KPI - What is it, and why does it matter?
Key Performance Indicators (KPIs) comprise a selection of measurable metrics which allow organisations to assess their performance across the specific themes that each KPI evaluates. As such, KPIs provide a snapshot of an entity’s state at a certain point in time, which means that (correctly formulated and interpreted) KPIs offer an unbiased view of the ongoing operations to the benefit of decision-makers and stakeholders alike.
Each organisation needs to decide which, and how many, KPIs to track; there is no “one size fits all” formula available. Equally, different KPIs require different level of involvement from various departments across the organisation to calculate, meaning that management teams should ensure the chosen KPIs are truly relevant. The tracked KPIs may also need to be adjusted over time as the business develops and need for (new) insights arise.
Examples of common KPIs include:
- Customer Acquisition Costs.
- Customer Lifetime Value.
- Sales Target.
- Operating Expenses Ratio.
- Net Profit Margin Percentage.
- Return on Assets.
- Return on Equity.
- P/E Ratio.
By: Johan Flodgren