Key performance indicators: 17 KPIs + description with formulas

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Dmitry Stadnik
It's time to touch on a deep topic. What is KPI in simple terms...

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What is KPI in simple words - instructions on how to calculate

It's time to touch on a deep topic. What is KPI in simple words, why is it needed, is it worth implementing this whole thing for you personally, and so on. It sounds strange, but most entrepreneurs for the time being do not think about implementing a kipiai system to evaluate the performance of their employees.

They say it’s labor-intensive, it’s unclear why it’s needed, and in general, how can you measure something that sometimes cannot be measured? But the whole situation is aggravated by the fact that if something cannot be measured, then the efficiency of such a link in the business will be zero, or even lower.

• What is KPI and why is it needed in simple words?
• Universal types and categories
• Example of KPI calculation in practice
• To be or not to be, that is the question
• Typical mistakes in KPI implementation
• Stages of KPI system implementation
• Execution cannot be pardoned

For example, if an entrepreneur does not count conversion, advertising costs, or he simply does not know the price he can pay for one lead, then the effectiveness of attracting customers through paid traffic channels in such a business cannot be calculated. This means that this is the weakest link in the business process and it brings a stable loss.

But okay, advertising on the Internet is clear numbers that, if desired, can be taken under control in a week or two, if there is enough motivation. But what about positions that don't have clear performance indicators? For this purpose, the brightest heads of management introduced kipiai.

What is the KPI matrix

There are different interpretations of this concept on the Internet. Sometimes the concept of “KPI matrix - agreement on goals” is used. But the most accurate interpretation is the efficiency matrix.

This table contains examples of employee KPI (key performance indicators), planned and actual values, and the KPI coefficient for each item. The final average value in this matrix reflects the employee’s effectiveness in his activities within the framework of the assigned tasks and indicators defined for his position.

An example of a matrix for the above employees of a company that sells candy, within the parameters defined for them.

What is KPI and why is it needed in simple words?

What if I can do everything? What should I do if there is no better professional than myself within a 1000 km radius? Any entrepreneur asks similar questions sooner or later when developing his business. And such a transition from a self-employed artisan to a business owner is quite difficult.

This is due to several internal beliefs. Here are some of them.

Core Beliefs When Delegating

1. Employees will not do the job as well as I personally do
2. In addition to the fact that the product will not be at the same level of quality as before, workers will miss the deadlines under the contract.
3. The most important. They will have to pay wages.
4. The cost of the product increases. And there are two ways: either make less profit or raise prices.

So, as soon as the entrepreneur responds to all these beliefs, “Well, to hell with it!”, this is precisely what becomes the first step on the path to delegation. And then the next problem arises.

Which employees should be paid more and which should be paid less? Let's turn to history, which, as usual, everyone knows. Since ancient times, there has been the most accurate way to evaluate an employee.

A little history

Some modern managers ironically call him “Sultanic”. This is when the feudal lord determined the degree of fulfillment of the employee’s duties based on his personal mood. Well, for example, yesterday the king drank a lot of wine at a party, so today all the workers had to cut off their heads because the roses turned out to be white and not red.

The Sultan's method is when your boss is in a bad mood, then there is every chance that your salary will be cut at the end of the month. At the same time, it does not matter at all how well or poorly the duties were performed.

In my last hired job, there were cases in which I was fined when it seemed that everything should be the other way around, because I sat late this month and completed another urgent project.

Who invented KPI

So, there was a sociologist Max Weber who defined this approach to determining labor productivity as completely vicious, and came up with another method. They called it meritocratic.

This is when an employee is evaluated based on real indicators approved in advance, and not based on the emotional state of the boss.

Yourselfbranding

This system was further developed by managers in many countries and became more specific. So, subsequently, the prototype of KPI appeared.

KPI (from English - “Key Performance Indicators”) are agreed upon criteria, thanks to which you can track the level of compliance of the work done by an employee or an entire department with respect to the set strategic objectives. This abbreviation means “Key Performance Indicators”.

It is perhaps difficult to explain in simpler words. But let's try to chew on this topic more carefully.

