What is a key performance indicator (KPI)?

A key performance indicator (KPI) is a quantitative metric of how your team or organization is progressing towards important business objectives. Organizations use KPIs at multiple levels—you can set an organization-wide, team-specific, or even individual KPIs, depending on which metrics you want to track. A good KPI can give you a sense of whether you’re on track to achieve your strategic goals.

If this is your first time writing a key performance indicator, this article will walk you through how KPIs differ from other goal-setting methodologies, how to identify key metrics for your KPIs, and how to write great key performance indicators. Here’s how.

What makes a good KPI?

Like most good goals, an effective KPI should be specific and measurable. The purpose of setting KPIs is to provide a clear picture of what your team wants to achieve by when, as well as how you’ll measure that achievement.

A good KPI:

Helps you achieve your strategic objectives

Informs resource planning

Is measurable

Tracks something you can control and influence

Connects metrics to strategic objectives

Gives team members a clear sense of how their projects contribute to company goals

KPIs vs. OKRs

If you’ve heard of KPIs, you’ve likely also heard of OKRs. But enough about the acronyms—here’s what each acronym stands for, and how they stack up.

Key performance indicator (KPI): A KPI is a great way to measure performance over time. A good KPI should track one measurable value that you or your team can influence in a timely manner.

Objectives and key results (OKRs): OKRs use the template In this case, the objective is the goal you want to achieve and the key result is a measurement of how you are progressing towards your objective.

OKRs are a great way to holistically think of goals. KPIs most closely compare with KRs (the key results part of OKRs)—in fact, a KPI can be a KR. The difference is, KRs can be quantitative or qualitative, depending on what your objective is measuring. KPIs, on the other hand, should always be quantifiable.

Increase net promoter score (NPS) by 2 points in FY21.

Objective: Surprise and delight our customers to increase customer satisfaction and loyalty.

Key result: Generate positive buzz on social media and through virtual events.

Key result: Reduce churn to less than 2% per month.

Key result: Increase net promoter score (NPS) by 2 points in FY21.

KPIs vs. business metrics

Business metrics are quantifiable ways to measure your progress towards specific business goals. After setting a KPI, use business metrics to track whether or not you’re progressing towards your end goal.

Increase website traffic by 25K in Q2.

Unique page views to website.

How to write a great KPI

KPIs help you set and achieve quantifiable goals. Before getting started, make sure you have a clear objective or strategic plan that you want to achieve with this KPI or set of KPIs that you create. Then, after you’ve written your KPI, share it with important project stakeholders and share real-time updates so everyone can track progress.

1. Define your business objective

Before you can create a KPI, you need to define what you’re working towards. Effective goal-setting is a key part of hitting your strategic plan. According to recent research , only 16% of knowledge workers say their company is very good at setting and communicating goals.

If you haven’t already, create a strategic plan to define your organization’s three to five year goals. From there, break that plan out into yearly objectives. Depending on how quickly your team moves, you can then set yearly KPIs, or you can break them down further into bi-annual or quarterly KPIs.

2. Identify important business metrics

Once you’ve defined your business objectives, you need to decide which business metrics are relevant to that objective. Business metrics are indicators that directly impact whether or not you achieve your objectives.

Remember: KPI stands for key performance indicators. There may be a variety of metrics or indicators that impact your ultimate goal. Creating the right KPI is about capturing the most important details and making sure you’re tracking those metrics. Not every task or project needs to have an associated KPI.

If you’re not sure where to start, check out some relevant metrics for each department in your organization.

Example financial metrics

Annual recurring revenue (ARR)

Net revenue retention (NRR)

Net profit margin (NPM)

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

Operating capital

Cash flow

Example customer metrics

Net promoter score (NPS)

Customer acquisition cost (CAC)

Customer satisfaction (CSAT)

Customer retention

Customer churn

Number of total paying customers

Number of new customers

Example process and operations metrics

Throughput time, or total lead time

Number of complaint or bug tickets filed

Supply chain metrics, like days sales outstanding (DSO)

People or Human Resources metrics

Employee retention rate

Employee satisfaction

Salary competitiveness ratio (SCR)

Sales metrics

Win ratio

Number of deals lost to competition

Market penetration

Marketing metrics

Qualified leads

Lead conversion rate

Social media followers

Content downloads

Email click through rate (CTR)

Share of voice

3. Draft your KPI

Once you know the goal you’re trying to achieve and the metrics you’ll measure to get there, you can craft your KPI. We recommend using the SMART acronym to make sure your KPI is quantifiable, specific, and actionable.

SMART is an acronym that stands for:

Specific

Measurable

Achievable

Realistic

Time-bound

Imagine you’re on the customer success team at your organization. Your overall objective is to improve customer support to reduce overall churn. An important metric for your team is average ticket resolution time—you want to ensure that your team is responding to tickets within 10 hours. Right now, your team is averaging an average of 14 hours. A good, SMART KPI to track your progress towards this goal is:

This KPI is specific and measurable ( ), achievable and realistic ( ), and time-bound ( ).

4. Track and share real-time progress

Like all good goals, you shouldn’t just set and forget KPIs. Make sure you have a way to track and share progress in real-time with important project stakeholders. The frequency with which you report on your KPIs depends on how fast you move. For fast-moving projects, consider sharing updates weekly so everyone is tuned into any changes. For longer-term, slower-moving projects, consider reporting bi-weekly or monthly to ensure you have enough information to share.

If possible, track and share progress in the same place you manage work so your team understands how their individual work contributes to the KPI and, as a result, to your broader company goals. At UDN Task Manager , we use goal management software to connect our company goals to the work that supports them. With Goals, team members can prioritize projects to get their highest-impact work done.

KPIs, OKRs, SMART goals, oh my!

KPIs are a great way to set quantifiable goals that connect to your strategic objectives. But if KPIs don’t feel right for you, there are a variety of other goal-setting methodologies you can try. To get started, read our articles about how to set OKRs , write better SMART goals , or create great short-term goals .