The Ultimate Guide to Setting Key Performance Indicators (KPIs)

Key Performance Indicators, or KPIs, serve as the health indicators of a business as it stands at a given moment. While they are a less aspirational, more immediate element of a company’s big picture, they’re a key element in bringing strategy and day-to-day health into focus, and helping everyone stay focused on what they need to do. For this reason, it’s crucial to think about KPIs in terms of your overall company vision.

The concept of keeping score using KPIs is vital for engendering accountability and ownership in your teams, and ensuring everyone comprehends what the business is trying to achieve. It prevents falling into a process trap, knowledge gap, or any execution gap. Knowing how success is measured enables better decision-making, accountability, and engagement.

Having a clear focus on the vital few numbers that really matter is crucial for teams to understand where they need to go, and how to make decisions that get them there faster. In this article, we’ll help you determine, communicate, and track your company’s essential metrics, so that you don’t waste time reinventing the wheel or struggling to decide what to measure

Why companies need Key Performance Indicators

Key Performance Indicators serve as the health indicators of the business as it stands at a given moment. They help teams manage execution, and in terms of overall company vision, they’re a key element of bringing a big picture strategy into focus and helping everyone in the company stay focused on what they need to do. Knowing how success is measured enables better decision-making; it drives ownership for each individual in the organization, ensuring everyone comprehends the specifics of what the business is trying to achieve. A strong set of KPIs gives you week-to-week wins and that will resonate for your people in a way that prompts change and adjustments. Adaptation is crucial in a highly changing and disruptive environment.

How well-crafted KPIs help your company

KPIs create laser focus: attempting to measure and manage too many items inevitably dilutes focus and hinders progress. Effective KPI management is the antidote, providing organizations with the clarity and alignment they need to move swiftly toward their objectives. Companies must maintain an unwavering focus on the vital few metrics that truly matter.
KPIs align effort to outcomes: by tying specific objectives directly to well-defined KPIs, companies can ensure that efforts at all levels are purposefully directed toward achieving the outcomes outlined in their strategy. Especially when visualized in a scoreboard or scorecard, this connection between the work being done and the results being sought empowers better decision-making, reduces the need for excessive management oversight, and fosters a sense of empowered ownership among teams and individuals.
KPIs foster execution rhythms: establishing a relentless execution rhythm within your organization is the key to achieving more in less time. Daily check-ins and weekly meetings are the heartbeat of a business that is able to adapt and grow; by integrating KPIs into these touchpoints, companies can consistently monitor progress, promptly identify and address issues, and maintain a steadfast focus on the metrics that fuel success. This approach transforms meetings into productive forums for problem-solving, mentorship, and collective ownership of results.

How to craft your KPIs

Use KPIs to indicate the health of your business

To get to a strong set of KPIs, start with this simple exercise. You can use this template to complete the exercise.

First, identify your business’ top 3 lagging indicators and top 3-5 leading indicators. These could include aggregate revenue numbers, revenue for different products, acquisition metrics, or other relevant factors. The goal is to have clear indicators, ideally no more than half a dozen, to measure success. Take about four minutes to brainstorm and jot down your thoughts.

Choose numbers that represent the health of the business. Think about numbers that can reflect wins on a weekly basis, and will resonate for your employees in a way that prompts changes and adjustments.

Define what a win would be for your scoreboard. Set targets and ensure they encompass what you're aiming for. The right target creates some discomfort without total freak-out; it should energize people to make changes and iterate until the numbers align with the objectives.
Determine how to know if you’re winning each week. Set target numbers and iterate on everything, learning fast - a core value crucial in a VUCA environment.

The great thing about KPIs and the scoreboard you can create from them is that once you have a way to keep score, you can build a gameplan.

KPI use cases

Gross Margin

Gross margin shows how profitable a company's sales are after subtracting the costs directly associated with producing its products or services.

It's calculated as: Gross Margin = (Revenue - Cost of Goods Sold) / Revenue

If a company has $100,000 in revenue and it cost them $60,000 to produce the products or deliver the services sold, their gross margin is:

($100,000 - $60,000) / $100,000 = 40%

A high gross margin means a company is earning substantial profits on each sale before accounting for other expenses like R&D, sales and marketing. A low gross margin signals lower profitability of sales.

Tracking gross margin helps companies:

Assess profitability of specific products or services
Determine pricing and discount strategies
Identify production inefficiencies causing higher costs
Benchmark against competitors

Sustaining a high gross margin over time means a company is able to retain more profit as they scale. Declining gross margin indicates problems with production costs or pricing.

