What is a KPI, Metric or Measure?
If you’re slightly unsure about the differences between KPIs, metrics, and measures—you’ve come to the right place. By the end of this post you will understand what each term means and why each term is important. You’ll also be equipped with practical (and hopefully memorable!) examples of each.
Before we dive into these terms and what sets them apart from each other, it’s important that we acknowledge this: You’re not alone in being a bit unsure of their differences. It’s common even in the business intelligence space to hear KPI and metric used synonymously, or for the terms to simpmly be used erroneously.
As KPI, metric and measure are terms that in many ways serve as the building blocks for how business performance is both assessed and achieved, it’s paramount to have a fundamental understanding of them. And knowledge of how to define your organization's KPIs.
Let’s dive in:
What is a key performance indicator (KPI)?
Definition: A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets. They demonstrate how effectively a company is achieving key business objectives, and they can span across industries, departments or individual tasks. KPIs are evaluated over a specified time period, and are compared against past performance metrics or acceptable norms.
Why are KPIs important? Without establishing and tracking proper key performance indicators, companies would be left in the dark about their performance.They might feel that they are having success, but what kind of success? And compared to what? They may know which metrics are trackable, but which ones should they track? With KPIs in place you can set appropriate goals, develop strategies to reach them and evaluate your progress, and eventually have a historical record of your business performance.
KPI examples: If you work in the highway division of a transportation authority, a key performance indicator could be to track the average driver’s speed from July to November, as many accidents happened during this time the previous year. In this case, it would be helpful to know that from July to November the average driver cruises at 60 km/h—which is 10 km/h higher than the posted speed limit of 50 km/h, and 6 km/h higher than they typically drive during all other months.
Or let’s say you are a marine biologist. Establishing average water temperature as a key performance indicator would allow you to notice trends over time, such as how the water temperature in a particular region is rising exponentially faster than all surrounding regions.
And let’s say you are the owner of a local pub. In establishing average pints per patron per visit (ppv) as a key performance indicator, you may notice that last month you averaged 1.1ppv (compared to the local pub average of 1.4ppv and last month's average of 1.3ppv). In this sense, establishing a KPI can help open the door to questions about your business performance that you may have missed otherwise.
What is a metric?
Definition: A metric is a quantifiable measure that is used to track and assess the status of a specific process. If you’re confused because we haven’t yet covered “measure,” get this: according to the Oxford dictionary, the word measure is derived from the Latin word "metiri." In others words, their meanings are almost identical—which is why you may find them used interchangeably. That said, here is the difference: a measure is a fundamental or unit-specific term—a metric can literally be derived from one or more measures. This is why the term metric has a more goal or performance nuance attached to it.
This difference becomes especially obvious when metric becomes “business metric,” and thereby becomes a “quantifiable measure” that is used to track and assess the status of a specific business process.
Why are metrics important? Metrics are important because they are comprised of a wide swathe of all trackable areas. With metrics, think broad. With key performance indicators, think deep. For example, a metric may monitor website traffic compared to a traffic goal, whereas a key performance indicator would monitor that same site traffic but only insofar as it’s related to, say, content downloads.
Unlike key performance indicators—which drill down into what truly is key—metrics cover the entire gamut. Think of it like this: if you don’t know all the trackable metrics, how can you select which to take most seriously?
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Metric examples: If you’re a content marketing agency, you may find that a particular client is adamant about seeing a massive uptick in email subscriptions per month. If you have a grasp on all of the content marketing metrics, you may be able to present some surprising news to your client: “Readers are signing up, but none are trialing your product. If you want better bottom-line results, it’s time to focus on middle-of-the-funnel content.” (If content marketing is your thing, this is a must read article by Andy Crestodina).
Or let’s say you’re the founder of a SaaS (Software-as-a-Service) startup. There are seemingly infinite SaaS metrics to track, so where to begin? With a bird’s-eye view of all metrics, you notice that your Customer Churn Rate isn’t where you want it to be. In fact, at the current rate it could sink your company within six months. In teasing out Customer Churn Rate from the many other metrics and setting the parts that build it as departmental KPIs, you just helped steer your company in a better direction.
What is a measure?
Definition: In a data context, measures are the numbers or values that can be summed and/or averaged, such as sales, leads, distances, durations, temperatures, and weight. The term is often used alongside dimensions, which are the categorical buckets that can be used to segment, filter or group—such as sales rep, city, product, colour and distribution channel.
For example, let’s say you have 50 TVs sold and 30 radios sold. The units sold is the measure and the dimension is the product type. You can perform math on the measure and you could filter or group on the dimension.
A measure differs from a metric in that it’s unit-specific. Whereas a metric may be Customer Churn Rate, it’s made of measures such as a) the overall number of customers and b) the number of customer that discontinue their service each month.
If measure sounds similar to KPI, think of it like this: measures are numbers/values; KPIs are context-driven and are often made up of multiple measures.
Why are measures important? Both metrics and KPIs rely on and are derived from measures. Without measures, you can certainly name industry best practices for metrics and KPIs, but you won’t have the capacity to actually understand how they’re built. The result? You’re basically our example from the beginning: a company in the dark just trying to feel its way toward progress.
Measure examples. In the SaaS industry, Customer Acquisition Cost (CAC) is an important metric. As it sounds, this is quite literally how much it costs for a company to acquire a customer. If you know that your CAC is 100, great. That means you know the number behind the metric. But do you know the measures that gave life to that number? In this case, there would be several measures. They would include, at least, all of your marketing and sales costs for a given period of time. You would then divide this by another measure: the number of customers acquired over that same period of time. The resulting metric, then, would be your CAC for that time period.
I hope this served as a good primer on what KPIs, metrics, and measures are, and that you now know the key differences between them.