KPI (Key Performance Indicators) explained

All businesses have goals. However, not all businesses know how to quantify those goals to break them down into actionable and achievable milestones. When considering your business goals, you might be thinking about general goals like boosting brand awareness. However, how will you know you’ve achieved those goals without measuring them effectively?

KPI, or key performance indicators, are essential metrics businesses use to measure marketing campaign performance. Whether you’re implementing an organic social media strategy or using digital display advertising to get more web traffic, you must figure out which key metrics you want to track to ensure your campaigns are performing well and can help you reach your goals.

KPI meaning: What are KPI?

Key performance indicators (KPI) are quantifiable measures that help businesses evaluate their progress toward achieving important objectives. Although different businesses use different metrics, KPIs are always central to understanding how your company is performing and how you can improve that performance.

Why are KPI important?

KPI break your goals into smaller milestones to help your team understand what they’re reaching for. Throughout your marketing campaigns, the team will measure the KPI to determine if they’re improving in performance and the reasons why they might not be.

Defining KPI metrics is similar to defining other goals. However, they can help you identify different ways to improve performance. KPI can also pinpoint areas that aren’t as effective, allowing you to be flexible in your strategies and make adjustments where necessary to improve performance based on your goals.

Ultimately, KPI give you something to reach for while ensuring you can effectively measure different areas of your business. There are KPI for everything, including internal processes, like teams, and external processes, like marketing. For example, if you create a newsletter for your customers, you may want to measure how many people actually open the email versus how many people click back to your website from a link in the newsletter. Meanwhile, internally, you may want to measure the productivity of employees.

Examples of KPI

Every business will have a different set of KPI metrics for how they identify success and measure performance. However, KPIs generally fall into one of 4 categories:

• Customer KPI: One important aspect of your business is your customers, and you must build customer relationships. Customer KPI measure your customer metrics, which may include number of leads or conversions and customer retention rate.
• Team KPI: Measuring internal factors, such as your teams, can help you find ways to boost productivity and improve business processes. KPI examples for teams include absenteeism and employee retention rate.
• Business system KPI: Business system KPI help to measure the effectiveness of internal processes, and KPI examples for these systems may include revenue growth, internal process productivity, and software effectiveness.
• Financial KPI: Another key aspect of your business is its finances. KPI metrics dealing with business finances may include revenue growth and profit margin.

Develop an effective KPI approach

To unlock the power of KPI, it’s essential to drill down into data about your business and see how it relates to daily operations. KPI are only effective when you have a clear understanding of how to interpret and use your data.

With this knowledge, you should take a thoughtful approach when deciding which KPI to assess (rather than blindly guess or follow common industry-recognized KPI).

As you determine which KPI to measure, think about your overall objective—and if you have a team, be sure to involve them. Get feedback from staff, management, and potentially even your customers or clients about what success means for your business.

Define and refine KPI selection

When you get to the KPI-selecting stage, you’ll need to focus each on specific business outcomes and keep big-picture questions in mind.

• What’s your ideal result, and why is it a key business goal?
• Is progress toward your goal measurable, or do you need to narrow or reframe it?
• What resources do you have to help you measure progress?
• Who is in charge of tracking and reporting KPI?
• How will you review progress toward your goal?
• How will you know when you’ve reached your goal?

An example of a goal you could measure with a KPI is increasing e-commerce sales by 40% within 12 months. In this case, the KPI is e-commerce sales.

To make this goal more attainable and to better understand the use of your KPI, you’ll benefit from articulating the why, how, who, what, and when of your selection.

Here’s an example of that breakdown for a goal of increasing e-commerce sales by 40% within 12 months.

• Why? Achieving this benchmark will bring in more revenue.
• How? We will periodically measure the KPI of e-commerce sales.
• Who? Marketing and e-commerce managers will work together to evaluate progress.
• What? Based on prior data, we’ll invest more in e-commerce tactics that have been successful in the past and reduce investment in less successful tactics.
• When? We will be successful if our e-commerce sales have increased by 40% by the end of August 2021.

Meaningful goals share the same qualities, making it easy to understand the KPI you target. As you track progress towards your goals, make sure they qualify as each of the following:

• Specific
• Measurable
• Attainable
• Relevant
• Timely
• Explainable
• Relative (now and as your company grows)

Some companies interpret the last 2 letters of the acronym as “evaluate” and “reevaluate,” which can be wise for tracking KPI that evolve alongside your progress. Either way, if your goals reflect all these characteristics, they are likely to be more effective at driving your success.

How to identify and implement effective KPI

To be effective, KPI need to relate to specific business goals or outcomes. They should be relevant to your particular business needs and geared toward actionable steps.

Follow these best practices to identify KPI that inform your business strategies.

