and impartial view of your business performance, you should employ metrics and KPIs.
Metrics and KPIs have different roles and functions in a business. Metrics are used to monitor the operational aspects of a business, while KPIs are used to align and communicate the strategic aspects of a business.
Metrics can be used to:
- Track the performance of a process or activity over time
- Identify areas of improvement or opportunity
- Benchmark against industry standards or best practices
- Analyse root causes
- Support decision-making and problem-solving
KPIs can be used to:
- Convey the organization's vision and mission;
- Align the goals and objectives of various teams and departments
- Evaluate the impact and value of a strategy or initiative
- Motivate and inspire employees and stakeholders
- Reward and recognize achievements and successes
How to select the right metrics and KPIs for your business
Your company's metrics and KPIs will be influenced by your industry, market, customers, competitors, goals, objectives, strategies, initiatives, processes, activities, and outcomes. There is no single approach that is effective for all KPIs and measurements. There are some essential ideas. Nevertheless, that might help you choose the most relevant and important to your business.
Some of these guidelines are:
1. Start with your goals and objectives
To select the proper key performance indicators, you must be clear on the user and business goals that your product supports. Choose your company's goals and the reasons behind them. After that, choose KPIs and metrics to monitor your progress toward those goals.
2. Choose metrics and KPIs that are actionable.
This means they ought to provide insights that can help you improve your performance or change your strategy. Vanity metrics, as discussed earlier, are not very useful when formulating KPIs.
3. Choose metrics and KPIs that are balanced.
This means that they should cover different aspects of your business (such as financial, operational, and customer-oriented), different types of KPIs (such as lagging, leading), and different perspectives (such as internal vs external).
4. Choose metrics and KPIs that are consistent.
This implies they should be computed and reported consistently across various teams, departments, and time frames.
5. Do not Measure Everything That Can Be Measured
It is easier to focus on a few metrics. According to ClearPoint Strategy, many firms select too many KPIs, which results in resource waste to keep up with them. Fewer, easily understandable KPIs are preferable to many difficult-to-understand KPIs.
Frequently asked questions
What are the 4 P's of KPI?
The 4P's of KPIs is a useful framework for designing KPIs aligned with an organization's strategy and goals. Let us dive deep into what the 4Ps are and what each one means
Purpose: Defining a KPI's objective is the first step in constructing one. What exact result are we hoping to get from this indicator? What connection does it have to our mission and vision? We can select the appropriate metrics and targets for our KPI by using a clear and succinct purpose statement as a guide.
Perspective: The second phase entails taking our stakeholders' perspectives into account. Who are the targeted beneficiaries and users of this KPI? What are their expectations and needs? How can we clearly and effectively explain the results? We can better comprehend our audience's many perspectives and interests by doing a stakeholder analysis.
Priority: The third stage is to rank our KPIs according to their urgency and importance. How important is this KPI to our achievement? How frequently should we check on it and report on it? You can prioritize and rank your KPIs using a prioritization matrix.
Progress: Tracking and assessing our progress toward our KPIs is the fourth and last step. How are we doing compared to our goals and benchmarks? What trends can you see in the data? What are the main factors that influence and drive our performance? You can make use of a dashboard or The Balanced Scorecard framework to track progress.
What is a KPI checklist?
A KPI Checklist can be used by anyone tasked with developing new KPIs for their organization or has been asked to update or improve current KPIs. KPIs must-have qualities that define business performance and effectively explain the resulting information to you to be effective. You must be able to identify the problems and the steps necessary to solve them based on KPI changes. A KPI checklist ensures that the KPIs you select meet these specifications. To make sure your KPI is useful to the business setting when you create it, take into account the following checklist:
I am measuring a KEY Performance Indicator
You should ensure that measuring is a repeatable process, not a one-off event. The performance indicator should be KEY to the measured performance and the business.
I know which business process I am measuring with this KPI and why
You should know the results or goals you hope to accomplish for a particular KPI.
My team believe in using this KPI as a measure of this process
The KPI ought to be calculable, comprehensible, and easy to express. The KPI is based on reliable data that is currently accessible within the organization, or that can be accessed with ease. The value of the KPI may be influenced by the individuals being measured.
My KPIs are aligned
KPIs should support each other and be aligned with business objectives. If this is not the case, you might have to modify them.
I have a system in place to keep my KPIs under control
You should be alert to any changes to the KPI. You should also be able to set a reminder to round up KPIs regularly to see what is driving the behaviour of the employees.
To summarise, comparing metrics vs Key Performance Indicators is important for anyone who wishes to understand business performance tracking. Metrics and KPIs are both valuable tools for performance tracking and measurement. They each perform distinct tasks and duties in your company. KPIs help you track the development and performance of your business goals, whereas metrics help you track the development and performance of your business processes. KPIs give direction and guidance, while metrics provide context and insight. While KPIs might be valuable for strategic and directional objectives, metrics can be useful for operational and tactical purposes. You may maximize your business performance and get the desired outcomes using metrics and KPIs correctly. Not all Metrics and KPIs are created equally. You must make the best decisions consistent with your company's strategy, values, and vision. You must also define them clearly, measure them accurately, analyze them regularly, and report them effectively.