Business metrics vs KPIs. What’s the difference?
Here’s the thing: I bet most of us learning about key performance indicators (KPIs) and business metrics are doing it to complement our jobs. In other words, we’re not data or business analysts; we’re just folk looking to take accountability for our performance. Accountability today means monitoring the numbers, but more importantly understanding how we impact them.
As a marketing guy, I aspire to be data-driven in all that I do. There is no denying the importance of analytics and performance measurement in my job, but my job description primarily relates to creative deliverables of my position. You know, marketing campaigns. Success is in the details.
When it comes to learning about business metrics and KPIs, you’ll discover that each term ought to be treated differently. It’s not just semantics, either. Using the term metric and KPI interchangeably is a (forgivable) error in the world of analytics, but it can have a huge impact on how you design and implement your strategy.
Taking the time to separate your metrics from your KPIs will help to give you a step up on those who can’t tell the difference.
What’s the difference between a metric and KPI?
KPIs are measurable values that show you how effective you are at achieving business objectives. Metrics are different in that they simply track the status of a specific business process. In short, KPIs track whether you hit business objectives/targets, and metrics track processes.
“In its simplest form, a KPI is a type of performance measurement that helps you understand how your organization or department is performing,” writes Ted Jackson, the founder of ClearPoint Strategy. “A good KPI should act as a compass, helping you and your team understand whether you’re taking the right path toward your strategic goals.”
In this interpretation, I can see how some folks would see metrics as watered down KPIs. I caution you against this type of thinking. KPIs must have targets, specific timeframes for achieving targets, and be relevant to business outcomes. Metrics may or may not have all of the above.
Let’s tease out the difference to make sure it’s clear.
Metric vs. KPI Example
A marketing metric I track is SEO Keyword Ranking. It’s useful for tracking our momentum for our search marketing efforts, and acquiring new and better rankings is a positive for us. Yet, would I call this a marketing KPI?
I wouldn’t. It may have business value and be tied to outcomes, but it’s not a direct line of sight to hitting a business objective.
Instead, I track organic search leads and wins as part of my inbound KPI strategy. This maps directly to a specific business outcome: increased revenue. Perhaps most important, I’ve set monthly and yearly targets for each of these KPIs.
Why does it matter?
I think the main difference is motivational. A KPI drives you toward a target, acts like a performance guidepost, and maps to business outcomes. The blurry line comes when you look at a metric and also have a target.
That’s all right. Metrics ought to be considered regularly, even daily, because they map to your program/department/project performance. If you work on a metric and get better business outcomes… then maybe you should consider adopting it as a KPI.
The process of business performance management is iterative. You can experiment and try new things. A metric can become a KPI if it impacts business outcomes. KPIs, too, can become metrics if chasing a particular target doesn’t pan into real results.
Every KPI is a metric, but not every metric is a KPI
Think of metrics like a hockey team. Every single person on the team is a player. But within the team there is a smaller group charged exclusively with stopping the puck, known as goalies. There are also other players on the team – defencemen, centres, wingers. None of them, however, are goalies.
It’s the same with KPIs and metrics. There are tons of metrics out there. Clicks. Percentage of new sales. Subscription revenue.
But not all of them are KPIs. KPIs are the most important metrics you have – the ones that really underscore what your key business goals are.
“How (KPIs and metrics) relate to each other is extremely simple: metrics support KPIs. KPIs in turn support the overall business strategic goals and objectives,” writes Richard Hatheway, a technology marketing executive. “That’s it.”
Shouldn’t KPIs be obvious?
Not necessarily. In many cases, KPIs that give you a portrait of your ability to earn money are really important. It is difficult, after all, to run any kind of any organization if you don’t have any money.
But to a non-profit, for example, profit isn’t likely to qualify as a key performance indicator (duh). Sure, the amount of money they bring in is likely important, but only because they need money to achieve their farther-reaching goals – influencing a particular public policy, maybe, or potentially educating the public.
To many for-profit businesses, though, the script is flipped. “Influence” isn’t a bad thing, but it’s likely only of importance if it helps separate customers from their money.
For a long time online retailing giant Amazon didn’t turn a profit (that has changed, in a pretty big way, over the last several quarters). But did that matter to founder Jeff Bezos? Not really.
“To know Jeff Bezos’s priorities is to know that he cares more about cash flow than net income,” write journalists Jason Del Rey and Rani Molla at Recode. “That’s because Amazon isn’t looking to sit on the money that flows through its coffers — it’s looking to spend it on investments like new warehouses, more Alexa-powered gadgets and original video programming that will create the next moats separating it from the competition over the next decade.”
Amazon is a great example of a company that’s figured out its KPIs and stuck to them. And you could do a lot worse than re-tread Amazon’s path to growth.
Separating out the KPIs from the metrics
It’s an old saying that doesn’t get any less true the more clichéd it becomes: Measuring everything means you’re really measuring nothing.
That’s what helps distinguish KPIs from metrics. Literally anything, as long as you can count it, can be a metric. The problem is that a metric doesn’t actually do much for you. It doesn’t give you an indicator of how your business is performing, help you allocate resources or identify strategic goals. It’s just a number. And the problem with numbers – and this is particularly true today, when nearly everything can be measured – is that they are overwhelming.
KPIs and strategy
KPIs are strategic. Identifying your KPIs forces you to sit down and think about your long-term objectives. You can’t just list everything under the sun. A business that can, to use the above example, measures its rankings in search engine results but doesn’t give a hoot about its tanking revenue isn’t going to stay in business very long. Ditto for a marketing department that makes its social engagement rate the be all and end all. If you’re using the wrong metric as a measuring stick, you’re going to end up wasting your time, money and energy chasing a goal that doesn’t matter.
Instead KPIs force you to sit down and ask “OK, what are we actually trying to accomplish here? What are the metrics that really contribute to the success or failure of this business?”
KPIs “are metrics (Indicators) that are directly aligned with your business goals (Key), and measure how successful (Performance) you are at achieving your objectives,” writes Dave Gerhardt, the Director Business Development and Communications for Arbill Industries.
“Your KPIs answer the questions generated by your business objective,” he adds.
Bringing it all together
The difference between metrics and KPIs often goes unnoticed in a world where nearly everything can be and is measured. Staking out a ring around those metrics that can actually give you a strategic sense for how your business is performing is more than worth the time.
Subscribe to Mindful Metrics
Join over 200,000 monthly readers of our insights on metrics and KPIs