Communicate your KPI with key players

Your KPI won’t be particularly helpful if you don’t share them with the people they affect. Your staff can’t help you achieve your goals if they aren’t aware of them. Make sure your team understands why and how you’re planning to reference these metrics as you work toward company goals.

You’ll achieve more buy-in and, ultimately, more success if you include your team in the process from the planning stage onward. The same goes for other stakeholders, like investors and board members, if you have them. Depending on your objectives, you might also want to loop in your clients or customers.

It’s also crucial to know how to communicate KPI. As all smart marketers know, an omnichannel approach works best for getting your message to all the right people. This means communicating across a variety of integrated channels. For example, you could:

• Send an internal email outlining the KPI you’re targeting and why.
• Post an announcement in your staff Slack channel.
• Share the plan in a team meeting.
• Include details in your monthly newsletter.

Make sure to share the same fundamental message across all your channels, and use each channel to support the others. This approach will underscore the importance of your undertaking. It will also reinforce the idea by making sure it gets in front of everyone more than once.

Make the announcement engaging and motivating. You could include some related FAQs, invite employees to share ideas, and add more context for your goals and the KPI you’ll track as you work toward them. Make it clear that you value your team’s input and that everyone will benefit if they help you reach your target KPI.

Set achievable targets

Be realistic when you set goals that target specific KPI. A plan that seems simple on paper may not include enough nuance to address limitations that will get in the way of achieving your goals.

As you run your target KPI by people on your team, they can help you assess whether it’s attainable and offer invaluable insight into what it will take to reach your goals. Aiming high is a good thing, but you don’t want to set your team up to fail.

On the other end of the spectrum, you don’t want to set a target that’s too low. If your staff can hit a target in a few weeks that you estimated would take 3 months, you might want to reevaluate your timeline.

Establish a review schedule

Make sure to create a schedule for reviews. A vague intention to “keep an eye on progress” is not as effective as recurring review sessions.

Routine reviews with key stakeholders will help you stay on track in a few ways.

• Catch issues early so you can adjust targets right away.
• Keep the momentum going—your team might otherwise lose interest over time.
• Recognize achievements as your team hits their targets to boost morale.
• Verify that everyone is still on the same page.

Write actionable, KPI-driven goals

Targeting KPI that get your business team focused and motivated is critical. You established your KPI goals with the knowledge that they would take hard work to achieve. Make sure your team has a roadmap to follow.

Making sure your goals are actionable establishes how you’ll work towards them. An actionable goal:

• Has defined steps
• Includes achievable targets
• Uses clear language
• Is realistic
• Assigns roles to key players

You want to both inspire and enable action—give your team what they need to get started and keep going.

Incorporate data and information

As you determine the KPI your goals will target, draw on resources that can help you establish more context.

• Historical data: Review data from previous years. This will help you assess what’s normal and what’s aspirational and avoid making mistakes. For example, what drove your success during profitable stretches, and what happened in the quarters in which you lost revenue?
• Audience data: Pull audience data from your Marketing CRM and review it to spot trends and determine what your audience responds to best. This can be used to sharpen your messaging and more efficiently reach your target KPI.
• Industry data: Look for industry data that can give you insight into relevant financial forecasts to predict where challenges may lie in the coming quarters. Look for press releases and other information published by your competitors about their financial successes, acquisitions, and other growth factors.
• Employee data: Check out data related to employee turnover and read over any feedback you’ve received from your team members over the past year or so. Do you notice any trends that might help paint a picture of where to focus or refine your goals and KPI?

Take a collaborative approach

Avoid communicating target KPI in a way that makes your employees feel like you’re delivering an edict from above. Pull in other stakeholders and include their voices as you craft your messages.

When you establish a collaborative approach to defining and communicating your KPI, the entire process will be better for it. Employees and managers who feel like they are on the same team are the most powerful tools you have for reaching your target KPI.

KPI and performance management frameworks

Many people think of annual reviews when they hear the term “performance management.” While annual reviews are a component of a performance management framework, they’re not the central focus.

Performance management frameworks, or cycles, help keep teams on the same page. They’re a continuous process focused on improving performance by setting individual and team goals. In a performance management framework, these goals align with the target KPI you established. They include planning, reviewing, and assessing progress, and empowering people to develop their skills and abilities.

Create a performance management framework in 4 steps

Aligning individual goals to KPI helps create a collaborative atmosphere in which everyone is working toward the same business objective. This can be done in 4 key steps.

1. Plan

During the planning stage, managers work with employees to develop goals linked to the company’s target KPI. The manager and employee might create a personal development plan and identify specific actions employees should take to achieve their own goals and contribute to reaching KPIs.

The planning phase is also an ideal time to review an employee’s job requirements and update their role if necessary.

