KPIS vs Metrics: Understanding the differences with tips & examples
Performance tracking has never been easier. With the rise of modern self-service BI tools, everyone can monitor relevant performance indicators in a matter of seconds. But this is not without problems. Having the ability to analyze your data fast and efficiently doesn’t always mean you are doing it correctly. Businesses extract data from several internal and external sources which makes it difficult but necessary to filter this data and only keep what’s relevant for the company. This is done with the help of KPI and metrics.
KPIs and metrics are often considered the same thing in day-to-day business contexts. However, while they work in similar ways, they are not used for the same purposes. Just memorize this statement for later: all KPIs are metrics but not all metrics are KPIs. That being said, this post will cover the main difference between metrics and KPIs as well as some examples and tips for efficient performance tracking.
Let’s quick it off with the definition of metrics and KPIs!
What Are KPIs?
Essentially, Key Performance Indicators or KPIs measure performance or progress based on specific business goals and objectives. A pivotal element to consider is the word “key”, meaning they only track what is truly relevant for the company’s strategic decisions.
A good KPI should help you and your team understand if you are making the right decisions. They act as a map to business outcomes and are the strategic indicators that will move the company forward. Examples of KPIs can be sales growth, customer retention, or customer lifetime value. Companies usually visualize these measurements together with the help of interactive KPI reports.
What Are Metrics?
Metrics are quantitative measurements used to track the performance of specific business processes at an operational and tactical level. They help provide context to the performance of key business goals but are not critical to its success like KPIs are.
While some of them might be tight to objectives, metrics are not the most important indicators to monitoring strategic actions. However, they are still relevant to inform businesses about the progress of their different activities. Some examples of metrics include the Lead-to-Conversion-Ratio, Return Rate, and Acquisition Costs by Marketing Channel.
Now that we have a basic understanding of the definition of both indicators, let’s dive deeper into the difference between KPIs and metrics.
KPIs vs Metrics: What Is The Difference?
KPIs and metrics are often considered synonyms. But, this is not how it actually works. While they are both quantitative measurements, they are used for different purposes. To put it simply, KPIs need to be exclusively linked to targets or goals in order to exist, and metrics just measure the performance of specific business actions or processes. Let’s see some of the differences more in detail.
- Communication: As mentioned above, KPIs are strategic indicators exclusively used to communicate the progress of your business goals. On the other hand, metrics are used to track specific areas or processes that might be working towards that goal. For example, let’s say you want to sell 20% more in the next year, your main KPI would be the number of products or subscriptions sold to date. Now, in order to monitor the progress of that goal in detail, you would need to track various metrics such as the number of website visitors, best-performing sales channels, the performance of your sales agents, and any other that helps you understand which actions are contributing to achieving your goals and what could be improved. In summary, a KPI can be seen as a collection of metrics that have an impact on your journey to achieving your goals.
- Objective: A good KPI is always tight to an outcome, you expect it to go up or down to reach its target. Metrics, on the other hand, are measuring the impact of the day-to-day performance of different business areas and, as seen with the sales example, only some of them help you track the success of your strategic actions. The important takeaway here is that metrics and KPIs are not mutually exclusive – that’s why they are often taken as the same thing. A KPI will need a collection of metrics to track its success, you just need to make sure you are using the right metrics to track it. Remember: while all KPIs are metrics, not all metrics are KPIs.
- Focus: Another important difference between metrics and KPIs is their level of focus. KPIs have a high-level perspective. They represent key business goals that are relevant for various departments. On the other side, metrics are considered lower-level indicators and they track activities or processes that are specific to a department or business area. Following the example of increasing sales by 20%, it is likely that each department will play a role in achieving that goal. For instance, the marketing department might need to focus on increasing online sales, the sales team might need to focus on developing strategies to efficiently turn leads into paying customers, the logistics team can focus on improving the shipping experience, and the product team can focus on finding strengths and weaknesses in production. Consequently, each department will need to track different metrics that work towards that general business goal.
Let’s put these differences into perspective with some KPIs vs metrics examples created with a modern KPI tool:
1) Sales growth metric and KPI
Let’s start by going a bit more into detail with our example of increasing sales by 20% by the end of the year. A big goal like the one of sales growth is relevant for various departments across a business such as management, sales, marketing, and production. Each of these departments will track its own metrics to understand how their activities are contributing to the general goal. Here we will focus on some sales ones.
- KPI: Sales Growth
The image above is a visual representation of our main KPI: sales growth. With information such as the current period vs the previous one, a percentage of sales based on a target, as well as sales revenue by a sales representative, we can see at a glance if targets are being met or not. But, in order to fine-tune the strategies we also need to know how the different activities are performing, which can be done with the help of various sales metrics.
- Metric: Lead to conversion ratio
A great sales metric to measure for this specific goal would be the lead to conversion ratio. It measures the number of interested people that actually end up turning into paying customers. Which eventually translates into an increase in sales. This metric is useful as it provides deeper insights to make strategic decisions. If your lead conversion rate is low then you need to think of alternatives to motivate potential customers to become actual customers. Some other metrics to measure for this goal could include the lead-to-opportunity ratio, net profit margin, among others.
2) Customer experience KPI vs metrics
Studies say that a 5% increase in customer retention can lead to a 25% increase in profit. Now imagine that with this information in mind, you want to set a goal of increasing your retention rates 10% by the end of the year. Now, this goal can also be relevant to different departments. For instance, the marketing team would need to focus on generating attractive campaigns to get customers to buy again, while the product team might need to focus on developing quality products.
- KPI: customer retention
Customer retention directly affects your revenue. When a customer is happy with your service or product it is likely that he or she will come back to make another purchase. Since your goal is to increase your retention rates by 10%, the image above would be your main KPI. A good way to measure your success is by setting a target percentage based on market benchmarks as well as realistic business numbers. Now let’s look at some product-level metrics that are useful for this specific goal.