SAL to SQL Conversion Percentage

Sales Accepted Leads (SALs) are leads that the sales team has reviewed and agreed to pursue as potential opportunities.

Sales Qualified Leads (SQLs) are leads that sales has vetted and confirmed match their ideal customer profile and buying needs.

The SAL to SQL volume metric looks at how many SALs get further qualified as SQLs ready for active selling.

For example, if 100 SALs resulted in 75 SQLs, the SAL to SQL volume would be 75.

Tracking this volume helps businesses:

Gauge how well sales is qualifying leads
Identify gaps in qualification criteria
Assess productivity of lead follow-up
Set standards for quality lead handling

Higher SQL volume indicates sales is effectively qualifying leads for pursuit. Lower volume suggests improvements needed in lead handling procedures.

Monitoring changes to this volume over time shows sales productivity in converting leads into qualified opportunities. Improvement indicates better lead management.

👉 Read the full master list of 47 KPI examples and why they matter.

Expert assistance on KPIs: Bernie Smith (Made to Measure KPIs)

Bernie Smith is a KPI jedi. As founder of Made to Measure KPIs and author of KPI Checklists, Bernie coaches businesses to develop meaningful KPIs and present their management information in the clearest possible way to support good decision making. We interviewed him and unpacked his KPI philosophy - some of the most important and useful insights from that chat (although every minute of it was brilliant) are listed here for your convenience.

The secret to KPIs

What a lot of people try and do is find one metric that applies to every level of the organization. So this idea of this golden thread running all the way through. Now, there are some things like profit, which impacts on everyone. But, if you're fixing a machine or answering a phone, you don't have direct major control over profit. You have a tiny part in it, but there may be a hundred thousand other people involved. So where people get tied in knots is trying to find something that works on all levels.

What you have to do is align towards the objective you can influence. Now if I'm fixing a machine, then actually, the objective I can influence is machine up-time or, maximum stable speed on that process. If I'm answering a phone call, then customer satisfaction, first touch resolution, average handling time, for me, that's the thing I can influence. Now, there is a thread that goes all the way up to profit, to growth, and so on, but it's not a direct link.

The main obstacle to unlocking the power of KPIs

The thing that tends to hold people back is fragmentation and uncertainty. So, if you take one individual, he or she may have really strong opinions about what to measure or they may not. Then, you have 3 or 4 people, and the chances of them aligning and agreeing easily and readily rapidly diminishes, and then you imagine you've got a hundred thousand people in the organization, the chance of accidentally stumbling across a package of measures that give a balance here of the whole organization that everyone agrees on, if you don't have a method, it's pretty close to 0.

There's a talk I do a lot where I share a picture of a street that I walked down in the Canary Islands, a nice holiday island off the coast of Africa for anyone who's not been there. And I walked down the street, they had this wavy sidewalk. And if you look closely, there were these stumps of about 20 or 30 mature trees. And what has happened was, the local authorities had relaid the road surface and the sidewalk, and they've done it and waved the sidewalk around the tree trees that were there. And then, almost immediately after they did that, they went down and chopped down all the trees on the street. And the reason I start with that as an example is I see this with KPIs. Individuals making the best decisions that they can, thinking hard, you're doing the right thing. But it's not a joined up enterprise.

So you end up with all these weird disconnects and arguments and alternative measures, [and] measurement regimes. And the bigger the organization is, the worse it gets. So I think this fragmentation, and also the uncertainty that comes with not having a method, paralyzes people, paralyzes teams, paralyzes individuals, paralyzes organizations. Because deep down, they're not really sure they're measuring the right thing, and they sure as heck aren't aligned as well.

👉 Read the full transcript or watch the interview with Bernie here.

How to employ KPIs to drive strategy execution

There are a number of extremely powerful ways that KPIs manifest to supercharge your strategy execution on a daily basis. As we mentioned earlier in this article, once you have KPIs, you have a way to keep score. Once you have a way to keep score, you can build and execute on a gameplan.

The way to achieve this is with a scoreboard/scorecard. The scorecard provides instant access to the numbers that represent success for your team or business, as well as who owns each number, how it’s measured, and how it’s tracking.

Here’s how that looks inside the ResultMaps app:

In ResultMaps, you can align each KPI to key results. When fit into powerful operating rhythms like a team weekly priority meeting, this alignment makes it easy to keep the numbers that matter at the center of your team’s focus.