Metrics, KPIs and targets

The words metric, KPI and target are often used interchangeably, but separating them clarifies what you are measuring and why.

Metric

A metric is any quantified measurement: number of sign ups, average response time, revenue, page views. Companies can track thousands of metrics. Most are useful occasionally for investigating something specific.

KPI

A key performance indicator is a metric chosen because it reflects progress toward an important goal. KPIs are the few numbers a team or company commits to watching regularly. A sales team might have a dozen metrics but only three KPIs: new revenue, win rate and pipeline coverage.

Good KPIs are:

• Tied to a goal: someone can explain which objective it measures.
• Influenced by the team: the people watching it can change it through their work.
• Understood: everyone knows roughly how it is calculated.
• Timely: it updates often enough to act on.

Target

A target is the value you aim for in a time period, such as monthly recurring revenue of 250,000 by the end of the quarter. Without targets, KPIs show movement but not whether that movement is good enough.

Targets should be ambitious but realistic. Base them on historical trends, capacity and the plan, not on a number that sounds nice. A target nobody believes is ignored as quickly as no target.

Input and output metrics

Output metrics measure results: revenue, customers, retention. Input metrics measure activities and conditions that drive those results: demos booked, trial activation rate, support response time. Teams cannot change outputs directly, but they can change inputs.

For our scheduling software company:

• Output: new monthly recurring revenue.
• Inputs: trial sign ups, percentage of trials that set up their first calendar, demo calls completed.

Good dashboards pair an output with the inputs that drive it, so teams can see both where they are and what to work on.

How many KPIs

For a company level dashboard, five to eight KPIs is usually plenty. For a team, three to five. If everything is a KPI, nothing is. A useful discipline is to ask, for each candidate: "If this number changed sharply, would we act differently this week?" If not, keep it as a metric you can look up, not a KPI on the main dashboard.

Choose up to six candidate KPIs for our company's leadership dashboard.