The advent of big data makes it possible to measure a lot of things that were previously challenging – if not impossible – to measure accurately. Armed with a greater volume of data, you can derive actionable, data-driven business insights that can help you optimize your operations or remain competitive in increasingly competitive markets. That’s why key performance indicators (KPIs) and metrics have become more and more critical to today’s businesses. But what exactly are KPIs and metrics, and how do they differ?
Key performance indicators are data that show you just how good you are at attaining your business goals. Meanwhile, metrics track the status of your business processes. With KPIs, you will know if you're hitting your overall business targets, while metrics focus on the performance of specific business processes.
Let’s discuss in more detail what key performance indicators and metrics are, their differences, and their importance to your business.
Like metrics, key performance indicators are quantifiable measures. But KPIs often focus on longer-term business performance more than anything else. A key performance indicator shows you how close you are to achieving your business goals. It can also provide a quantifiable means of defining how you compare with competitors or against industry benchmarks.
Key performance indicators can be financial, such as gross profit margin, current ratio, and revenues after certain costs and expenditures have been deducted.
But KPIs can also be used to track progress towards other goals – such as employee turnover, employee retention, conversion rate, foot traffic, website traffic, customer engagement, customer acquisition, and repeat customers. A KPI should have a defined target or specific goal that your marketing team or sales team can work towards.
Metrics are quantitative measures that you can use to assess, track, or compare production or performance.
Metrics are measurements of specific business activities. How many units are sold, how many new customers your online business got, new subscribers on your social media pages, how many new signups your website gets, or the number of sites linking to a specific website or webpage are just a few of the many examples of various metrics.
Companies rely on a variety of digital marketing tools to gather data and monitor these important metrics, such as Google Analytics, Google Ads, some backlink analysis tools, website analytics tools, and email marketing tools with built-in reporting capabilities. Other examples of metrics include sales, churn rate, rates of return, gross domestic product, unemployment rate, inflation, price to earnings ratio, cost, and resources used. Anything that’s tied to an outcome (e.g., signups or website visits), quantifiable, and comparable to previous measurements can be a metric.
These different performance metrics are pretty useful numbers. C-suite executives use metrics to analyze their strategies, stock analysts rely on them for investment recommendations and to create opinions, and project managers use them to effectively oversee projects and monitor performance.
There are a vast number of business metrics any company could monitor, but just because something is quantifiable doesn’t mean that it should be measured. If a metric isn’t a factor in achieving business objectives, it’s not worth measuring. The best metrics for your business to monitor might not be important to another.
To choose the metrics to monitor, you must first define your goals, and then assess the different metrics available to you that are related to that goal. For instance, if your objective is to ensure top-notch quality control, you can track metrics such as how many of your products are defective, how many products are created in a week, or how many of these defective items reach customers vs. those that are sorted out by your quality control team.
While KPIs and metrics are both quantitative measurements, they focus on different things. KPIs are tied to business targets, while metrics are tied to the processes or activities in your business.
The two often overlap, which is why most people tend to be confused about which is which. A KPI tells you how close you are to reaching your business goals, and it may include several metrics.
So, if the goal is to sell 50 percent more products or services in the next quarter, your key performance indicator might be the number of products sold to date. However, those important KPIs will often include a variety of metrics, including:
Looking at these metrics, you get a sense of the progress you’ve made towards your business objective, but that’s not all. You can also identify which areas are contributing more to the attainment of your overall goals, as well as pinpoint problem areas that are holding you back.
Furthermore, metrics are often owned by one person or department, while KPIs are often dependent on several departments and individuals within the company. For instance, if a business aims to sell 30 percent more products in the first quarter of 2021, multiple departments might be involved in working towards that goal:
As a measure of different areas of your business, a metric describes the effects of your daily grind. For example, your SEO might monitor how many target keywords your website is ranking for. Meanwhile, your HR department might keep track of the number of employee complaints successfully resolved. These metrics, however, may or may not be a KPI.
KPIs can be viewed as a collection of metrics that have the most impact to your overall business target in order to attain key results. KPIs communicate what your business priorities are and allow you to identify what needs to happen to individual metrics to achieve an overarching goal. In short, KPIs are a good indicator of what matters most to the company at a particular time.
In summary, here’s a breakdown of the key differences between KPIs and metrics:
Now that you understand KPIs and metrics and how they’re different, there are a few best practices you should follow to get the most from your data.
Chances are, your business will already have the metrics you need. It's a matter of knowing which of these metrics are aligned to your business goals so that they can be considered as KPIs.
KPIs must be based on data you can obtain. Consider what data points are needed to monitor a particular KPI, if you have the technology or the resources to access the data, and if you can afford the processes, technologies, and resources needed to obtain it.
For example, say one of your KPIs is to increase customer satisfaction. How are you going to get the data for that? It might be impossible to survey everybody that comes into your store or every website visitor. There are technologies that can analyze customer sentiment in a variety of ways, but do you have a budget for it?
The worst thing you can do is rely on the wrong data or inaccurate data. For instance, if your IT team's KPI is to reduce your web app's downtime, there are several data points to look at, such as the number of support tickets received related to downtime. But what if your users simply moved on to your competitor and didn't bother to tell you that your app was down?
A more reliable data source would be something like an application monitoring tool, which can tell you if there were outages that weren’t reported, as well as detect problems in your web app before they cause it to go offline.
It doesn't make sense to measure something that you cannot control. For example, if your KPI is a percentage increase in sales but you’re not monitoring a variety of metrics that impact your sales, you can’t optimize your processes to improve outcomes. Knowing you’re at risk of falling short of meeting your goal is useful, you can’t implement the right changes if you don’t know why. Your sales might be declining due to supply chain disruptions, shifts in market demand, or high shipping costs or quality control issues that drive your potential customers to your competitors. Tracking the right metrics allows you to implement targeted strategies to achieve your goals.
Be flexible with your list of KPIs and metrics. Don’t just pick any quantifiable measurements because you’re used to using them. Also, your KPIs should change when you find a better way to assess your goals or if your business objectives change entirely.
KPIs and metrics are valuable measurements of your business activities and processes and how they contribute to your overall goals. The main difference is that KPIs are closely tied to how successful you are at achieving your business objectives, while metrics quantify the result of work done for specific activities. However, both are essential to running your business, formulating opinions and strategies, and to your success.
Now, in order to track all these KPIs and metrics, you need a tool that can automatically gather all your different KPIs, from all your different digital platforms in one report, like DashThis.
You can use preset templates that are already filled with the most common and useful KPIs, or build your report from scratch.
You choose your preferred period of time (monthly, weekly) and all marketers and sales teams in your business will be able to see your different KPIs and metrics automatically updated every single day.
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