Business Key Performance Indicators ( KPIs)

Key performance indicators (KPIs) refer to a set of quantifiable measurements used to gauge a company’s overall long-time performance. KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared  to those of other businesses within the same sector.

Also referred to as key success indicators(KSIs), KPIs vary between companies and between industries, depending on performance criteria.For example, a software company striving to attain the fastest growth in its industry may consider year-over-year (YOY) revenue growth, as its chief  performance indicator. Contrarily, a retail chain might place value on same-store sales, as the best KPI metric in which to gauge its growth. Key performance indicators (KPI) gauge a company’s output against a set of targets, objectives, or industry peers.

Key performance indicators tied to the financials typically focus on revenue and profit margins. Net profit, the most tried and true of profit-based measurements, represents the amount of revenue that remains, as profit for a given period, after accounting for all of the company’s expenses, taxes, and interest payments for the same period. Calculated as a dollar amount, net profit must be converted into a percentage of revenue (known as “net profit margin”), to be used in comparative analysis. For example, if the standard net profit margin for a given industry is 50%, a new business in that space knows it must work toward meeting or beating that figure if it wishes to remain competitively viable. The gross profit margin, which measures revenues after accounting for expenses directly associated with the production of goods for sale , is another  common profit-based KPI.

Customer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention. Customer lifetime value (CLV) represents the total amount of money that a customer is expected to spend on your product over products over the entire business relationship. Customer acquisition cost (CAC), by comparison, represents the total sales and marketing cost required to land a new customer. By comparing CAC to CLV, business can measure the effectiveness of their customer acquisition efforts.     

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