Key Performance Indicators (KPIs): The Ultimate Guide

Key Performance Indicators (KPIs): The Ultimate Guide

Key Performance Indicators, or KPIs, are a much talked-about but frequently underutilized business tool; few companies implement them with the level of rigor required to produce good results. Choosing the right KPIs and implementing a KPI tracking process requires dedication and commitment on everyone’s part.

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We put together this guide to help organizations like yours get more out of their KPIs. Here you’ll learn the best ways to create and track them and understand how to gauge their relevance over time. By following the guidance presented here, you can rest assured you’re measuring and tracking the right things for your business—and doing it in the most efficient way possible.

Chapter 1: A Key Performance Indicator (KPI) Definition

A KPI Definition | ClearPoint Strategy

You’ve heard it before: “What gets measured gets managed.” Nowadays, companies can (and do) measure almost everything in an effort to somehow manage it all. But most are so inundated with data about their business activities and performance that they fail to see the forest for the trees.

In fact, all data points tell the story of your business, but only a few are crucial for understanding performance. Those few are the ones to concentrate on—they are the key performance indicators, or KPIs, that relate to your strategic business goals.

Here’s how we define KPIs:

Key performance indicators (KPIs) are the subset of performance indicators most critical to your business at the highest level of your organization. You use them to help measure your progress toward achieving your strategic goals.

What distinguishes a KPI from other traditional business metrics?

You can gather data on just about any aspect of your business, but not everything you measure qualifies as a key performance indicator. KPIs have several important characteristics that differentiate them from other metrics:

  1. They show if the organization is accomplishing its objectives. KPIs track measures that reflect your organization’s performance, specifically as it relates to a strategic goal. Not all measures drive business performance.
  2. They are tied to specific business objectives. The main point of using KPIs is to ensure your organization reaches its highest-level objectives; therefore, you should link KPIs directly to strategic goals.

Some metrics are just that—metrics. Think of them as supporting characters in a play. They may measure progress in a certain area—for example, your product return rate. Those metrics impart useful information, and improvement in that area may help you achieve a larger objective. But metrics alone don’t drive performance as a company.

Though they are different, KPIs and metrics are interrelated. Think of a KPI as a kind of early-warning signal for your business. If you’re not meeting a key performance indicator target, it’s a sign there’s either a strategic or operational problem that will prevent you from reaching your goal. To investigate the problem, dig deeper into other related metrics to diagnose the problem and see where you might need a course correction.

KPIs Vs. Metrics Example
For an example, consider X Company that sells cybersecurity software. One of the company’s strategic objectives is to educate its target audience via its website about cybersecurity threats and approaches to protecting their business systems.
In this case, here’s what its KPI and associated metrics might look like:."
KPI: Website traffic
KPI target: 50,000 visitors per month
• Method for measuring: Track the number of website visits
Metrics that support the KPI:
- Time on site
- Bounce rate
- Exit rate
If X Company doesn’t meet the KPI target, it is not attracting people to its site and will have difficulty achieving its goal. To understand why this problem is occurring, the company could dig into the associated metrics for clues.

Done right, KPIs can be an incredibly useful tool for measuring performance. If you’re not seeing any value from them, it may be because the metrics you’ve chosen are not relevant to business performance, or they aren’t clearly linked to your strategy. The fact that there’s so much data available these days makes it more difficult to choose the right KPIs. It may take some experimentation, but as you continue working with KPIs, keep these two points in mind:

#1: If you find you’re not using a particular KPI to make decisions, scrap it and look for something better. KPIs should provide insights that become the basis of strategy meeting discussions. If that’s not the case, you may not be measuring the right thing.

#2: For each of your KPIs, make sure you know what’s making them move either positively or negatively and that you have control over those levers. You may be doing multiple things that affect the KPI; you need to know which actions will have an impact.

Now that you know the definition of a KPI, let’s move on to the process of creating key performance indicators that align with your business objectives.

