What It Means
A key performance indicator (KPI) is a number a business, team or person tracks because it shows progress on something critical to success. Every KPI is a metric, but only the few metrics tied directly to a goal earn the name. The Balanced Scorecard Institute and Atlassian both stress that a KPI means little on its own until it has a target and a time frame, such as "120 new customers this quarter".
Try It: Check a KPI Against Its Target and Pace
Example: a target of 120 new customers in a 90-day quarter, checked on day 40. Change any number.
On pace to hit the target.
Close, but behind pace. At this rate the period ends short of the target.
Well behind pace. Worth asking whether the target or the approach needs to change.
How People Say It at Work
- "What are our KPIs for the quarter?"
- "Response time is the KPI we watch most."
- "That's a nice number, but it isn't one of our KPIs."
The Breakdown
Formula
A KPI has no single formula, since each one measures something different. What every KPI needs is a target, and the check against it works the same way each time:
Share of target reached = actual so far ÷ target × 100
Pace at the end of the period = actual so far ÷ days gone × days in the period
Worked example. A small online shop sets a KPI of 120 new customers this quarter (example numbers).
| Check on day 40 of 90 | Result |
|---|---|
| New customers so far | 50 |
| Share of target reached | 42% |
| Share of the quarter used | 44% |
| Projected by day 90, at this pace | about 113 |
The shop is slightly behind. It has used 44% of the time and reached 42% of the target, so without a change it finishes around 113, short of 120.
Benchmark for a good KPI. A common test is SMARTSave More TomorrowA savings plan by Richard Thaler and Shlomo Benartzi in which you agree now to raise your retirement contribution each time you get a pay raise. See more: a target should be specific, measurable, achievable, relevant and time-bound, the criteria Atlassian's KPI guide applies to indicators. A goal like "grow sales" has no number and no deadline, so it can't be checked, while "120 new customers by the end of September" can.
KPI or OKROKRsObjectives and Key Results: a goal-setting method that pairs a clear objective with a few measurable results showing whether it was reached, usually set each quarter. See more. According to Atlassian, a KPI is usually tracked continuously on a dashboard, while objectives and key results (OKRs) are typically scored once a quarter.
Good to Know
Keep the list short, since a KPI is meant to track what's critical. Watch that a KPI can't be gamed in ways that hurt the real goal: counting calls answered can reward rushing people off the phone. Revisit targets when the business changes, since an old target can make good work look like failure.
FAQ
What's the difference between a KPI and a metric?
A metric is any number you measure. A KPI is a metric tied to something critical to the organization's success, with a target and a time frame, so every KPI is a metric but most metrics aren't KPIs.
How many KPIs should a team have?
The sources checked for this page don't set a number, so keep the list short enough that everyone on the team can name each one. If a figure moving wouldn't change any decision, it works better as an ordinary metric.
What makes a good KPI target?
One that passes the SMART test Atlassian describes: specific, measurable, achievable, relevant and time-bound. "Answer every support email within one business day this month" is an example that passes all five.
Do It in Buhata
Team Space
Pin your team's KPIs and their targets to a board in your Team Space in Buhata, and post each week's reading in the same thread so progress is easy to see.
Open BuhataRelated Terms and Categories
- SMART goals
Goals written to pass five tests: specific, measurable, achievable, relevant and time-bound, an idea first published by George T. Doran in 1981.
- OKRs
Objectives and Key Results: a goal-setting method that pairs a clear objective with a few measurable results showing whether it was reached, usually set each quarter.
- Customer acquisition cost (CAC)
The average amount a business spends on sales and marketing to win one new paying customer.
Sources
Balanced Scorecard Institute, "OKR, KPI and BSC: What is the Difference?"; Atlassian, "KPIs: Understanding Metrics for Business Success"; Atlassian, "OKR vs KPI: What's the Difference?"
- balancedscorecard.org/blog/okr-kpi-and-bsc-what-is-the-difference
- www.atlassian.com/work-management/project-management/project-planning/kpi
- atlassian.com/blog/productivity/okr-vs-kpi
Last updated .