Key performance indicators
A metric is anything you measure: visitors, number of invoices. A key performance indicator (KPI) is a metric tied directly to an important company goal, with a target. Every KPI is a metric, but not every metric is a KPI.
A good KPI is SMART: Specific, Measurable, Achievable, Relevant and Time-bound. For example: “raise gross margin from 25% to 28% by the end of 2026”.
| Department | KPI | How it's calculated |
|---|---|---|
| Sales | Sales growth | (this period − last period) ÷ last period |
| Finance | Gross margin | (sales − cost of goods) ÷ sales |
| Finance | Days sales outstanding (DSO) | Average days customers take to pay |
| Inventory | Inventory turnover | Cost of goods sold ÷ average inventory |
| Logistics | On-time delivery rate | Orders delivered on time ÷ all orders |
| HR | Employee turnover | Leavers ÷ average headcount |
Two important kinds: a lagging indicator measures an outcome that's already happened, such as profit. A leading indicator gives early warning before the outcome, such as quotations sent this week. Smart management watches both.
Watch outThe biggest mistake: a dashboard with 40 KPIs. If everything is important, nothing is. Pick 5 to 7 that truly answer management's goals.