- Metric: Return Rate & Return Reasons
The rate of return is a great metric to track to understand customer retention. If your clients are returning what they bought it is likely that they will not come back to make another purchase. In order to extract deeper conclusions from the rate of return, the product team can track the return reasons metric. As seen in the image above, this metric lists the main reasons why customers are returning their products. Here we see that 28% corresponds to defective items. Lowering this 28% can have a direct impact on increasing the retention rates, therefore, a focus area would be to improve product quality. Other valuable customer retention metrics for production can include the repeat purchase ratio or the perfect order rate.
Tips For Measuring The Right KPIs and Metrics
We’ve covered the definition of key performance indicators and metrics, and went into the differences of business metrics vs KPIs. In this section of the post, we will go through 5 tips that will help you measure your goals and performance in an efficient way.
1. Separate metrics from KPIs
Measuring everything really means you are measuring nothing. When it comes to separating KPIs from metrics you need to consider what is most important for your business. Any type of indicator can be a metric, but if this indicator is not providing any valuable information to make you improve then you should discard it.
Tracking the wrong metrics can lead to a waste of time and resources that could be easily avoided. Measuring too much can get confusing and misleading. To avoid this, make sure you pick only the KPIs that really bring value to your goals and leave any unuseful information behind. More on this in the next point.
2. Choose the right KPIs
Choosing the right KPIs to measure is probably the most important step to track your strategies in an efficient way. To help with this purpose there are some KPI tracking techniques that you can use. Here we will explain two of them: the SMARTER and the Six A’s methods.
- SMARTER: This KPI tracking practice stands for Specific, Measurable, Attainable, Relevant, Time-bound, Evaluate, and Reevaluate. It works as a list of requirements that your KPIs have to meet in order to be considered useful. As mentioned throughout this post, they should be specific to your goals, realistic to your business reality, and flexible to change with the evolution of strategies.
- Six A’s: This method stands for Aligned, Attainable, Acute, Accurate, Actionable, Alive. Just like the SMARTER criteria, this practice also aims to evaluate the relevance of a KPI and it is useful for businesses that have too many indicators and need to narrow it down to a few.
By applying these methods you should be able to narrow it down to around 2-5 critical KPIs per business goal. This helps you keep your analysis process-specific and avoid misleading information that can affect the way you interpret your data.
An important thing to keep in mind here is that you should always revisit your KPIs. If you found a better approach to achieve your goals, then you should make sure you are tracking the right data. You can do this by monitoring your KPIs regularly with weekly or monthly reports. Once your KPIs have been defined, you have all the information you need to start making strategic decisions and thinking about long-term actions.
3. Get a centralized view with an interactive dashboard
KPI and metrics are valuable tools for businesses. While key performance indicators tend to be more important, metrics are also useful to get a bigger picture of the performance of a department or specific area. Today, there are several online data visualization tools that offer a range of dashboard options to visualize your KPIs and metrics in a centralized way. Let’s look at it with an example of digital marketing.
The example above was created with a professional dashboard generator and it is the perfect mix between the metrics and key performance indicators needed to track the ROI of your marketing actions. Getting a centralized view like this one helps marketers get a complete picture of their marketing efforts in order to make smart strategic decisions.
If you want to see more dashboard examples like this one, then we recommend you to take a look at our library with 80+ templates from different industries, functions, and platforms to get inspired!
4. Stay away from vanity metrics
Vanity metrics refer to the indicators that may look good on paper but are not useful to inform future business strategies. In some cases, vanity metrics are used to show improvement but they are actually indicators that are not actionable or related to anything you can consider really significant. A great example of a vanity metric would be with social media followers. Imagine you implemented a campaign that attracted 10.000 new followers to your Instagram. Now, that might seem like a success at first hand, but if from those 10.000 followers only 50 bought your products or service then the metric becomes useless.
To avoid facing the issue of vanity metrics you need to keep your analysis as objective as possible. When choosing the KPIs and metrics you will monitor always make sure that they are a reflection of the truth. While metrics such as the number of followers or likes might seem exciting, they can also point you in the wrong direction. BI tools offer various KPI and dashboard templates that can point you in the right direction to avoid making this mistake.
5. Set realistic targets
The last tip for measuring metrics and key performance indicators in the right way is setting achievable targets. For your KPIs and metrics to be efficiently measured you need to know where you are headed and targets make this possible. Here you need to be careful not to set unrealistic targets such as a 50% increase in sales in a year when your average increase from the past years has been 5%. When building targets consider attainable values based on your business context as well as some industry benchmarks. This way, you will make sure you are working towards achievable goals and avoid getting stacked or disappointed by setting unrealistic values.
Key Takeaways From KPIs vs Metrics
As we reach the end of this post about key performance indicators vs metrics we hope you have a deeper understanding of how these two differentiate themselves. The important takeaway from this post is to remember: there would be no KPIs without metrics, both are critical to ensure a healthy return on investment from your different business activities.
KPIs and metrics are invaluable tools for performance tracking. Every day more and more businesses turn to BI dashboard software to get a centralized view of their most important indicators in an interactive and intuitive way. Getting access to modern dashboard technology allows teams to stay connected and work together towards common business goals.
To keep your mind fresh, here is a small summary of the main differences between metrics and KPIs:
- KPIs measure performance based on key business goals while metrics measure performance or progress for specific business activities.
- KPIs are strategic while metrics are often operational or tactical.
- Metrics are lower-level indicators specific to a department while KPIs can be tracked by various departments working towards the same goal.
- Metrics provide context to your business activities, KPIs allow for strategic decision-making.
The original article was published here on February 3rd, 2022.
Content Manager at Datapine