Key performance indicator (KPI), what is it and how does it work?

key performance indicator (kpi) dashboard

KPI definition

Key Performance Indicator (either critical performance indicators or KPIs) are metrics to monitor the performance of a company, department, person, brand, service or product. You use KPIs to measure the course and adjust accordingly.

By deploying KPIs it becomes possible to steer towards long-term objectives. This instrument is widely used in business and also in the world of B2B marketing to measure the success of campaigns.

1. Applications and examples of KPIs

Important KPI for Marketing:

Number of MQL (Marketing Qualified Leads)

Many B2B organizations focus on the number of leads that come in. For example, the number of Marketing Qualified Leads. This can be an indicator of the eventual number of new orders that will come in. A calculation is often made that an x number of Marketing Qualified Leads is required for an x number of customers. This is one of the most used KPIs in B2B marketing. Because more and more data points are available to assess the quality of a lead, these kinds of KPIs can be managed more tightly.

Net Promoter Score (NPS)

Another commonly used key performance indicator in marketing is the NPS, or Net Promoter Score.

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This is a score that indicates the extent to which customers are satisfied and loyal. The score indicates the extent to which customers are willing to recommend your organization, products or services to others. The NPS is a widely used metric in the world of marketing and sales at the moment.

Important KPI for the boardroom

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Another example of a KPI is the rate of return. Many companies focus on the return achieved on certain products and/or services. This KPI is often linked to another KPI, such as turnover. The return is what is left of the turnover after deducting costs. There are several calculations for this. Basically it is about making a profit and based on a return figure this can be made clear. KPIs often look at indicators on which you as an organization have some influence.

Important KPI for sales

Number of new orders

A KPI that is set in almost every organization is the number of new orders or customers in a certain period. This is a unit of measurement that is widely supported in organizations. From general management to salesman, from marketing management to shareholders; the size of the order book and its growth usually determine the success of an organization. Within the spectrum of commercial organizations, a business without selling products or services is not much.

By combining these metrics with other KPIs such as return or the number of MQL, interesting insights can be gained about optimizing the processes of an organization. Pinpointing opportunities for improvement can be a logical consequence of this.  

An example of an improvement based on a KPI:

If the number of new orders is high, but the return is low, this may require intervention. Such as a focus on a different type of product, reducing costs or increasing prices.

2. Drawing up KPIs, what should you pay attention to?

Drawing up Key Performance Indicators influences how people work and what they aim for. That is why it is important to handle it carefully. There are examples of companies that use so many KPIs that a jungle of measuring instruments is created and there is a lack of overview. In addition, KPIs can work against each other.

Key performance indicators are often set up SMART. Which means:

  • Specific – Is the KPI clear and defined
  • Measurable – Are there tools or methods available to gain insight into the KPI?
  • Acceptable – Are the KPIs embraced by all stakeholders involved?
  • Realistic – Is the proposed KPI achievable
  • Time-bound – In which time period must a certain KPI be achieved?

3. Monitoring KPIs

Dashboards are often used to monitor a key performance indicator. There are many different tools available to map out and manage KPIs. Think, for example, of reporting tools such as Power BI or dashboards from CRM systems.

Specific tools are also available for marketing KPIs. For example, most marketing tools offer dashboards and reporting solutions. A Social Media tool like Buffer or SocialPilot in many cases also offers dashboards to provide insight into reach and click behavior.

Also email marketing tools such as Spotler, Getresponse or Convertkit often provide comprehensive metrics to measure the success of email newsletters. Clicks, opens or, for example, the growth of certain target group lists. These can all be KPIs of departments or persons.

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