What Is a Key Performance Indicator (KPI)?

Key performance indicators, or KPIs, are a set of quantifiable measurements used to gauge the performance of a company.

KPIs are often financial metrics, such as net profit or current ratios, but they can also include anecdotal metrics like foot traffic, employee retention, and customer experience.

What Is the Purpose of a KPI?

The purpose of key performance indicators is to help investors determine a company’s strategic, operational, and financial achievements, particularly compared to other companies in the same sector.

For example, if the average net profit margin for companies in a given industry is 50%, then a new company in that field knows it needs to reach at least that amount to remain competitive.

Likewise, investors looking at those companies will be able to compare those figures to determine the worthiness of an investment.

KPI Example

KPIs can also vary between companies based on their criteria for success.

For example, a software company aiming to achieve the fastest growth in its industry might consider year over year revenue growth as its most important KPI, whereas a retail store might rather look at same-store sales.

Jumpstarting the Implementation of KPI

Having a good foundation about KPI is important in order to determine how a business will progress to meet its goals. Discuss what key performance indicators are best for your business through a financial advisor in Carmel, IN. Check out our financial advisor page to see the full list of areas we currently work with.

What Is a KPI (Key Performance Indicator) FAQs

KPI is an acronym for Key Performance Indicator.
Key performance indicators, or KPIs, are a set of quantifiable measurements used to gauge the performance of a company.
The purpose of key performance indicators is to help investors determine a company’s strategic, operational, and financial achievements, particularly compared to other companies in the same sector.
KPIs can also vary between companies based on their criteria for success. For example, a software company aiming to achieve the fastest growth in its industry might consider year over year revenue growth as its most important KPI, whereas a retail store might rather look at same-store sales.
KPIs are often financial metrics, such as net profit or current ratios, but they can also include anecdotal metrics like foot traffic, employee retention, and customer experience.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.