Chapter 2: How To Set Up Key Performance Indicators

How to Set Up Key Performance Indicators | ClearPoint Strategy

Follow the steps below to create KPIs that will provide clear signals about whether your performance is improving or not.

1. First, define your business objectives.

Creating KPIs is an important part of the strategic planning process, which includes defining the organization’s goals and objectives. But you can’t create meaningful performance measures if you don’t know what you’re trying to accomplish. So first things first—determine a concrete set of objectives that express the goals your company wants to achieve in the future.

2. Ask: Do we know which activity will help us reach this goal?

This step attacks the main problem most organizations have, which is how to define key performance indicators. To start, ask yourself the question above.

If the answer is no, select a lagging indicator. Lagging indicators aren’t predictors of what is going to happen, but they do tell you what did happen. So if your goal is to increase sales but you don’t know which activity will make that happen, then simply measure “sales.” This KPI will tell you what happened for that goal over the last quarter or the last year by examining your outputs and outcomes. In the meantime, you’ll want to try different activities to see what actually does make an impact on sales.

If the answer is yes, select a leading indicator. When you do find out which activity will drive better results, select that activity as your KPI. For example, if you know sales increase when your sales team makes more outbound calls, choose “# of outbound calls” as your KPI. You’ll know that if you hit or exceed your target for outbound calls, your sales numbers will also increase. You could have more than one KPI if both are strong leading indicators.

Example: Leading Vs. Lagging Indicators In KPI Selection
Let’s continue with our X Company example, whose goal is to educate the public about cybersecurity issues via content on its website.
If the company doesn't know which activity will increase the number of website visits, it would simply track "website visits." While tracking this KPI, the company would also experiment with ways to increase visits to see what works.
If the company already knows that appearing on page 1 for various Google search results leads to more website visits, it could start to measure keyword page 1 rankings. In this case, the company might still track website visits as a measure but not as a key performance measure.
Leading indicator KPIs help you see progress (or setbacks) sooner, so you can act accordingly without having to wait for outcomes.

3. Make sure each KPI meets the SMART framework.

Identifying the activities that have an impact on your objectives gets you closer to determining your KPIs, but an effective KPI should also be SMART:

  • Specific: It should be clearly defined and not too broad.
  • Measurable: It should be easily quantifiable.
  • Attainable: It should be realistic to obtain.
  • Realistic: It should be practical and pragmatic.
  • Timely: It should be measurable on a regular—and fairly frequent—basis, for example, monthly or quarterly as opposed to annually.

Other metrics don’t have to be SMART, but KPIs should be. These criteria help you further define your KPIs, producing a more effective measure of performance.

4. Clearly define all aspects of each KPI.

You have a good KPI in mind—that’s great! Before you can start using it, you need to clarify the essential information outlined below. Doing so will help you introduce and explain each KPI to the relevant parties; it will also help with tracking. We recommend using a template like the one shown below so you know you’ve covered everything.

  1. Description: Write a brief description of the measure and what it should reveal.
  2. Formula: Is there a calculation required to report the measure? If so, record it clearly.
  3. Reporting frequency: Decide how often to report the KPI—monthly, quarterly, etc.
  4. Owner: Who is the person or department that will report on the measure and performance? Accountability is crucial for follow-through.
  5. Target: Note the level of performance you are trying to achieve. It should be a numerical (quantitative) target.
Definition Template

5. Get feedback from your team about each KPI.

We’ve seen it happen too often: When presented with KPI data in strategy meetings, attendees spend too much time trying to figure out what the data means and why they’re collecting it, instead of making decisions based on the data. What could have been a productive strategy meeting turns into an information session on KPIs.

All it takes is a little bit of planning to prevent this scenario. Talk to your team about each KPI ahead of time. Find out what questions people have about the data and include the answers in the KPI descriptions. If a formula is involved, write it out in a way that’s easy to understand. Incorporate any suggestions they have into the defining list when appropriate. Then, at the meeting, you can talk about strategy instead.