Many businesses conduct annual employee reviews. But in a performance management framework, managers set near-term goals that employees work toward over a few months. Touching base more frequently gives managers more insight into how their employees adapt their work to align with strategic organizational goals and KPI. Each assigned objective should contribute to these goals.

The planning stage also includes a personal development element. Managers discuss the behaviors, skills, and knowledge the employee should develop to achieve their goals and, in turn, the company’s goals.

2. Review

During the review stage, managers take a look at the KPI for each employee’s goals to see how they’re progressing toward meeting company objectives. This can also involve reviewing work products, discussing projects with employees, and evaluating the effectiveness of team strategies.

3. Track

Tracking is a vital element of the review process. Managers track performance status regularly to maintain a record of progress. This data gives insight into trends that may be emerging and helps managers identify potential issues before they become more significant problems.

4. Act

At this stage, employees and managers carry out the plans put forth in the planning stage, while taking into account information gleaned from the review process. For example, if a manager advised a staff member to work on a specific element of personal development, that employee might start taking a related course. Then, when planning and review comes around again, this action will inform the next steps for the employee.

It’s important to note that these 4 steps might not be linear. Rather than flowing in order, these phases can occur at any point. Tracking and acting involve tasks that happen continuously, while planning and reviewing can happen on an as-needed basis or more frequently.

Criteria for key performance measures

For individual performance goals that match your KPI, make sure they are:

• Achievable
• Pertinent to business goals
• Objective—especially around personal development
• Strategic and focused on improvement
• Clearly defined and straightforward
• Relevant and explicit
• Specific

Maintain consistency from review to review. If an area for improvement was significant at the last review, it should maintain the same level of priority in the next. And as your teammates set goals, make sure it’s clear how their progress will be measured.

What every staff member needs might change. Your KPI could change too. No matter what, encourage and accept feedback at all stages—that way you can adapt as needed.

Critical components of a performance management framework

Your performance management framework may not look exactly like the framework laid out here. But to ensure that your performance management structure aligns with your KPI, be sure to include these elements.

Goal setting

Set goals at the start of the process, and make sure they’re meaningful and understood by everyone involved. When employees understand the context behind the goals you’re setting, they’ll feel more engaged and recognize that their individual contributions matter.

Aim for a collaborative goal-setting process. Modern approaches include a reversal of the traditional top-down approach to goal setting. Some companies actually align goals upward. This means empowering employees to create goals based on their understanding of the company’s target KPI. This kind of ownership contributes to improved employee performance.

Transparent communication and collaboration

Today’s employees expect and respond best to managers and leaders who are open and authentic. For the same reasons you need to communicate KPI effectively, don’t keep your employees in the dark. This includes times when the business is experiencing a rough patch.

Honest discussion, regular feedback, and real-time communication are all critical for maintaining strong employee engagement.

Employee recognition

Effective performance management frameworks prioritize employee recognition and rewards. Employees who understand their value and feel appreciated for their work are usually more satisfied and less likely to quit their jobs.

Frequent feedback and review

Individual employees perform best when they receive frequent, precise feedback. They need regular insight into their work product to develop confidence and autonomy. Quick feedback sessions are another opportunity for managers to demonstrate open and honest communication.

Employee development

Don’t skip over the employee development aspect of the planning stage of the performance management cycle. When you invest in an employee’s personal development, it not only helps your team push toward KPI goals, but it’s also a way to add value to their job.

Examples of target KPI across industries

This is far from an exhaustive list, but these examples may help you get into the right mindset to target the right KPI for your business.

Grocery

Basket size: Grocers can set target KPI based on increasing the number of items customers are buying across categories. For example, “Increase average basket size by 10% over the next 6 months.”

Customer acquisition cost (CAC): This metric is essential for every industry, but the narrow margins in the grocery sector make it especially crucial to examine. A target KPI aimed at decreasing CAC might read “Decrease average CAC among (a specific demographic of) shoppers by 20% within 3 months.”

E-commerce

Cart abandonment rate: When customers add items to their digital cart but don’t complete the transaction at high rates, e-commerce vendors need to figure out why. A relevant target KPI could be, “Reduce abandonment rate among return shoppers by 10% within 3 months.”

Average order value (AOV): A metric that affects brick and mortar stores as well, AOV is a popular focus of KPI in the retail industry. An example target KPI related to AOV might read, “Increase AOV by $15 within 2 quarters.”

Engagement: As with any sector that relies on consumer spending, engagement is critical. For e-commerce, KPI tend to focus on topics like omnichannel effectiveness. A sample target KPI could read, “Increase email open rate by 15% within 4 months.”

Energy

Goals in sectors like energy are a bit different from common retail goals. Still, the same general process for creating target KPI works here.

Sustainability: Energy companies continually seek out ways to improve sustainability, as it’s a common customer concern. Sustainability also helps to ensure the company is in compliance with industry regulations. A KPI could be, “Become carbon neutral by 2022.”