Universal types and categories

The question logically arises: what types of KPIs exist and what do they depend on? In fact, the kipiai system, in most cases, is individual for a specific type of business. The criteria and coefficients for calculating labor productivity are those that are most important in each specific case.

For example, when I worked as a sales specialist, we generally called this system differently. TQM - trade market quality. The main thing in it was the percentage presence of the product on the shelves of the stores served by the sales representative, and not the generated number of sales.

But the trick is that if the seller, even if there was a product, forgot to put it on the shelf, then this was all recorded by the supervisor and directly affected the level of salary received at the end of the month. But that's a different story).

Let's still try to break down the KPIs into main groups.

Cost indicators

Show the amount of resources spent to achieve the goal and their deviation from the planned indicators

Performance indicators

This includes indicators that in one way or another relate to the ratio of resources expended and the result achieved. By resource we mean finances, people and time.

Result indicators

This takes into account the results of the project manager’s fulfillment of the assigned tasks and their deviation from the planned ones. Secondary benefits received are also calculated. These are additional “buns” after the work done.

Sales indicators

These metrics demonstrate the effectiveness of the sales team, as well as each individual salesperson. The main coefficient is considered to be the conversion between incoming leads and closing sales.

Some companies additionally calculate the amount of money per seller, the average check, and the number of positive reviews from customers. But this is an additional option.

By the way, I almost forgot. KPI can be applied to three categories of business process participants:

1. Individual KPI. Personally for each individual employee
2. Team KPI. For a work group or department.
3. Project KPI. In general, for the launched project.

In fact, there are a lot of types of KPIs, it’s impossible to count them all. Now there are quite specific indicators that have appeared thanks to Internet marketing. For example, Process KPI, KPI of the external environment, or the speed of iteration completion by an individual employee.

Let's move on to the miscalculations.

Example of KPI calculation in practice

On the Internet you can find a lot of practical examples, which describe in detail how to calculate KPI. But all these examples not only explain how to calculate these indicators, but on the contrary, they confuse the common person.

The purpose of this article is to tell everything about KPIs in simple words, so that even a tenth grader can understand them. Therefore, we take the usual example of an individual kipiai for a sales representative of a retail company.

We determine the main indicators

For the seller, these will be the following criteria:

1. Number of leads processed
2. Number of closed transactions

It is clear that here you can add the number of repeat sales and the number of new customers and the indicator of good reviews and so on. But we are for simplicity of knowledge. right? Therefore, this example of KPI for a sales representative will be in a simplified form.

Analyzing the data

Next, we look at the actual numbers and those that were planned. Let's say a salesperson had to serve 150 leads and make 37 sales. But in fact, 160 applications were processed and 30 checks were received.

Efficiency is calculated using the following formula:

As a result, we find that according to the first indicator the efficiency is 106%, and according to the second - 81.08%.

We calculate the overall KPI indicator

The overall coefficient is calculated based on arithmetic averages. We take the sum of all indicators and divide by the number of these indicators.

In our case, 106+81.08/2=93.53 or 0.9353 in decimal terms.

Payroll preparation

Let’s say a sales representative’s average salary is $1,000, of which $500 is a fixed salary, and another $500 is a bonus if all indicators are 100% met.

We calculate the amount of bonuses: $500*0.9353 = $467.65. As you can see, the bonus this month is lower than usual, since the sales specialist’s performance is lower than planned. Total wages received: $967.65

Important clarification

If we were to take a more complex KPI system, then each of the indicators would have to be prioritized. They are determined by the weight of the coefficient.

For example, if conversion is the most important criterion, then the weight of this indicator is 1.0. Or if the number of reviews plays an insignificant role in the work of a sales representative, then for this value we set a weight of 0.2.

Let's say the salary depends on the number of positive reviews. The telephone operator has 20 positive reviews, and 10 were planned. It turns out that the efficiency for this indicator will be equal to 200% (we divide the actual by the planned and multiply by 100%), which is 2.0 in decimal terms. And in theory, the amount of bonus received should be multiplied by 2.0

But this indicator is multiplied by another 0.2, because it has a corresponding priority, expressed in the weight of the coefficient. As a result, instead of 2.0 we have the figure 0.4. It will influence the final amount of the bonus for this indicator.

