What does it mean to have a successful business? The answers lie in the numbers.
Knowing how to quantify your idea of success is an essential part of every strategy. Whether you’re aiming to grow your own sales pipeline or help a client increase their email audience, you need to think carefully about what success looks like to you – because it’s not always clear-cut.
That tends to be because of the way many businesses measure different results interchangeably. For example, we might find ourselves guilty of mixing up key performance indicators (KPIs) and metrics, and using them synonymously. (They’re…not the same?)
Thankfully, this is a quick fix.
Today, we’ll dive into KPIs vs metrics to examine their differences, as well as how both measurements can work together to help you grow your business.
Here’s what we’ll go over:
- What is a Metric?
- What is a KPI?
- What’s the Difference Between KPIs and Metrics?
- How KPIs and Metrics Work Together
- How to Measure KPIs and Metrics
Let’s get started.
What is a Metric?
In business-speak: A metric is a quantifiable measure used to track the progress and success of a certain area of your business.
In non-business-speak: A metric lets you know how you’re doing in numbers.
A metric will help you understand the performance of whatever task you’re measuring. For example, a sales team might focus on the number of new prospect conversations it has each week. And that number — e.g. 10 new prospect conversations last week – is a metric.
The metrics that matter may vary across departments within your business. Outside of sales, a marketing team might care about:
- Email open rates: The number of subscribers that open the emails you send them
- New signups: The number of new customers using your business over a given time frame
- Website traffic: How many people visit your website in a given time frame
The finance department might focus more on metrics like:
- Monthly expenses: The amount of money spent to keep the business running each month
- Cash balance: The amount of cash the business has in the bank
- Revenue growth: The percentage at which revenue is growing month-to-month
Metrics are often measured relative to other time periods – they’re pretty hard to quantify on their own. For example, generating 5,000 website visits in April might sound great…unless you had 10,000 in March. Then something’s definitely not right.
Why Metrics Matter
Metrics enable departments to analyze the success of their day-to-day work.
So if I work on SEO at a software company, I can measure my success through a metric like organic search traffic to our marketing website. Or if I work in sales, I could use the number of deals closed per week as my metric for success.
Metrics give each member of your team a sole focus to work towards. They help keep everyone accountable and in the loop on what they need to achieve. Without metrics, teams might lose track of where to expend their efforts.
As a member of the marketing team at Buffer, I owned one metric for the longest time: website traffic. My goal was to grow that metric. By defining that goal early on, I was able to focus my time and energy on work that would move that metric in the right direction.
Examples Of Metrics
Here are 10 examples of metrics business owners and marketers can measure:
- Sales revenue: All the income from clients/product sales, minus the cost associated with delivering your work (or product)
- Employee happiness: How satisfied each member of your team is with life at work and career growth
- Revenue growth: How much your revenue has gone up (or down), measured month-to-month or year-to-year
- Net profit margin: Monthly revenue minus all business costs
- Customer retention: The percentage of your customers that don’t churn each month
- Website traffic: How many people visit your marketing website each week/month
- Conversion rate: The percentage of website visitors that take a desired action (sign up, start a trial, join your email list, etc.)
- Email open rate: The percentage of your email subscribers that open your emails
- New trial starts: The number of people that start a trial of your product
- Articles published: The number of articles published to your blog each month
What Is A KPI?
A key performance indicator (KPI) is a measure that tells you how well your business is progressing towards one of its most important objectives. However, a KPI is not the objective itself.
Let’s unpack that quickly…
A company objective might be to increase revenue by 15% each month. A KPI will help you to measure whether or not you’re on track to reach that objective. For example, you might set a KPI of 1,000 new product trials per month to help you work towards the overall company objective.
KPIs are a great way to signify what really matters to your business at a given time. KPIs get the whole team pulling in one direction towards a common goal. They help teams and individuals prioritize their workload and direct their efforts towards projects that will impact key objectives.