Virtually any industry and sector can benefit from developing actionable KPI.

Monitoring KPI

Developing a robust monitoring plan to track your KPIs is crucial. You need quick access to understandable reports that tell the whole story at any moment.

You can monitor many KPI using Mailchimp’s all-in-one Marketing Platform. Mailchimp empowers you with tools you can use to analyze your performance, become more educated about your audience, and hone your marketing efforts based on data compiled in your reports.

• Email campaign reports show how your campaign is faring against industry standards, how many clicks and opens you’re getting, the level of engagement from your contacts on social platforms, and more.
• Automation reports provide a view into how an automated series of emails is doing on the whole. You can also drill down deeper into individual email stats.
• Landing page reports empower you to make informed decisions based on metrics like views, clicks, list signups, and revenue.
• Ad reports let you evaluate how your ads are doing in terms of factors like acquired customers, views, clicks, and return on investment (ROI).

Mailchimp’s reports are thorough and insightful, but they’re also easy to understand. You can quickly monitor trends and track progress toward your target KPI.

With Mailchimp, you can:

• Better understand your audience
• Compare your progress against competitors in your field
• Dig deep into detailed revenue reports
• Follow the customer journey from click to purchase

Plus, you can take the power of Mailchimp with you everywhere you go using the Mailchimp mobile app. Get access to real-time campaign data anywhere, any time. This streamlined experience will showcase your most important metrics in a single view.

You can even receive alerts when your campaign needs attention. You’ll be knocking your KPI out of the park in no time with Mailchimp’s all-in-one Marketing Platform.

KPI: FAQs

What’s the difference between a KPI and a performance metric?

KPI are metrics, but not all metrics are KPI. This is why the word “key” is so important. KPI measure how effective you are at achieving business objectives, while other metrics merely track a specific data point. KPI specifically help you understand your progress towards big-picture goals.

How should I decide which KPI to use?

• Each industry and business will target different KPI. Applying the SMARTER framework can give you answers to critical questions that will help shape your KPI.
• Is your business objective specific?
• How do you plan to measure your success?
• Is your aim realistic and attainable?
• How relevant is your goal to your organization as a whole?
• What’s the time frame for completing this objective?
• Is the purpose explainable in a way that your business team fully understands?
• Does your objective include a relative value that will remain useful as your business changes and grows?

How do I monitor KPI?

There are many useful tools—like Mailchimp’s all-in-one Marketing Platform—that can help you monitor KPI. Mailchimp provides deep insights into your marketing data, telling the story of where your brand has been and where it’s heading.

How many KPI should I track?

You’ll benefit most from the KPI process if you concentrate on just one or two KPI at a time. If you assess too many KPI at once or select KPI that aren’t relevant to the current state of your company, they won’t be effective.

Why are KPI important?

KPI allow you to focus on the highest priority issues facing your company. They can also inspire your team to work together to achieve a common goal. KPI can serve as a roadmap for your near and long-term future.

When should I review KPI?

Review your KPI regularly. You can tailor your review schedule to your overall time frame. If you’ve set a KPI that you want to achieve in 12 months, for example, quarterly reviews might be a good fit. Shorter time frames call for more frequent reviews to make sure you’ll hit your targets on time.

A performance management framework will allow you to review KPIs in the context of individual employees, as well.

How can I use KPI to motivate my staff?

The best way to motivate your staff to work toward your target KPI is to encourage engagement and buy-in. Include your team in discussions as you identify and define metrics and KPI, especially in relation to how individual employee efforts will make a difference in the outcome.

Engaged employees feel like they’re part of the process and integral to the company—and they are. When employees feel valued, they perform better and stick around longer, helping you reach your target KPI sooner.

What are some common examples of KPI?

KPI can vary between industries and businesses—you should select them based on your overarching goals. However, these KPI are useful for companies of many kinds:

• Customer engagement
• Click-through rates on email campaigns
• Spending across your business organization
• Conversion rates
• Average conversion time
• Sales volume
• Omnichannel engagement
• Average call handling time
• Employee turnover
• Employee participation in company initiatives

Measure the success of your business with KPI

All successful businesses have KPI they use to improve performance throughout all areas of the business. Even if you’re not actively trying to improve these areas, you should still have numbers to help you understand how they’re performing. Understanding performance is key to ensuring your business’ success in the long run.

Whether you use KPI for internal processes like measuring team productivity or for your marketing efforts to find new ways to retain customers, defining your KPI is the first step to enhancing your business processes. After you’ve started acting on the data you collect from measuring your goals, you can revisit your goals on a monthly, quarterly, or yearly basis. One category of KPI you should never forget about is your marketing KPI. With Mailchimp, you can track your campaign performance to ensure you’re reaching your marketing goals and increasing your ROI.