How to calculate key performance indicators

It’s worth mentioning right away that when calculating KPIs, both a general and a separate method for each indicator are used. The calculation of the KPI indicator, among other things, can be carried out by department or for each individual employee. The KPI of the department is equal to the KPI of all employees of the department, that is, when calculating, it is enough to sum them up and correlate them with the target indicator.

KPI of individual indicators is calculated very simply - as the ratio of target indicators to actual achieved ones. By multiplying the resulting number by 100% we get the desired efficiency indicator.

The employee's overall KPI will be calculated as the average of individual KPI values ​​for each indicator.

For a better understanding, I will provide below a table with an example of KPI calculation for a sales manager in the TV department.

To be or not to be, that is the question

Let's imagine that your business employs 5 people. And you know approximately who is busy with what throughout the month. Moreover, you also know the level of efficiency and quality of work of each specialist.

At the end of the month, approximately each employee can be given a bonus or fine for failure to complete the planned amount of work. Well, what if there are significantly more employees than 5?

Naturally, without a clearly structured system for calculating indicators, it is impossible to monitor labor efficiency and predict results in advance. Here are some more advantages from the introduction of kipiai.

Benefits of KPIs

1. The ability to influence the work of employees. There is no need to stand over each of them if everyone knows what they get money for.
2. A clear understanding of who is doing what at a given time.
3. Early detection of employees sabotaging the process.
4. The ability to make operational adjustments to the business process

And most importantly, KPI is an excellent opportunity to predict the results of an entire business project. Starting from costs and ending with the amount of attracted financial resources. But, like any system, it also has its downsides.

Cons of KPIs

1. Since this is a quantitative indicator, it is sometimes difficult to assess the qualitative side of the process. For example, how well the packer packed the candies into boxes.
2. This whole thing is very difficult and expensive to implement. Sometimes a sign in Excel is more than enough to keep employees happy at work.
3. I admit honestly that in the countries of the post-Soviet past there are very few specialists who can implement the KPI system correctly.
4. Emergency situations. Or rather, the inability to take them into account in most cases.

And let's be honest). Practice has shown that as soon as such a system is introduced, it causes a lot of unrest among employees. Most of them will sabotage the new instructions in every possible way.

Yourselfbranding

This can affect both the internal situation in the team and labor productivity in general. But keep in mind that there are niches in which KPIs are generally very difficult to implement. For example, in interior design or web design. In general, here we include everything that is related to the so-called creative professions.

Pros and cons of working in the KPI system

Analyzing the main pros and cons of working in the KPI system, we can highlight the following points. Among the key advantages of the methodology are the distribution of personal responsibility between employees, linking the amount of cash bonuses to the level of achievement of individual indicators, as well as a clear demonstration of the contribution made by each person to achieving common goals. There are also some controversial points. Thus, among the disadvantages we can mention the sometimes unattainable coefficients included in the strategy, which can seriously demotivate participants and reduce interest in working in this format. In addition, shortcomings in one department can lead to reduced cash bonuses for all employees.

Typical mistakes in KPI implementation

Many entrepreneurs, when implementing KPIs in their projects, count on the fact that this will help save wages. They say this is a system that will help you cut off a piece from each cake for a rainy day.

Well, to some extent this is true. But setting the main goal to reduce the wages of your employees when implementing KPIs is a bad practice. It doesn't end well.

And the wolves are fed, and the sheep are safe

It is necessary that employees are happy about the introduction of such a system of indicators, otherwise nothing good will come of this idea. KPI is not about reducing the wage fund. This is about its more efficient distribution.

Explain to your employee that now his neighbor will receive less if he does not fulfill the plan, and he, in turn, will receive more money for exceeding the targets.

I want a Bentley, but I can buy a Lada

If you think that by introducing KPIs you can demand from people something that they have not done before, then you are of course right. But don’t immediately demand too high results from your staff.

When implementing KPIs, the company's average indicators are first planned. They may be slightly increased during the implementation of the plan for the next period. In any case, remember that human resources have their limitations.

Uncle Vanya sang

But I personally didn’t listen. I’m talking about completely random indicators that I came across. One company introduced a KPI for the dress code, can you imagine that? You didn’t tie your tie correctly and you have minus 25% of your salary).