Think you’ve developed some meaningful measures? Great! Now it’s time to find out how well your organization—and your KPIs—are performing.

Chapter 3: Key Performance Indicator (KPI) Measurement & Tracking

KPI Measurement and Tracking | ClearPoint Strategy

The KPI process doesn’t end once you’ve set the measures; next, you need to gauge their performance. That requires tracking them effectively and knowing when it’s time to replace them.

Tracking KPIs The Right Way

It’s necessary to continually review and track your KPIs and their performance on a monthly, quarterly, or other predefined reporting frequency. Regular monitoring makes it easy to see the time frame in which something may have underperformed or overperformed, as well as what may have happened within this period to cause the change.

Here are the steps involved in setting up a reporting system:

  1. Identify your data source(s). Where is the data for the KPI coming from? For X Company’s website example, it might be Google Analytics and/or HubSpot. For customer data, it might be Salesforce. For revenue data, it’s your company accounting software. The source will be key to the KPI tracking workflow.
  2. Define your reporting frequency. Decide how often you should track your KPI. It depends on the availability of the data and how frequently it becomes available. It’s also useful to consider how the data helps you make decisions.

For example, X Company may want to track website visits monthly so it knows if enough people are coming to the site for the sales team to source leads from. If the KPI target is falling short, the company will need to find another way to provide leads to the sales team that month. On the other hand, it may want to track the KPI quarterly because the number of website visitors can be extremely volatile depending on the month. As long as the KPI goes up quarter by quarter, there’s probably no need for a strategy change.

  1. Create your calculations. Build out your calculations in the system you’ll be using to track KPIs. Some organizations use spreadsheets to track KPIs; others use strategy reporting software to ease the burden of reporting and help them gain better insights from the data.
  2. Decide on your evaluations. You need a way to quickly and expertly evaluate whether you’re meeting your goals, which is where evaluation status signals are useful. RAG—or red, amber, green—statuses act as a KPI traffic light: Red is an alert; amber signals caution, and green means you’re on track. Consider the target levels you want for your KPIs. One example scenario: If a KPI is within 20% of your target, it might be considered yellow; below 20%, it's red; above that, it’s green. Regardless of what you decide, you also need to think about whether your target will change from one quarter to the next or if it will stay the same.
  3. Build your chart. Charts are useful for visualizing data, making it easy to see trends, progression over time, target vs. actual performance, industry benchmarks, etc. Figure out the appropriate visualization for your data and how to construct it to highlight the information you want to convey.

KPI Tracking: Using Dashboards

A KPI dashboard consolidates all your KPIs in one place for easy viewing and decision-making. With a KPI dashboard, you can quickly identify which metrics have fallen below target and which ones are trending upwards. It provides a holistic view of all your metrics, so you can move forward with the quantitative information you need to decide what's next. In ClearPoint, KPI dashboards automatically update as you update the data sources, saving you time and effort.

You can create any type of KPI dashboard that suits your needs; below are three examples of KPI dashboards that are especially useful.

Red Measures Dashboard

A red measures dashboard focuses on poorly performing metrics, making it easy to identify and address lagging KPIs.

Red Measures

KPI Dashboard Template

A KPI dashboard template visualizes the performance of an organization's metrics over time. These dashboards typically include indicators to specify the red, yellow, or green status of each measure; adding qualitative fields to your KPI dashboards is a great way to add more context alongside these indicators.


Trend Dashboard Template

Trend dashboard templates visually display trends in metrics over time, making it easy to identify problematic periods and dig deeper to address their potential causes.

