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A Key Performance Indicator, which is also known as a KPI, is a measurement of performance of a certain function within a company. These are quantitative measurements plotted against a time range and is generally represented in graphs or scorecards.
However, some of the KPIs can also be based on geographic locations, percentage of a whole, etc. Still, when looking at performance over time, a time-series chart is the best way to display it. KPIs are derived data based indicators that we are using regularly in our businesses to keep track of the various key functions. Here are a few examples.
KPIs in the area of marketing are really very frequently circulated data. We see it advertised by the businesses all the time. One of the most common KPI here is the customer base and customer base growth rate. The customer base is usually used to refer to the total number of unique customers that a business has and hence the customer base growth rate is the rate at which the customer base is growing. Depending on how successful (or not) the company is, the growth rate can be positive or negative. The customer base is represented in actual numbers, and the growth rate is usually in percentage.
In the area of manufacturing, the usual KPIs are rate of production, volume of production, performance, quality etc. While rates are usually calculated per unit time (units produced per second, units manufactured per day), performance and quality are usually expressed in percentage. The Overall Equipment Effectiveness or OEE is often used as the standard set of metrics to gauge the performance of a manufacturing unit.
In the sales department, the usual metrics that require monitoring are sales volumes, percentage of returns, growth, etc. So KPIs for sales are the indicators that show the data representing these factors. For instance, sales volume can be represented in numbers per day or volume per day, depending on the item. Out of this number, the ratio that was returned would the percentage of returns.
There are also KPIs for personal performance of staff. If they are salespeople, these would include the annual revenue that they single handedly generate. Their growth rate, fluctuation etc can be easily charted. For websites and multi-national companies, geographical data is also very important to locate the locations of the visitors and prospects.
KPIs are mainly used to monitor of performance, fluctuations and to spot patterns and repetitions and deviations from plan. These are then interpreted to find actual reasons, trends, etc. For example, if more clients are buying from the company in one region, then the company needs to make sure of - a) defending the favorable strength region, b) discovering what worked well and c) reproducing the successful tactics in other markets if feasible. Another use of key performance indicators is problem solving. For example, if a given day is always slow for sales, then other reasons need to compared, for instance customer profiles of those who are buying and those who are not, etc. KPIs thus are useful in business analysis, business planning, problem solving and trend analysis.