A KPI will often depend on the performance of multiple people and teams too, whereas metrics tend to be owned by one person or team.
For example, let’s say a software company has a KPI of “increasing new trial starts by 20% in Q2.” In order to achieve this, multiple teams will need to work together:
- Marketing might focus on growing website traffic
- Product might focus on shipping new and valuable features
- Finance might look at creating an offer to entice conversions
All of this work combined will help the business achieve its KPI.
Why KPIs Matter
KPIs are essentially a tool to ensure that the most important objectives are always the top priority across the team. When you know what your KPIs are, you can manage workloads accordingly and ensure everyone is tackling projects that contribute to your key objectives.
By using KPIs, businesses can also uncover weak spots and opportunities for growth. If we keep the focus on the KPI of “increasing new trial starts by 20% in Q2,” measuring the data points and metrics associated with this KPI can help you spot opportunities to improve.
Let’s imagine that your website traffic is growing, but trial starts aren’t increasing. In that case, you might want to look into:
- The quality of your traffic and what sources lead to the most trials
- Your website CTAs and copy
By looking at each of these aspects as part of an overall KPI, you can begin to figure out what’s working and what’s not.
Here are 10 examples of KPIs business owners and marketers can measure:
(Note: a KPI should have a target — usually a percentage or number growth.)
- Percentage of month-to-month revenue growth
- Percentage of employee retention year-to-year
- Percentage increase in average order value
- Number of projects completed on time
- Net profit margin increase
- Number of relevant keywords in the top 5 search engine results
- Number of new leads/prospects monthly
- Percentage reduction in customer acquisition cost from Instagram ads
- Number of press mentions
- Percentage of click-thru rate from homepage to pricing page
You might notice that the example KPIs aren’t too different from the example metrics I shared earlier. Again, this is why the two terms are so easy to mix up.
What’s The Difference Between KPIs And Metrics?
Metrics measure the performance of different areas of your business. On the other hand, KPIs measure the performance of the metrics that are most important to your overall business objectives.
With a metric, you’re measuring the impact of day-to-day work in a specific area of your business. For example, an email marketer will measure open rates as a metric. But that metric might not be a key performance indicator.
With a KPI, you’re also looking for some movement or action — in other words, what’s the key thing you want to happen to this metric? (It’s usually an increase or a decrease). A metric is simply a measure of something, whereas a KPI is what you need to happen to that metric to bring you closer to achieving your business objectives.
How KPIs and Metrics Work Together
Okay, so we’ve established that KPIs and metrics are different things. But that doesn’t mean they don’t overlap… and this is where much of the confusion between the two terms occurs.
A number of metrics will impact the overall success of each KPI your business has. By measuring a number of metrics related to each KPI, you’ll start to see what’s contributed to either achieving your KPI or missing the target.
Let’s keep running with the example from above: A software company has a KPI of “increasing new trial starts by 20% in Q2.”
Within this KPI, multiple metrics matter, including:
- Traffic: The number of people arriving on landing/sales pages
- Conversion rate: The number of people who visit your landing/sales pages, and then go on to start trials
How To Measure KPIs and Metrics
Measurement is essential for both KPIs and metrics.
When you’re deciding on which KPIs and metrics you track, make sure you have a single, trustworthy source to gather accurate data from.
In some cases, this might mean manually tracking a category yourself – e.g. the number of blog posts you publish each month. Or if you’re measuring traffic, signups, or conversions, you might be able to use Google Analytics or another analytics service.
Whatever your KPIs and metrics, confirm that you have a way to measure them in place before you commit to them. Once you’ve decided on your business metrics and KPIs, be sure to check out the latest deals on AppSumo to uncover tools that’ll help you automate data analytics, hit your targets and track conversions.
I hope this article has helped clear up the differences between KPIs and metrics for you.
However slight the differences, they can have a big impact on the way your business structures its goals and works towards objectives.
Till next time, Sumo-lings!