Trend Dashboard

Conducting Your First Strategy Review Meeting

The most important part of the KPI process is actually using them in the way they were intended—to help drive business decisions. The strategy meeting is when your team will analyze these key performance indicators to determine how well your company is meeting goals.
To conduct a productive strategy meeting that encourages discussion around KPI progress:

  • Have your team add qualitative analysis to all your KPIs. Numerical data can be hard to interpret when presented on its own. Present qualitative data as well to provide additional context. Ideas, explanations, and hypotheses help readers get an in-depth understanding of the factors that may be influencing the data.
  • Send a report with KPIs in advance so your team can review them. If everyone comes to the meeting prepared, it will allow for a more efficient use of time.
  • If people have questions about the KPI, update the definition and formula so they are clear to everyone. This will help prevent the same questions from popping up again in the next meeting.
  • Update the chart to show the information you need. Make sure it highlights the information attendees need to know and includes the most current data available.
  • Ask: Do these KPIs help us determine if we’re making progress on our goals? Use your meeting to reassess your performance measures. Which measures are working well and should be kept? Which ones should you drop or replace because they aren’t really telling you how the objective is doing? If the KPI doesn’t seem to be a good indicator after all, it may be time to go back to the drawing board.

When is it time to retire/change a KPI?

Because the goals and circumstances of your business are always changing, your KPIs should change as well. How do you know when it’s time to make a change? Things that should trigger a reevaluation of your KPIs include:

  • When you’ve completed an objective
  • When you have another KPI for your objective that helps you better make decisions
  • When your KPI doesn’t lead to decisions
  • When your initiatives change (and therefore the way you track progress toward your objective should change)

Chapter 4: 3 Key Performance Indicator (KPI) Best Practices

KPI Best Practices | ClearPoint Strategy

Organizations that are serious about using KPIs to reach their strategic goals tend to be high-performers. If you’re hoping to become part of that group, remember these three best practices as you design and deploy your own KPI framework:

1. Choose the minimum number of KPIs necessary to achieve your objectives.

Few metrics actually have the potential to make a major difference in performance, but it’s easy to get carried away by the overabundance of data. In one MIT study, executives were asked how many of the KPIs they oversee required most of their attention; a majority of respondents said just two or three. Many organizations choose too many KPIs and then waste resources trying to keep up with them. Be stingy and stick to the best measures—the ones that directly contribute to your objectives. We recommend only tracking a few—one to two KPIs per objective.

You can (and should) track other data, but separate those measures from your KPIs. That data will be helpful if you need to dive into the underlying components that make up a KPI.

2. Use a tool that does most of the work for you.

Today, there’s simply no need to spend time cutting and pasting data from various sources into Excel or spending a full week per month generating KPI reports in PowerPoint. When companies have to expend that much effort to track KPIs, they eventually abandon the effort altogether. Technology has made it easier to manage KPIs every step of the way, from data-gathering to analysis to presentation. As one of the leading strategy reporting platforms, ClearPoint has automated 70% of the reporting process. Not only does automation save time, but it also makes your reports more accurate, and useful for your audience.

3. Create a culture of KPI monitoring & improvement.

If you want to embrace the idea of KPI monitoring, reporting, and improvement, your people will have to embrace it, too. There’s no “right” way to get people on board, but if you’re transparent about your actions and maintain open lines of communication, your efforts are more likely to succeed. Include your team in the KPI process by asking for their feedback and answering their questions. Create clear accountability for specific data points, including how data is acquired, how it’s reported, and who can speak to what occurred during that reporting period. Also, make sure the levers that drive each KPI are fully controllable by your team, or there will be little motivation to improve.

Make The Most Of Your KPIs

There’s no question that KPIs can have a positive impact on your organization, but it does take time and dedication to use them effectively. And while we’ve emphasized the importance of choosing the “right” KPIs, keep in mind that, no matter how long you’ve been doing it, this is something of an experimental process. With experience and practice, you’ll start to gain better visibility into performance and more easily make the strategic decisions that will take your business in the right direction.

If you have more questions about how to use KPIs, or about how ClearPoint might work for your organization, please reach out—we’re here to help!

Key Performance Indicators (KPIs): The Ultimate Guide

Ted Jackson

Co-Founder & Alabama Native

Ted is a Founder and Managing Partner of ClearPoint Strategy and leads the sales and marketing teams.