What is a KPI?

May 3, 2021
6 minute read

As a small business owner, KPI is an acronym that you’ll want to familiarize yourself with because chances are you’ll want to use them to track your everyday business performance.

Most KPIs use a combination of visual data to represent progress. This can include a mix of charts, graphs, and additional information.

This article will break down what a KPI is, what it’s used for, and why using them is crucial to help work on your business goals.

Understanding KPIs

Key Performance Indicators, also known as KPIs, are a quantifiable measurement that tracks a company’s overall long-term or short-term performance.

There are many different kinds of key performance indicators, but the majority of them typically focus on revenue and profit margins.

A few of the most commonly recognized key performance indicators are:

Net profits: the leftover profit within a company once all of the taxes, expenses, and interest payments for that same period are taken care of.

Gross profit margin: the remaining revenue after any accounting-related expenses associated with the production of goods for sale within the company is accounted for.

Working capital: money that flows from a loan source (your bank, or investors) that is used to fund the daily activities of the business.

Income sources: Where are your revenue streams stemming from? Analyzing your revenue per client and per service is a great way to track the most profitable path for your business.

What makes an effective KPI?

The objective of any key performance indicator is to streamline business operations.

An effective KPI should start with a clear and straightforward objective. When done correctly, rather than a typical brainstorming strategy, key performance indicators have the ability to impact and drastically improve operations within the company directly.

How to formulate effective KPIs

Writing an effective KPI can be done in the following steps:

  • Describe your intended results: What is your strategic objective? What goals are you working towards?
  • Consider alternative routes: How do you intend to measure results, and can you arrive at these intended results in more than one way? If yes, consider all of the possibilities and narrow down which one will be the most effective for your business.
  • Choose the right measurement (based on objective): Select a KPI that will best reveal how your business’s performance is improving, worsening, or staying the same.
  • Create an index: Several similar measures can be grouped to help better analyze data. For example, if you measure consumer emotions, like client satisfaction or loyalty.
  • Set genuine targets: Create attainable goals that are actually achievable based on the data at hand, as opposed to striving for unrealistic achievements that are impossible or highly unlikely to be met for a specific reporting period.

How to share your KPI with stakeholders

KPIs allow an organization to engage with stakeholders in a meaningful way because they allow the company to present real results. A KPI is a measurable record of your business’s performance.

When presenting key performance indicators to stakeholders, it’s important to remember the following:

  • Make sure all of the data is as up-to-date as possible. You want this to be an accurate depiction of your company’s performance for a given point in time.
  • Present your findings in an engaging way. Nobody likes to read a long wall of text, especially when data is involved! Consider using graphics, charts, and bright colours to captivate interest and engagement from potential investors.
  • Consider a communication plan: rather than feed your stakeholders a massive update all at once, consider rolling out the KPIs as part of a larger communication plan. Sharing a strategy in advance could lead your stakeholders to be more receptive to any changes you’re proposing.

Why weekly/monthly KPI reviews matter

Most key performance indicators are reported on a weekly or monthly basis.

KPI review meetings should be done with producing real-time results in mind—not just for the sake of sharing more numbers and data crunching.

As numbers change all the time, especially in business, most companies opt to do a weekly or a monthly KPI review, or sometimes both. Weekly KPI reports are good for keeping track of results indicators, which cover things that have already happened. On the other hand, monthly KPIs can allow you to set more long-term business objectives that can be reported on at the end of the month.

By doing both weekly and monthly reviews, you can better keep track of how your company is performing on a monthly basis, based on the performance delivered every week.

The importance of actionable KPIs

Actionable KPIs are critical to making meaningful progress towards the objectives of your business.

Creating actionable KPIs starts with deciding which metrics are worth measuring. Once that’s been determined, you’ll need to determine the chose