Key Performance Indicators – KPIs
Key performance indicators (KPIs) refer to a set of quantifiable measurements used to gauge a company’s overall long-term performance.
KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.
As your organization begins to sketch what your next plan might look like, it’s likely to come to your attention you’ll need to gain consensus around what your Key Performance Indicators will be and how they will impact your business. Even if you haven’t even thought about your KPIs yet [that’s ok too], we’ve compiled a list of examples for you to reference as you plan.
But, before we jump straight into examples, here’s a quick refresher on what Key Performance Indicators are and why they’re a critical part of managing your plan on an ongoing basis.
Key Performance Indicators (KPIs) are the elements of your plan that express what you want to achieve by when. They are the quantifiable, outcome-based statements you’ll use to measure if you’re on track to meet your goals or objectives. Good plans use 5-7 KPIs to manage & track the progress of their plan.
- Key performance indicators (KPIs) measure a company’s success versus a set of targets, objectives, or industry peers.
- KPIs can be financial, including net profit (or the bottom line, gross profit margin), revenues minus certain expenses, or the current ratio (liquidity and cash availability).
- Customer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention.
- Process-focused KPIs aim to measure and monitor operational performance across the organization.
- Generally speaking, businesses measure and track KPIs through business analytics software and reporting tools.
The anatomy of a structured KPI includes:
- A Measure – Every KPI must have a measure. The best KPIs have more expressive measures.
- A Target – Every KPI needs to have a target that matches your measure and the time period of your goal. These are generally numeric values you’re seeking to achieve.
- A Data Source – Every KPI needs to have a clearly defined data source so there is no gray area in how each is being measured and tracked.
- Reporting Frequency – Different KPIs may have different reporting needs, but a good rule to follow is to report on them at least monthly.
With the foundational knowledge of the KPI anatomy and a few examples of starting points, it’s important you build out these metrics to be detailed and have specific data sources so you can truly evaluate if you’re achieving your goals.
Examples of Key Performance Indicators (KPIs)
Let’s take a look at electric vehicle-maker Tesla (TSLA) for a few examples of KPIs in real life. These numbers are all from their Q1 2021 earnings release.
During the quarter, Tesla produced a record 180,338 vehicles and delivered nearly 185,000 vehicles. Production is a big deal for the company because it has consistently been criticized for being bad at ramping up. Increased manufacturing scale means more market share and profits for Tesla.
Automotive Gross Margin
For the quarter, Tesla’s automotive gross margin expanded by one percentage point to 26.5%.1 Gross margin is one of the best measures of profitability for Tesla because it isolates its vehicle production costs.
Tesla managed to expand its gross margin in Q1 even as sales of lower-priced models outpaced its higher-margin models.
Free Cash Flow
Tesla’s free cash flow clocked in at $293 million during the quarter. That represents a vast improvement from the $895 million free cash flow loss in the year-ago period.
Tesla’s current level of free cash flow production suggests that the company is reaching a scale of profitability without the help of regulatory credits.
What Is a Good KPI?
A good KPI has the following attributes:
- Provides objective and clear information on progress toward an end-goal
- Tracks and measures factors such as efficiency, quality, timeliness, and performance
- Provides a way to measure performance over time
- Helps make more informed decisions
The Bottom Line
KPIs offer an effective way to measure and track a company’s performance on a variety of different metrics. By understanding exactly what KPIs are and how to implement them properly, managers are better able to optimize the business for long-term success
These are going to be the 5-7 core metrics you’ll be living by for the next 12 months. A combination of leading and lagging KPIs will paint a clear picture of your organization’s strategic performance and empower you to make agile decisions to impact the success of your team.