What Is KPI And What Is Its Importance?

By Gretchen Clarke- Mar 11, 2022 18762

To properly evaluate your business performance, you need to know what KPI is. 

These are used at different stages and levels to evaluate your organization's development as well as success. 

So, it is important to define your KPIs and monitor them if you want to reduce risk, motivate your team and manage your business well. 

By tracking KPIs you can guess whether your strategy is working or whether other metrics will be relevant to the track. 

But if you still don't know what KPI is, don't worry, because in this article we will answer all your questions about this topic.


What is KPI? 

Although we haven't covered what KPI is yet, you already have an idea of what we're talking about, but you still don't know what KPI means. 

KPI is the acronym for Key Performance Indicator, an expression originally from the English language that translated would be very close to “Key Performance Indicator”. 

So, we can say that KPI is the key signal that is used to evaluate the performance and success of an organization, business, meeting, etc ... 

In order to define KPIs, actual data such as metrics, indexing, and any objective or qualitative data are relevant for any purpose. 

For example, suppose you have an eCommerce site and your goal is to increase sales by 40% by June. 

KPIs are the steps you take to determine if you have achieved this result 

But, be careful not to confuse KPI with metrics.


KPI vs Metric vs  Objective 

Don't worry if the concept of KPI is not very clear to you. Because we will separate KPI and metric so that you can understand the difference between them.Check out: 

      Objective: The objective you are trying to achieve, an example, is to increase sales.

      KPI: Measure how many purchases have been made to understand if you are achieving the expected results.

      Metrics: A specific process that is used to track is a format, number, or value. An example of a metric is "Monthly Visits to Your Website" or "Percentage of Visitors Visiting Your Ecommerce"

Thus, it is important to note that KPI is an indicator made from metrics, but it is always related to the conversion objective. 

Metrics fetch KPI results when fetching data. 

A metric is just a piece of measurement that does not represent a specific or concrete purpose. 

On the other hand, KPI has a goal. If this is very important for a given data segment, then any metric can be converted to KPI.


What are the advantages of defining KPIs? 

You already know what KPI is, but do you already know the advantages of using them in your strategies? Check out some of these advantages: 

      Keep your team more focused: If your team knows what the goals are, where they need to go, and how to reach them, they are more efficient. They will contribute to the performance of the whole team, as well as align it with the goals of the company. 

      Prevent setbacks: You continue to monitor continuously through KPIs and thus you are able to identify risk factors within your organization without loss or damage. 

      Allows you to make adjustments: With KPIs, you can see where your strategies are flawed or where your strategies are succeeding so it's easier to adjust them. 

      Keep your teams accountable: Choosing the right KPI keeps your team tracking their progress, so they feel more responsible for the progress of projects. 

      Improves decision-making: You make decisions based on current data, making it less risky.


How to define KPIs for your business 

There are no rules for defining KPIs, but as already mentioned, KPIs must have a goal which is the most important step in defining your KPIs ... 

These are easy for you to define when you already have the data and the right tools to perform this action. 

Get data

Before defining a KPI for any action or strategy, you need to have some relevant data and metrics.  So that you can make a comparison, without this data it is impossible to know if you have improved your performance or not. 

That’s why CRM tools collect and integrate data so your team can stay updated by purchasing preferences from your customers ’personal information. 

When defining your KPIs, you can use the data obtained to compare the future. 

Set a goal

The objective must be defined because from there you will define the KPI for monitoring your results. 

Analyze your business and ask this question to help you set goals: What are the desired results? 

What do you want to do with your company? Increasing sales may be the answer to this question, with the answer to this question you find a goal. 

But keep in mind that the goal must be consistent with the current situation of your organization. 

If you want to succeed in the affiliate business, you need more than luck. What do you expect to achieve with these results? 

Thus, you need to evaluate and if the goal can be achieved, it is easier for you to identify it. 

Define a strategy

Once you’ve determined where you want to go, it’s time to create strategies to achieve these results. 

Make the plan simple and purposeful, no more than a page. 

This plan must include: 

      How the progress of the strategy will be measured.

      How you or the responsible team will influence the outcome.

      Determine who is responsible or which team is responsible for achieving the goals. 

By analyzing this plan you can have a brief idea of ​​what your most relevant data and metrics will be and you can define your KPIs.


Evaluate your data

You can create a list of all the data needed to reach your goal. 

One way to do this is to compare the data you already have with data that seems relevant to your performance monitoring. 

Search for additional information in the database to supplement the missing information. 

After listing all of this information, simply determine which data and metrics you think are most relevant to monitoring your performance in your strategy. 

And be sure to determine a good frequency to evaluate your KPIs.


Review your KPIs

Keep your KPIs under constant review to help you and your team make the best decisions. 

If a KPI does not prove to be effective, you should cancel it. 

Thus, review the metrics they are criticizing and make sure that the metrics you have are not important to your performance.


How do you know if a KPI is effective? 

You know what a KPI is and how to define it, but you know how to set an effective KPI. 

Defining KPI is not always an easy task and we have noticed that when KPI travels for a specific purpose, some organizations do not understand the importance of its structure based on the organization’s data and goals. 

The best way to do this is to determine if KPI is best suited for your purpose, so it is important to define effective KPI. 

For this, these KPIs must: 

Present Simplicity

A good KPI is easy to identify and easy to claim a simple decision without the need to add additional questions. 

Returning to the eCommerce example, "How many new buyers do we currently have?" 

In our example, the selected KPI is the number of new buyers, it is easy to understand and does not require additional questions. 

It is important that the KPIs are understood by the whole team, as they combine purpose with effort as a result of one type of communication. 

So, as much as possible, prioritize the convenience of this communication by choosing KPI as a conclusion. 

Show relevance

An effective KPI must show that it has relevance. 

One way to ensure this relevance is to relate KPI to the company's strategic goals and objectives or to a specific team. 

It’s also important for your team to understand what these goals are and above all, they will achieve them, so understanding KPIs is much easier. 

Relevance increases your chances of getting good results. 

Have achievable goals

KPIs should indicate whether you or your team are managing the strategy properly. 

Achieve goals that discourage your employees from using KPIs for unattainable goals. 

You should be aware of your team’s motives and KPI. He must be a partner in achieving your goals. 

So, monitoring KPIs is the best way to develop your team. 

Must be measurable

More common goals should be easy to measure and avoid, such as: "Increase sales" 

It must be based on a clear objective that produces both qualitative and quantitative measures. 

Like KPI we used as an example at the beginning of this article: "Increase sales by 40% by July". 

And as already mentioned, this should be based on the data available on a specific time scale through the data you already have.


Monitor the most representative KPIs for your business 

These are some of the KPIs that you can include in your KPI dashboard so you can take advantage of their use. 

FameNet allows you to create a visualization and effective analysis of your KPIs that will help you make decisions. 

You can use KPIs and learn more about which ones need to be monitored depending on your industry. You can contact us and chat with our experts.