With the increasing importance attached to the value of business data, corporations are currently using a variety of business metrics to drive decisions with regards to product launches, production capacities, marketing strategies, and more.Â Business metrics such as sales revenue, gross margins, and customer acquisition costsÂ are easy to track and measure using a variety of business intelligence (or BI) tools.
However, a key question for business owners is whether every business metric that can be measured is important for achieving organizational goals? Not necessarily. While a business metric is a useful measure, achieving organizational (or business) goals is a measure of pairing it with Key Performance Indicator (or KPI).
So, how do KPIs differ from business metrics and why it is important for you to understand the difference?
What is a Business Metric?
In simple terms, a business metric is any measurable component of your business. A business metric can either be a count (example, number of website visitors) or a calculated value (example, the click-through-rate or CTR).
Essentially, a metric is just a number and by itself, cannot measure how your business or marketing initiatives are performing. Most business metrics cannot indicate your business growth or help you determine business goals or allocate resources. For example, a social media marketing metric such as â€œthe number of Facebook followers for your businessâ€ cannot indicate anything about your earned revenues or customer conversions.
What is a KPI?
A Key Performance Indicator (or KPI) is also a business metric except that it is tied to a specific organizational goal or objective. In other words, a KPI measures your business performance relative to achieving a business goal.
Essentially, every KPI is a metric (orÂ indicator) that is aligned with your business goal (orÂ KeyÂ goal of your business) and which measures the success (orÂ Performance) of achieving your business goal.
Examples of a KPI can be â€œonline sales revenue for 2017â€ or the â€œReturn on investment.â€
Differentiating between business metrics and KPIs
Tracking and measuring of both business metrics and KPIs are essential for the success of any organization. In simple terms, a metric is a building block that supports the KPIs, while the KPI can be used to measure the performance of any strategic goal or objective.
Should every company have the same set of KPIs? Not necessarily. For example, a KPI such as â€œEarned profitsâ€ could be important for certain business enterprises, while â€œcash flowâ€ or â€œnet incomeâ€ could be of a higher priority for other companies.
Are the two interchangeable? The answer is yes. A business metric can become a KPI if it is fulfilling a business objective. An example of this is the Amazon online retailer, which favoured â€œgrowthâ€ over â€œprofitabilityâ€ for many years, but has nowÂ reported its single largest earned profit for the first quarter of 2016. On the other hand, a KPI can be downgraded to a business metric, if it is unable to consistently fulfil a business goal or target.
Are both business metrics and KPIs essential for business enterprises? The answer is a yes. While your KPIs are an important metric to track, you also need to keep a track of other metrics, particularly when a KPI starts failing consistently. For example, if the number of inbound leads is a KPI and it starts to decline, metrics such as â€œsite conversions,â€ â€œFacebook ad impressionsâ€ are critical to identify the root cause of this problem.
In a data-driven world where every aspect of business can be measured, business owners can find it challenging to differ between their metrics and KPIs. Identifying the right set of KPIs from the enormous pool of business metrics can be challenging but is vital for organizations to meet their strategic goals and objective
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