What is a key performance indicator (KPI)?
A key performance indicator (KPI) is a measure of the success of a business, industry, or project.
If you want a more in-depth understanding of this topic, check out the FAQ section below:
Question #1: What are some examples of key performance indicators (KPIs)?
The key performance indicators (KPIs) you will be using will vary depending on your products, services, and industry.
For example, if you were in the merchandising industry selling fast fashion clothes, your key performance indicators (KPIs) may include:
- Weeks/months cover. This measure refers to how long your merchandise will last given your average weekly/monthly sales and current inventory.
For example, if a category has 11 weeks of cover, this tells you that it is a poorly performing category and requires your attention. If another category has a two weeks cover, this tells you that this category is very successful and is due for a restock before the two weeks are up.
- Sell through. This key performance indicator (KPI) pertains to the percentage of items you sold against your initial stock. For example, if your brand began with 100 pieces of product A and you only sold only 10 pieces of it in a month, then your sell-through is only 10%, which means that you may have to run a promotion to boost its sales.
- Conversion rate. This refers to the percentage of visiting customers that you converted to buyers. For example, if only 10 visitors out of 100 bought from your store for the day, then your conversion rate for that day is 10%. In this case, you may want to revamp your store to make it look more inviting and appealing to your target market.
Question #2: Why is it important to establish key performance indicators (KPIs)?
It is important to establish key performance indicators (KPIs) because:
- They get everyone on the same page. Everyone on your team should understand your KPIs so everyone has the same goals to shoot for at every stage of your project.
- They give you a reality check. Key performance indicators (KPIs) provide snapshots of your current performance versus your target so you always know whether or not you and your team are on the right track.
- They allow you to react to issues in a timely manner. Instead of waiting until the end of the project, your key performance indicators (KPIs) will let you know along the way if you and your team are doing something wrong so you can immediately make the necessary adjustments.
- They assign accountability. Key performance indicators (KPIs) make it clear to everyone involved in a project what everyone’s roles, objectives, and responsibilities are.
Question #3: What are the characteristics of a good key performance indicator (KPI)?
The characteristics of a good key performance indicator (KPI) are as follows:
- Specific. It should provide the people responsible with a clear understanding of what their role, objectives, and responsibilities are.
- Measurable. It should be something tangible and quantifiable so you and your team can use it as a measure of your project’s success.
- Attainable. It should be attainable for the people responsible. Otherwise, it would just result in unnecessary stress, frustration, and disappointment.
- Relevance. It should perfectly align with your objectives.
- Time-bound. It should have a deadline.
Question #4: How often do I need to track my key performance indicators (KPIs)?
How often you need to track your key performance indicators (KPIs) would ultimately depend on your business and industry. Some businesses do it monthly or quarterly. Others do it annually.
The goal is to only do it as often as necessary to be able to keep everyone on track and adapt to changing market trends but not too often that it forces you and your team to react to every little, insignificant thing that happens.
Here’s an article from the Indeed website for a complete guide to KPI.