What are KPIs?
KPI is the abbreviation for Key Performance Indicator. These key performance indicators are measurable and help companies to objectively evaluate the progress of a project or process with regard to defined goals. In this way, KPIs make the performance of a company in strategically relevant areas visible and comparable. Regular analysis of the key performance indicators enables managers to make well-founded decisions.
What significance do KPIs have for companies?
Imagine you run a marketing campaign, invest a lot of time and money in it – but in the end no one knows exactly whether it was worth the effort. Without quantifiable key figures, it remains unclear how successful the project is and where there is still room for improvement.
This is exactly where key performance indicators come into play: they create transparency about the performance of individual measures and enable the measurement of successes or failures. By using KPIs, companies can monitor the achievement of objectives and react to deviations at an early stage.
In addition, the continuous analysis of KPIs promotes data-based decisions. Assumptions are replaced by facts that guide managers along the right strategic path on a daily basis. Key performance indicators are therefore a central management tool for ensuring the long-term competitiveness of a company.
Last but not least, key performance indicators can significantly increase motivation within the team. This is because your employees are able to constantly monitor their progress. This in turn often awakens the ambition to achieve a goal in the best possible way.
In summary, KPIs enable
- an objective assessment of performance,
- the strategic orientation of measures,
- the early detection of problems,
- efficient use of resources,
- the motivation of employees and
- increasing productivity.
What are the characteristics of good KPIs?
Relevance and target orientation
A KPI should always be directly linked to the company’s strategic or operational goals. This is the only way to provide truly meaningful information for decision-making.
Measurability and data availability
A good key performance indicator is based on clearly defined, reliably recordable data. Without a valid data basis, it loses its informative value.
Comprehensibility and comprehensibility
Useful key performance indicators can be clearly interpreted by everyone involved. Unclear definitions, on the other hand, lead to wrong decisions and misunderstandings.
Comparability and consistency over time
Key performance indicators should be comparable over a longer period of time and between different units. This is the only way to clearly identify developments and trends.
SMART criteria
Effective KPIs fulfill the SMART principles: specific, measurable, attractive, realistic and time-bound. These criteria help to formulate actionable and effective performance indicators.
What are the most important KPIs?
KPIs play a major role in almost all areas of a company – the number of variations is correspondingly large. In sales and marketing in particular, but also in the finance department and customer service, key performance indicators are indispensable. Their purposes vary greatly depending on the area and objective. The most important key performance indicators include
| KPI type | Explanation | KPI examples |
| Financial KPIs | measure the economic performance of a company | Sales growth, net profit margin, gearing ratio |
| Marketing KPIs | show the performance of marketing activities | Website traffic, click-through rate, e-mail open rate |
| Customer KPIs | evaluate customer loyalty and satisfaction | Customer Satisfaction Score (CSAT), Net Promoter Score (NPS), customer retention rate |
| Project management KPIs | quantify the progress and success of a project | Project duration, Cost Performance Index (CPI), Return on Investment (ROI) |
| HR KPIs | assess the satisfaction and performance of employees | Fluctuation rate, days absent, recruitment period |
| Operational KPIs | map the efficiency of business processes | Overall equipment effectiveness (OEE), throughput times, error rates |
These business indicators can be further subdivided into quantitative and qualitative values:
- Quantitative KPIs are based on measurable, numerical values, e.g. profit, conversion rate or error rate. They enable an objective assessment of performance.
- Qualitative KPIs capture difficult-to-measure variables such as customer satisfaction or employee commitment. They supplement quantitative data with important soft factors.
How to develop suitable KPIs
In order to derive the greatest possible benefit from KPIs, they should always be in line with the corporate strategy. In addition, they must be both measurable and relevant in practice. The development of suitable key performance indicators therefore requires a well thought-out, structured approach.
1. define clear goals
It all starts with the precise formulation of corporate and departmental objectives. Only when the strategic direction is known can you develop suitable key figures.
2. identify success factors
In the next step, you determine the central activities that mainly contribute to achieving the target. These processes form the basis for the subsequent KPI selection.
3. derive measured variables
Now develop concrete KPIs that make the performance of the success factors quantifiable. Each metric should have a direct link to a goal.
4. find data sources
Reliable and regularly accessible sources of information must be available for each key performance indicator. This is the only way to ensure objective and consistent data collection.
5. determine target values and target figures
In order for KPIs to fulfill their control function, you need defined target values. These make it possible to compare the actual performance level with the target.
6. review the KPIs regularly
Key performance indicators are not static values. They must be regularly monitored and adapted to new framework conditions. This is the only way to ensure that the key performance indicator system remains useful.
How are KPIs analyzed?
Once you have defined relevant key performance indicators, you should evaluate them continuously. In this way, you can promptly recognize whether your project progress or your business figures are still in line with your goals. If you identify deviations, you can uncover weaknesses at an early stage and take countermeasures quickly.
You need special software solutions to analyze KPIs. The most common tools include
- Business intelligence tools such as Microsoft Power BI or Tableau, which visualize and interactively evaluate large volumes of data from various sources.
- Dashboard and reporting tools such as Google Looker Studio or Klipfolio, which clearly display data in real time.
- Specialized tools developed for specific business areas, such as Google Analytics for marketing KPIs or Salesforce for CRM KPIs.
Is an ERP system also suitable for KPI evaluation?
In an ERP system, almost all areas of the company are linked together.
Many modern ERP systems offer integrated reporting and analysis functions that evaluate and clearly visualize business data in real time. Using diagrams or tables, users can easily check whether their projects are on track or whether there is a need for action. In addition, automatically generated reports provide regular information on sales trends, stock levels and much more. These can be exported in various formats and sent to stakeholders.
Practical tip: Find out in the blog post Measuring success with KPIs: The roadmap for your ERP project on how to use key performance indicators in a targeted manner to make the success of your ERP project measurable.
Application examples:
Suer Nutzfahrzeugtechnik GmbH
The medium-sized company uses AI-supported and customizable dashboards and QuickViews for KPI management in the APplus ERP system. These are used, for example, to display current stock ranges, critical stocks and item availability. Particularly practical: employees and managers have access to individual control centers that are tailored to their areas of responsibility.
meta-technik Kunststoff KG
With APplus, the company replaced manual tools such as Excel and Access with QuickViews to evaluate KPIs on a daily basis. Since then, management and sales have been working with user-friendly dashboards on which diagrams are displayed fully automatically.
If you need more detailed analyses, you can also combine an ERP system with powerful business intelligence solutions .
You should avoid these KPI pitfalls
Despite their great benefits, KPIs are not a perfect management tool. Their added value depends heavily on how carefully they are selected and interpreted. This is why problems sometimes arise when working with KPIs. However, if you deal with the challenges in advance, you can overcome them all the more easily.
Key figure inflation
A common problem is the use of too many KPIs. When companies try to measure everything, they easily lose sight of the essentials. Too many KPIs dilute the focus and make decision-making more difficult.
Misinterpretation of data
KPIs only provide meaningful information if they are viewed in the right context. If KPIs are interpreted in isolation, they can lead to incorrect conclusions – for example, if you do not compare rising sales with falling profitability.
Short-term focus
Some companies focus too much on short-term KPI results and neglect long-term goals. As a result, the sustainable development of the company can get out of hand.
Poor data quality
A solid database is crucial in order to obtain valid and reliable evaluations. Inaccurate, incomplete or outdated data, on the other hand, can significantly impair the informative value of KPIs.
No qualitative factors
KPIs are often only focused on quantitative aspects, as these can be easily expressed in figures. However, qualitative factors such as employee and customer satisfaction are just as relevant.