Do not enter into KPIs those indicators that do not affect the size of the company's profit, otherwise it will really look like a highly accurate system of penalties, rather than efficiency.

It's not easy

To begin with, KPI implementation should be carried out by a specialist with experience in this field. And all calculations and formulas should be carried out as simply as possible.

The simpler the system of rewards and fines is, the more understandable it will be not only for those who will be involved in its further maintenance, but also directly for employees.

Company KPI

In turn, the company’s KPI reflects the objective coefficient of the entire enterprise (including key indices of individual divisions included in its structure). Moreover, such a system in most cases is not something innovative, unfamiliar or unusual for the company: its components are included in many other management tools and technologies and are actively used by managers in practice. It is believed that using KPIs it is most convenient to analyze business processes using the example of organizations operating in the trade sector (in particular, retail sales in large chains).

https://youtu.be/QjQpFPGMjh0

Stages of KPI system implementation

The first place to start implementing KPIs in an enterprise is with a sincere conversation with employees. I'm serious). In honor of this, you can even hold a corporate party dedicated to the day the company was founded or something like that.

The main thing is to tell all employees that such an unpleasant, at first glance, thing as KPI is knocking firmly on the door of your office. But almost nothing new is required from employees. They must also perform their duties at the same level as before and plus allocate 1 hour of time per week for reporting.

The main thing is to explain to employees that such a system is not a way to fine them, but, on the contrary, an opportunity to figure out who gets paid for what and to reward those who work the most and best.

Yourselfbranding

Then a test group is selected. For example, the sales department or the delivery department. You should not start implementing KPIs for the entire company at once. It is better to allocate a separate test site for this matter. If your company employs 5-10 people, then select 1-2 employees for innovation. And then we proceed step by step.

We define strategic indicators

For each business, such a list of indicators will be individual and depend on many factors. But let us highlight the following criteria, which may be suitable in 90% of cases.

1. Traffic or number of visitors
2. Number of attracted leads
3. Average Target Customers
4. Sales Conversion
5. Number of repeat sales
6. Service quality assessment
7. Return on investment per client
8. Average bill
9. And so on

Development of a system of indicators

After generating a list of main results, you need to determine their priority among themselves. Based on the importance of a particular indicator, its weight is added relative to the overall development strategy.

For example, sales conversion will be more important than service quality scores. This means that these goals will have different weights and will have different impacts on employee salaries.

Distribution of indicators

At this step, we explain to employees who is responsible for what and what numbers they should strive for in the future period. If an employee knows specifically his tasks, then his work efficiency will be much higher.

Additionally, at this stage, strict documentation of new metrics for employees is introduced, job descriptions are written, and the main criteria are documented.

Development of a motivation system

It would seem that everything is simple here. The better an employee performs, the more money he receives. But besides increasing the bonus, there are other ways to push an employee to be more effective.

For example, for achieving a certain indicator, you can provide the opportunity to undergo free training to improve your skills. Or once a month choose the best employee of the department. And so on.

Implementation of calculations

At this stage, all schemes and formulas for calculating KPI are written down in the form of a table or timesheet. Depending on the specifics of the business, it can be in electronic form or printed.

The duties of employees will include entering real data into each cell of the indicator for a certain period. Planned values ​​must be distributed by the person responsible for maintaining the KPI system.

Control

Don't forget that this whole thing needs to be controlled. Usually this is monitored by such gloomy guys in long leather raincoats). They are also called supervisors. As a rule, no one likes these colleagues, because they are the ones who take honestly earned money from other employees).

After these steps, the KPI system is tested for several trial periods, and then transferred from a small group to other divisions of the company.

Stage 3. Assessment and optimization.

Based on the pilot project, it is necessary to collect feedback from employees, evaluate the results, identify errors, adjust and begin to gradually implement in other departments.

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Each KPI has its own life cycle and is a dynamic indicator. It is impossible to determine performance indicators once and for all, and it is even more foolish to follow them if they do not play a key role at a specific time in a specific project. Therefore, KPIs need to be periodically reviewed, changed, or removed altogether.

