KPI stands for “Key Performance Indicator” which, as the name suggests, functions as a key performance indicator. By establishing KPIs in a company, it is possible to monitor its performance: you can understand what obstacles are appearing in your path and preventing you from achieving goals, assist with potential improvements, and provide a clear vision of what will truly impact your business successfully.
Importance of KPIs
Lack of strategic planning is one of the main causes of business failure and leads to the downfall of many businesses.
To succeed in your organization, you need to take time to think about strategies to implement. The use of performance indicators is probably the most transparent way to demonstrate the results a business has, especially if used from the start, as this strategy makes it impossible to hide negative points or misinterpret results.
The biggest advantage of using KPIs is transforming random numbers into results and knowledge about the company. This way, it is possible to make forecasts and diagnoses, identifying problems that arise during the journey, allowing for changes in strategy if necessary, and improving the organization’s market positioning.
Another very important point is that these indicators include employees in the business strategy. By sharing KPIs with the team and keeping them informed about how their efforts contributed to the organization’s good performance, it will make them feel important and motivated.
Since KPIs offer measurable results, they help map out which business areas in a company need improvements, facilitating their management.
They also provide more clarity about the goals the company needs to set, aiding in the efficiency of work teams and boosting sales. Additionally, they are a valuable aid in resource use: they enable smarter use of resources, resulting in significant cost and expense savings.
As you can see, using KPIs in a business can not only save a company from failure but also help it achieve success.
How to Define KPIs
There is a vast array of performance indicators to use in a business, but not all are relevant to what you intend to implement or the goals you wish to achieve.
You should make a coherent choice according to the objectives and strategy you intend to execute in your organization. Remember that it is important to choose KPIs that have a relevant and positive impact on the process. It will be a waste of time to monitor certain factors that prove to be completely insignificant for achieving the expected results. They should also be suitable for the situation the company is currently experiencing and can be changed and adjusted according to the business’s circumstances.
To choose the most suitable KPIs for your business, you should consider some aspects:
- What is the current scenario of your company;
- What obstacles are affecting the organization’s performance;
- The objectives you intend to achieve;
- Determine if these objectives are tangible;
- Areas of operation where performance indicators should be applied;
- Is the established goal truly relevant to the company?
- Is it possible to achieve these objectives within the stipulated time?
It is essential that the chosen KPIs are easy to measure and verify. Additionally, they should be chosen objectively and based on performance evaluations conducted in the sector where these indicators will be used. To ensure that the outlined strategy brings the desired results, it is equally essential to promote good communication between teams to ensure that everyone is committed to the same objectives.
Types of KPIs
As mentioned earlier, there is a wide variety of performance indicators that can be used in a business. In this sense, they are divided into three major categories to better understand their functioning. They work together but respect a hierarchy. Check below how KPIs are divided.
Primary KPIs
These indicators are the main ones to consider if we want to understand whether the plan outlined for the company is being followed and its evolution, as they allow for a more complete analysis of the company’s management. They measure results and indicate whether actions are profitable for the business. Examples of these indicators include the conversion rate and revenue per purchase.
Secondary KPIs
These indicators work in conjunction with primary KPIs. They explain the reasons for the results, justifying the success or failure of the implemented strategy. In other words, they can measure parameters such as the number of interactions with a call to action or even the number of newsletter subscribers.
Practical KPIs
Practical performance indicators are simpler but very important. They are used to explain the results of primary and secondary KPIs. They are more detailed and focus on factors such as trends and behaviors. The number of new customers, social interactions, or even the bounce rate are examples of practical indicators.
Examples of KPIs
Performance indicators can be applied in various business areas of a company, putting into practice the strategy to achieve outlined objectives. Although there are several you can take advantage of, here are some examples of the main KPIs:
- Productivity indicators: Measure the amount of resources used to create a product or service, evaluating the efficiency of employees and processes. These resources can be financial, human, temporal, among others.
- Quality indicators: Related to productivity indicators. They show how the service/product is presented to the public, reducing the number of errors.
- Strategic indicators: Compare the company’s current scenario with the ideal. They optimize processes and improve the business strategy.
- Average ticket value: Explains the commercial dynamics. It tracks parameters such as the number of sales per customer and seller to understand the performance of the sector in question.
- Capacity indicators: Measure the response capacity of a process. For example, the quantity produced of a product in a given period.
These are just a few examples of KPIs chosen by us.
Defining and monitoring these indicators is a fundamental strategy that you should implement in your business if you want to achieve success. Although there are many to choose from, before doing so, follow our advice and remember that your choices should align with the needs of your organization.
