Regardless of the industry or size of the team, it's essential for a company to measure their performance to determine if their adopted strategy is genuinely effective in achieving their goals. In any sector, you can find metrics that can serve as a foundation for this understanding.
In addition to metrics, performance analysis helps the company comprehend the next steps that should be taken, considering the performance and efforts made up to that point. This is why key performance indicators (KPIs) play a vital role in many work processes.
In this article, let's dive into how this combination of metrics and key performance indicators when executed carefully, can boost team performance. Let's get started!
What are metrics?
A performance metric can be considered a ruler or thermometer for a business. They are numbers that can help understand how a company or sector is doing.
These metrics can show how much money the company is making, employee performance, or customer satisfaction. They provide a broad view of information that can give leaders and important stakeholders the necessary context to make decisions for improvement.
Here are some metrics that can be useful for different sectors:
Retail: Metrics like the average customer transaction value, conversion rate (how many visitors actually make a purchase), and inventory turnover (the time products take to be purchased) can help identify popular products or enhance sales strategies, ensuring that inventory aligns with customer demand.
Information technology: In the IT field, metrics like the average problem resolution time, system availability, and the number of security incidents are extremely useful to assess the efficiency of teams, identify areas that need improvement, and ensure reliable technological infrastructure.
Digital marketing: For an online-based company, metrics like cost per acquisition (how much it costs to acquire a new customer), click-through rate (how many people click on ads), and return on investment are vital. They help you evaluate the effectiveness of marketing campaigns, allocate resources to the most efficient strategies, and maximize return on advertising investment.
In summary, the most important metrics can vary based on the business sector—what's essential for one company may not make sense for another. Each company should select the most relevant metrics according to its specific goals and needs.
What are key performance indicators (KPIs)?
Key performance indicators are directly linked to the organization's strategic goals and can be created from metrics. Once a company sets its goals, KPIs can help achieve them through a more detailed view of the company's performance.
In other words, KPIs serve as a clear guide for teams—and especially for those in management positions—allowing an assessment of progress towards established strategic objectives. They guide and "tell" whether the strategy needs to be adjusted to reach the objectives.
When we analyze metrics and combine them, we have KPIs. That is why they play a crucial role, working as a compass to guide strategic decisions and achieve business success.
Additionally, KPIs are often presented in a simplified way, typically in performance dashboards or panels, making them easier to disseminate and internalize across various company sectors. In software like Qntrl, you can customize dashboards according to your company's needs.
Here are some examples of relevant KPIs for the previously mentioned sectors:
Retail: If a store's goal is to increase customer retention by 15% during the year, a relevant KPI could be the customer retention rate. This specific indicator would provide precise information on progress toward the goal and allow the company to adjust its strategies if necessary.
Information technology: In the IT field, it's common to have many individuals working in software development who organize their work through support tickets. Therefore, the cost of each ticket is an interesting metric to understand if the labor investment has been sufficient to meet demand. This cost can be calculated by dividing IT team expenses by the number of tickets resolved.
Digital marketing: One of the most used KPIs in the marketing world is return on investment (ROI), which indicates the profits obtained from investments made. This calculation is made using the formula (earnings - investment) ÷ investment.
What are the differences between metrics and KPIs?
When applying these concepts in practice, some difficulties may arise in distinguishing between metrics and KPIs. But don't worry! Let's check some characteristics of each of these elements so that you and your company can structure an overview of products or services and achieve goals with a clearer direction.
Metrics
- Generic assessment: Metrics are a generalized way to understand the sector in which the business operates. It's possible to say that metrics are strongly related to a behavioral aspect but not necessarily about the success or failure of a process.
- Informative evaluation: Metrics provide detailed information about a company's sectors and are not necessarily aligned with these sectors' objectives.
- Adoption flexibility: Metrics can be used for many purposes, such as internal reports or trend analyses.
Key performance indicators
- Strategic evaluation: KPIs, on the other hand, have a closer relationship with business performance and, therefore, are customized according to the area or goal that the company wants to achieve.
- Action-oriented: Due to this close relationship with performance, KPIs help in making company decisions and guiding managers to find the most viable path to success.
- Success assessment: KPIs aim to measure the performance of a sector or a company, determining if the previously established goals are being achieved or if the strategy needs to be adjusted to reach the goals.
- Continuous assessment practice: It's essential to revisit KPIs constantly to ensure the company is on the right path toward its objectives.
In summary, metrics are broad and generic measurements that provide ready information—they don't require calculations or inferences. KPIs are strategically chosen and combined metrics focusing on specific objectives to assess success and guide the company's actions.
Metrics may encompass a variety of information, whereas KPIs are selected based on their significance in progressing toward the achievement of strategic goals.
To get to a KPI, you'll probably need to first have a raw metric—and metrics alone hardly ever tell you anything. For example, I could tell you a certain social media page has 50,000 fans. Is it a lot? Is it not enough? Alone, the number says nothing.
But when I tell you that this page is for astrophysics, is unique in its category, and has ten times as many followers as any other similar page (we start comparing numbers), you get an idea of depth and importance—and now you have a KPI.
Once they are merged and carefully and rationally interpreted, KPIs and metrics can be the key to unlocking a company's success, ensuring that the strategy is aligned with the scenario indicated by the numbers.
GUEST WRITER: Marina Meireles
