KPI Meaning: Here’s What It Means and How To Use It

In business, abbreviations are used all the time. Even with a degree in business, it’s easy to forget what some of them mean. You’ve got abbreviations to keep up with like CFO, CEO, FIFO, EPS, ROI, P&L, and more. A little help understanding what they mean can take you further at work.

One abbreviation you may have heard is KPI. Still, you may not know what it means, where the term comes from, or how it’s used to help organizations and businesses succeed. This guide will help shed light on the meaning of KPI.

What Is the Meaning of KPI? 

According to the Cambridge English Dictionary, KPI is an abbreviation for the term key performance indicator. A key performance indicator is a metric used to measure the success of a specific business activity. 

Examples:

• The key performance indicators (KPIs) give managers the forewarnings they need to make early adjustments to avoid problems in the future.
• The employee turnover was the KPI the HR used to track the success of their new team-building efforts.

KPI is a noun, and it is typically used in business. A KPI is considered an important indication that demonstrates how a situation is changing or what it’s like. A KPI can demonstrate the success level of an activity in an economy, a business, a stock, an organization, or a project. 

Where Does KPI Come From?

Peter Drucker developed the concept of key performance indicators in the early 1990s. Instead of wasting time and effort on projects that weren’t working, Drucker suggested that teams and organizations track these performance indicators to reveal areas that needed improvement along the way instead of figuring it out after the project had come to an end.

We can break down KPIs into two different categories for measurement. 

• Qualitative KPIs are non-numerical measurements of the conformance to proposed or expected standards. These rely on more subjective data like feelings, tastes, experiences, preferences, or opinions.
• Quantitative KPIs can be numerically measured against a desired standard. This information is objective, and it can’t be influenced by opinions or distorted by interpretations or prejudices. 

We can only use indicators like KPI in hindsight. It is difficult to measure something that hasn’t happened. Doing this would change an indicator into a forecast or prediction.

When Will You Hear KPI?

At work, your supervisors may emphasize the importance of certain key performance indicators pertaining to your department or strategic goals within the organization.

Good KPIs have four main features:

• They are measurable.
• They have a target.
• They have a clearly defined data source for collecting information.
• They are time-bound.

Another term for these is SMART KPIs. This is similar to the SMART goals formula, and we can use these SMART KPIs to help achieve long-term strategic objectives or organizational goals. SMART in this context is an acronym for:

• Specific
• Measurable
• Achievable
• Realistic
• Timely

Using SMART KPIs can help teams keep their focus. Maintaining a monitor of specific analytics can help determine if valuable resources can be used in other ways to achieve the desired results.

Useful KPIs are different for different departments. You may be asked to track:

• Sales KPIs
• Marketing KPIs
• Financial KPIs
• Customer KPIs
• Operational KPIs

What Are Some Examples of KPI?

Here are some common KPI examples:

• Employee satisfaction
• Conversion rates
• Customer acquisition costs
• Revenue growth
• Gross profit margin
• Social media engagement
• Customer retention
• Net profit margin

Over the years, software has been developed for project management that allows users to attain visual feedback at a glance on KPI dashboards of the metrics used to determine the business’s success. The dashboard can often help us gain a unified view and quickly produce a KPI report.

How Do People Describe KPIs?

You will often hear a KPI described in one of two ways. A key performance indicator may be described as a leading indicator or a lagging indicator.

• Leading indicators tell managers how to produce desired results, but they are not easily measured.
• Lagging indicators are easily measured and provide feedback on the current performance management. 

A lagging KPI is often viewed in ratio to an output metric, and these are usually the more historical data collected from quantitative data. KPIs can help companies do a better job of reaching new customers, manage the expense of their efforts, and improve their customer lifetime value. 

If you haven’t heard the term key performance indicators, it’s still likely that you’ve dealt with them if you have worked to reach goals with your company or organization. Learning to read the KPIs and adjust accordingly is key to success in the modern climate. 

Particularly with marketing, information moves quickly, and learning to measure and track KPIs can give the fast results businesses need to make cost-effective adjustments.

What Are Synonyms for KPI?

Synonyms help us express the same idea with a different word. Here are some synonyms for key performance indicators:

• Detail
• Breaker point
• Usefulness 
• Distributor point
• Level

What Are Antonyms for KPI?

Antonyms help us convey the opposite meaning of a particular word. Because KPIs are useful metrics, some of the antonyms for KPI are:

• Inconsequential
• Uselessness

What Are Examples of Using KPI in a Sentence?

Here are examples of how to use KPI in a sentence:

• I was just looking at the KPI for this quarter.
• We can use the system to track our KPI in real-time.
• What are the KPIs for your department?
• After looking over the KPI, we’ve narrowed down some new objectives.
• Our department’s KPI is conversion rates. 

Conclusion

Now you know the meaning of KPI, how to use it in a sentence, and the many ways in which we can use KPIs in the world of business. Try setting your own KPIs today!

Sources:

1. KPI | Cambridge English Dictionary 
2. Qualitative Methods – Organizing Your Social Sciences Research Paper | Research Guides at University of Southern California 
3. Quantitative Methods Overview – Quantitative Research and Analysis | LibGuides at LeTourneau University