What are key performance indicators (KPIs) and metrics?

So, about KPIs and metrics...

On first sight they might look like the same thing. Both are meant to reflect the performance of your business, and both involve numerical information. But the context behind these two things is very different. I think if you’re going to tackle digital marketing, it’s useful to know the distinction between a metric and a KPI. 

What is a key performance indicator?

To put it bluntly, key performance indicators (KPIs) are the main data necessary to achieve your business objectives. 

They are the essential things needed to achieve the goals you’ve set for your company. For example, you want to increase your sales by 10% by the end of 2023. KPIs that are relevant to that objective are things like monthly sales growth, monthly calls per sales rep, customer lifetime value, number of preorders etc. They are considered key because failing to improve these areas will result in you not achieving your objectives. Notice how there's a clear link between the objective and what data is needed. 

Sale related objective = Sale related KPI. 

What is a metric?

While key performance indicators (KPIs) are linked to your main objectives, metrics can either be linked to your secondary goals, or simply reflect your performance in a particular field. They might or might not serve a specific purpose at this point in time. 

Here's some examples. During the month of May your website has been visited by a total of 5,000 people with 40% of your visitors being men. Or your average customer duration on your website is 5 minutes. Or your bounce rate is 60%. Or most of your audience is from the state of Florida and the least amount of traffic is being generated by California. Notice how the examples I have chosen are not linked to any specific goal. 

They sound kind of similar…why can’t they just be the same thing?

Because it’s good to avoid generalization and because not all data offered is relevant to your objectives. 

This is the main thing that separates KPIs from metrics; one is highly relevant to your business's operations, and the other less so. One is necessary, the other is secondary, or even tertiary. What is considered a KPI for your business is determined by you, the owner, the nature of your business, and the goals you've outlined. 

Here's a practical example. Your website has a low bounce rate and you've created a brand-new product with the explicit intent of reaching a new type of market. Generally speaking, having a low bounce rate is a good thing, but the bounce rate of your website has nothing to do with your objective. Having a low bounce rate isn't going to help you determine whether this new product is going to work. On its own it is useful information, but it has nothing to do with the grander scheme. Therefore, it’s simply a metric.

Now, if the metric in question was about the sales of this new product, then yes, that would be classified as a KPI because it is directly tied with the objective, which is about reaching a new market. Or how many online discussions involve your new product. Or online reviews of your product. 

In that case, should I ignore data not linked with my objectives?

No. 

Although not all metrics you gather will be relevant to your objectives, in the end of the day, they are a review of your performance. A metric helps you measure progress and ignoring it would mean ignoring the progress of your business. It is prudent to keep track of all relevant information regarding business operations in order to spot new threats and opportunities. 

How do businesses track their KPIs and metrics?

There are many ways a business can track its KPIs and metrics. 

It's good practice to record information on software like Excel, or purchase Customer Relationship Management (CRM) software. Web development services like Wix for example, allow its users to view analytics. 

Websites, such as Blogger for example, offer dashboards relaying your performance, like number of visits, devices used, and geographic segmentation. Web analytics software, such as SimilarWeb, offers in-depth analysis of a website (if the site has enough traffic to generate a report), with things such as views, clicks, bounce rate, how long visitors stay, viewer segmentation and audience overlap. Social media applications, like Facebook and Instagram, offer a similar experience. 

Using tools that gather website analytics is a good way to understand your audience and the audiences of your competitors.

Examples of KPIs (data often linked to meeting objectives)

• Total Revenue
• New customers
• Employee satisfaction
• Customer satisfaction
• Cash flow
• Customer lifetime value
• Number of refunds
• Repair time
• Delivery time
• Return On Assets (ROA)
• Average customer order
• Net profit margin
• Gross profit margin
• Acid Test (Quick Ratio)
• Audience Growth

 

Example of metrics (data that may or may not be relevant to meeting objectives) 

• Views
• Unique Views
• Impressions
• Average visitor duration
• Pages per visit
• Bounce rate
• Traffic share
• Device distribution

To help sort out which metrics are relevant, it is good practice to categorize each metric. 

• Internal metrics - This is information generated from within your business, used to measure the performance of your workforce and management. 
• Customer metrics - Metrics related to your CRM. 
• Sale metrics - Metrics related to your sales.