KPI stands for Key Performance Indicator, and it is a metric used by companies to evaluate and measure their effectiveness and performance in relation to their own objectives – essentially an indication of the company’s performance.
KPIs can thus help guide the company in the direction indicated by its objectives, serving as a strategic compass for the company’s departments and employees.
Learn more about KPIs and other terms in my digital dictionary here.
But how are these indicators determined by a company? In this post, we delve into the principles behind the concept of KPI.
Definition of KPI – Key Performance Indicators
A Key Performance Indicator (KPI) is a crucial metric that businesses use to measure their progress toward specific objectives. Serving as a strategic tool, KPIs provide a clear indication of a company’s performance in various areas, from marketing and sales to customer service. By setting and tracking these indicators, companies can align their efforts with their overarching goals, ensuring that every department and team member is working towards the same vision of success.
The smart thing about KPIs is that they can be used in different contexts. Companies can use this form of indicator in marketing, sales figures, customer service, etc.
When setting KPIs for the company, there will also be different levels that can be followed.
These levels are usually divided into high-level and low-level KPIs.
High-level KPI
When we talk about high-level KPIs, we are referring to goals that apply to multiple departments at once or the entire company.
When a KPI concerns large parts of a company, it is clear that these will be goals of a certain size and general nature.
For this reason, high-level KPIs can be seen as the visionary compass for the company, and in this context, there is a need for the so-called low-level KPIs, which can bring the larger goals down to a concrete and more tangible level.
Low-level KPI
Low-level KPIs, on the other hand, are goals related to specific departments.
These goals are rooted in the aforementioned high-level KPIs but, unlike them, do not apply to the entire company. Instead, they focus specifically on goals related to, for example, customer service, the sales department, or something else entirely.
The different levels work interdependently in this way and both contribute to the company’s ability to achieve its goals.
Realistic goals
KPIs can serve as a motivating guide for a company, but they are not worth much unless the goals are achievable and can function at both a high-level and low-level.
It is, therefore, important to be realistic and precise in setting your goals, and it can be advantageous to be specific in the results the company wants to achieve.
For example, these could be goals such as increased revenue, an increase in the number of visitors, a higher conversion rate, or something else entirely.
The most important thing is to be specific in your desires, and to set concrete numbers and percentage increases for your goals to best achieve them.
Additionally, it will also be important to set a timeframe for the goal and to implement a division of responsibilities for the specific tasks that need to be completed to achieve the goal.
Ongoing evaluation
When using KPIs, it is also essential to conduct ongoing evaluations.
Is it realistic for the company to reach the particular goal, or is there a need for adjustments and redistribution of responsibility to meet the objectives?
KPIs should ultimately be viewed as a guideline that can be fine-tuned as needed to continually ensure the most realistic vision for the company.
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