When to update KPIs:

• change in employee functionality;
• changing strategic goals;
• in the context of a new non-standard project.

Motivating employees based on KPIs.

The formation of motivation consists of three main parts:

1. Salary;
2. The variable part, that is, bonuses for achieving KPI;
3. Irregular bonuses.

Let's focus on the variable part - it is this that is paid depending on the achievement of key indicators. It is a mistake for managers to reduce wages after implementing a system of key performance indicators. For example, previously an employee earned 50 thousand rubles, but with the advent of KPI, the income potential was reduced to 40 thousand rubles. Naturally, he will be upset and may start looking for another job. The new remuneration system, on the contrary, should give the employee the opportunity to increase his income, again, due to the fact that his work increases the company’s profits.

It is also not recommended to set more than 10 indicators, but to highlight 3-5 main ones that affect the final result.

What should be the share of the KPI bonus is an individual question, depending on the specifics of the company and divisions. For example, the sales department has 50-70%, the marketing department has 35-45%. There is an unspoken rule that if the KPI bonus is less than 30% of the total salary, then it does not particularly affect the employee’s motivation. In any case, be guided based on your situation.

"IMPORTANT! KPIs need to be constantly planned, monitored, adjusted and controlled"

Disadvantages of KPI motivation:

• Employees can manipulate assessment results due to the use of different methods for calculating indicators,
• Concentration of employees on a limited number of indicators,
• In some cases, has a negative impact on teamwork,
• Difficulties in establishing KPIs for employees whose work results are difficult to evaluate in quantitative terms.

Key KPIs in Internet Marketing?

Firstly, the indicators are different for each direction. Here are just a few of them:

• SMM – traffic volume, reach, engagement (likes, comments, views, reposts, etc.), conversion, cost per lead;
• SEO – traffic, website ranking based on the semantic core,
• PPC – conversion, customer value, return rate;
• Email marketing – open rate, number of undelivered messages due to errors, income from email.

But this does not mean that it is impossible to calculate and evaluate the impact of the work of an SMM and SEO specialist on profit. It is precisely ROMI that is recommended to be calculated in the context of advertising campaigns and channels; it is enough to know expenses and income. Conventionally, how much did you spend on targeting or advertising with the blogger and how much income did you receive from it?

Yes, KPIs help here and now, and the main criterion for the accuracy of their calculation is full consideration of all the necessary metrics, that is, the availability of source data. In this case, difficulties may indeed arise in tracking the offline actions of clients. It is important to understand here that the purpose of image campaigns is an investment in the future, and the results may not be immediately visible. In this case, it is necessary to monitor the dynamics, but at the same time focus on standard KPIs.

Secondly, in Internet marketing, KPIs are divided into two types:

1. Synthetic indicators are indicators that do not directly affect business processes, but they are important to track because they help determine where mistakes were made and how the results of marketing activity can be improved. It makes no sense to analyze them separately from the main key metrics. However, the opposite is also true - effective optimization of key business metrics often occurs together with the analysis of synthetic indicators.
2. Business KPIs are the main metrics by which the final effectiveness of an advertising campaign is assessed.

Execution cannot be pardoned

We are close to completion, but there is still one question that may be of interest to a novice entrepreneur. Do I need this? Let's look at in what cases KPI will be completely unnecessary.

To begin with, if a business project has 5-10 employees. In this case, the manager, and this is precisely the role played by the founder of a business in small enterprises, can really navigate the productivity of each employee without additional calculations.

Besides, calculating the indicators at the end of the month is still a lot of work. You need to allocate time for it and, as a rule, directly to the manager. This is not to mention the fact that the implementation of KPIs itself can cost a lot of money.

Yourselfbranding

In addition, for some positions in the business process it is impossible to make any quantitative assessment. The example of a designer has already been voiced, but we can also include household appliance repairmen here. What might their KPI be?

Let’s say a client returns a washing machine for repair. Let's assume that we need to evaluate the performance of a master. How can this be done? Time spent on repairs? No, because fast does not always mean good.

Or the number of positive reviews? It’s possible, but not always satisfied customers leave reviews. Usually it’s quite the opposite: people share negative emotions much more often.