What is a KPI (Key Performance Indicator)?
Key Performance Indicator (KPI) Definition
Key performance indicators, or KPIs, are a set of quantifiable measurements used to gauge the performance of a company.
KPIs are often financial metrics, such as net profit or current ratios, but they can also include anecdotal metrics like foot traffic, employee retention, and customer experience.
What is the Purpose of a KPI?
The purpose of key performance indicators is to help investors determine a company’s strategic, operational, and financial achievements, particularly compared to other companies in the same sector.
For example, if the average net profit margin for companies in a given industry is 50%, then a new company in that field knows it needs to reach at least that amount to remain competitive.
Likewise, investors looking at those companies will be able to compare those figures to determine the worthiness of an investment.
KPIs can also vary between companies based on their criteria for success.
For example, a software company aiming to achieve the fastest growth in its industry might consider year over year revenue growth as its most important KPI, whereas a retail store might rather look at same-store sales.