What is KPI?
Key Performance Indicator
TL;DR
A KPI (Key Performance Indicator) is a measurable value that shows how effectively you're achieving your business objectives.
Example
If your goal is to "grow the business," how do you know if you're succeeding?
"We feel like things are going well" isn't enough. You need numbers.
KPIs turn vague goals into measurable targets:
- Goal: Grow revenue → KPI: Monthly recurring revenue (MRR)
- Goal: Happy customers → KPI: Net Promoter Score (NPS)
- Goal: Efficient marketing → KPI: Customer acquisition cost (CAC)
- Goal: Better website → KPI: Conversion rate
Example KPI dashboard for an e-commerce store:
| KPI | Target | Actual | Status |
|---|---|---|---|
| Monthly Revenue | 500,000 kr | 480,000 kr | 🟡 |
| Conversion Rate | 3% | 3.2% | 🟢 |
| Avg Order Value | 800 kr | 750 kr | 🟡 |
| Cart Abandonment | <60% | 58% | 🟢 |
Explanation
Good KPIs vs. Bad KPIs
What Makes a Good KPI
Specific - "Increase revenue" is vague. "Increase MRR by 20%" is specific.
Measurable - If you can't put a number on it, you can't track it.
Actionable - You should be able to influence it through your work.
Relevant - It should matter to your actual business goals.
Time-bound - Measured over a specific period (weekly, monthly, quarterly).
Common Business KPIs by Area
Sales:
- Monthly/Annual Recurring Revenue (MRR/ARR)
- Sales growth rate
- Average deal size
- Win rate
Marketing:
- Customer Acquisition Cost (CAC)
- Lead conversion rate
- Website traffic
- Email open/click rates
Customer Success:
- Customer Lifetime Value (LTV)
- Churn rate
- Net Promoter Score (NPS)
- Support ticket resolution time
Product:
- Daily/Monthly Active Users (DAU/MAU)
- Feature adoption rate
- Time to value
Why It Matters
For Business Owners
Focus on what matters. You can't improve everything at once. KPIs help you identify the 2-3 metrics that will have the biggest impact.
Align your team. When everyone knows the key metrics, they can make better day-to-day decisions without asking for permission.
Catch problems early. A declining KPI is an early warning sign. By the time you "feel" something is wrong, you've already lost weeks or months.
Make better resource decisions. Should you invest in marketing or product development? Your KPIs will tell you where the bottleneck is.
The Danger of Too Many KPIs
If everything is a key metric, nothing is. Most successful companies focus on 3-5 top-level KPIs and track supporting metrics underneath.
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