What Are KPIs?
KPI stands for Key Performance Indicator. It's a metric that tells you whether you're succeeding at something important. The "key" part matters - not every metric is a KPI, and treating everything as equally important means nothing is important.
The Point of KPIs
Every business has goals. Grow revenue. Reduce costs. Improve customer satisfaction. Expand market share. KPIs translate those goals into measurable numbers.
"Improve customer satisfaction" is a goal. "Increase NPS from 42 to 55 by end of year" is a KPI. The KPI makes the goal specific, measurable, and trackable.
What Makes a Good KPI
Aligned to strategy. A KPI should connect directly to a business objective. If you can't explain why a metric matters for the business, it's not a KPI - it's just a number.
Actionable. You should be able to influence the metric through deliberate actions. "Economic conditions" affect your business but isn't a useful KPI because you can't control it.
Measurable. You need to actually be able to track it. "Customer happiness" is too vague. "NPS score" is measurable. "Percentage of support tickets resolved on first contact" is measurable.
Timely. The metric needs to be available when decisions are made. An annual KPI reviewed annually is too slow for most decisions. Monthly or weekly cadence is more useful.
Simple to understand. If people don't understand the metric, they can't act on it. Complex composite scores might be analytically elegant but operationally useless.
Common KPIs by Function
Sales: - Revenue (total and by segment) - Win rate (deals won / deals created) - Average deal size - Sales cycle length - Pipeline coverage (pipeline value / quota)
Marketing: - Customer acquisition cost (CAC) - Marketing qualified leads (MQLs) - Conversion rates by channel - Return on ad spend (ROAS) - Website traffic and engagement
Customer Success: - Net Promoter Score (NPS) - Churn rate - Customer lifetime value (LTV) - Time to first value - Support ticket resolution time
Product: - Active users (daily/weekly/monthly) - Feature adoption rates - User retention curves - Time to complete key workflows - Error and crash rates
Finance: - Gross margin - Burn rate - Runway (months of cash remaining) - Revenue per employee - LTV:CAC ratio
How Many KPIs?
Fewer than you think. If everything is a priority, nothing is. Most teams should focus on 3-5 KPIs at any given time.
It's tempting to track 20 metrics as KPIs. But human attention is limited. When leadership reviews a dashboard with 50 charts, they focus on none of them. When they review 5 clearly defined KPIs, they actually engage.
You can track more metrics as "health metrics" or "diagnostic metrics" - things you monitor to understand what's happening. But the KPIs - the ones that drive decisions and accountability - should be few and focused.
Setting KPI Targets
Be realistic but ambitious. Targets that are obviously unachievable get ignored. Targets that are too easy don't drive improvement.
Use historical data. What did this metric do last year? What's the trend? Set targets that acknowledge where you're starting from.
Consider external benchmarks. How do similar companies perform? Industry benchmarks can sanity-check your targets.
Align incentives. If a KPI has a target, someone should be accountable for hitting it. Metrics without owners don't improve.
KPI Anti-Patterns
Vanity metrics. Total users sounds impressive but might not matter if they're not active. Focus on metrics that indicate actual business value.
Gaming. If you measure support ticket closure time, people might close tickets prematurely. Think about how metrics can be gamed and design around it.
Too many KPIs. When everything is a KPI, nothing is. Prioritize ruthlessly.
Set and forget. Business priorities change. KPIs should be reviewed periodically to ensure they still matter.
Measuring what's easy, not what matters. Sometimes the most important things are hard to measure. Don't let measurement difficulty drive metric selection.
Getting Started
Start with your company's top 3 goals. For each goal, ask: "How would we know if we're succeeding?" That's your KPI.
Make sure each KPI has an owner, a target, and a regular review cadence. Put them on a dashboard that leadership actually looks at. And resist the urge to add more.
Once you have KPIs defined, you need dashboards to track them and data infrastructure to power them.