With so many businesses and news outlets offering advice on how to use data, the BI corner of the web is teeming with industry jargon: metrics, KPIs, analytics, to name a few.
Unfortunately, it’s not uncommon to see some of these terms used interchangeably. The problem is, they aren’t the same—and using them correctly makes a difference.
Change your perspective
The way we use words changes the way we think about and understand them. So using them interchangeably not only creates confusion, it can actually be bad for business.
To get real power out of your data, it’s important to understand the relationship between KPIs and metrics, and how to use them. That’s why we’re setting the record straight, once and for all.
What is a KPI?
First of all, what is a KPI? And what does KPI stand for? KPI stands for “key performance indicator,” and it is used to denote important landmarks in meeting business goals. Sounds like a metric, right? Well, it is. So let’s get into a key performance indicator definition, the KPI vs. metric distinction, and more—with some examples to help you out.
Metrics vs. KPIs
Metrics and KPIs are like squares and rectangles: All squares are rectangles, but not all rectangles are squares. Similarly, all KPIs are metrics, but not all metrics are KPIs. Clear as mud? Let’s dig a little deeper…
What are metrics? Metrics, sometimes called business metrics, are quantifiable measures used to gauge performance or progress. To create a metric, you take data from a live source (i.e., it’s still updating with new information) and monitor it to track progress toward a business objective.
For example, if one of your goals is to get 100k monthly visitors to your website, you can take raw website traffic data from Google Analytics and track unique visitors to measure progress toward your goal. In other words, monthly website visitors becomes one of your metrics.
Data sources can also be qualitative, such as when you’re an early stage startup trying to find product-market fit. In that situation, your data source may be customer interviews where you track responses about what they like or dislike about your product. Then, your metric could be the ratio of positive vs. negative sentiment, or a list of necessary improvements, because these help you understand your progress toward product-market fit.
Key performance indicators, or KPIs
So what metrics should be KPIs? The difference really depends on your business. Here’s why:
As we’ve said, KPI stands for “key performance indicator.” By definition, not every metric you measure can be “key”—if they’re all special, none of them are. So it’s up to you to select metrics that are most closely aligned with your critical business objectives. This subgroup of metrics become your KPIs.
This also brings up another point: Not everything that your business measures will be an accurate measure of performance.
For example, while you certainly want to measure social media marketing metrics like your number of Facebook followers and see it improve, that metric won’t tell you how well you’re managing your business, or even anything about your revenue or customers. (Heck, unless your marketing team just ran an email campaign with the specific goal of getting more followers on Facebook, it likely won’t tell anyone much about anything.) Metrics like these are often called “vanity metrics.” They’re easy to get hyped about, but provide very little insight into your business. In short, they’re a big “no-no” when it comes to selecting KPIs.
One easy way to think of KPIs is like vital signs—if your business’s pulse is flatlining, you shouldn’t be fretting over zits.
KPIs center your focus on the things that matter most to keep your business alive and well. (For more on how KPIs can help you stay focused on the right data, check out this post.) Ultimately, it’s up to you to define which metrics are true vital signs for your business.
Why you need both metrics and KPIs
Just because your KPIs are your most important metrics doesn’t mean the rest of your metrics are useless. When one of your KPI vital signs goes haywire, you need to be able to look at other metrics to properly diagnose the problem.
Let’s say inbound leads is one of your KPIs, and that number suddenly takes a nosedive. While the KPI tells you there’s a problem, your other metrics will help you to understand what happened. Maybe it’s because there are broken links on your website, or an error blocked leads from pushing to your CRM, or Facebook changed their algorithm and killed your most highly-converting ads. To identify the root cause, you’ll have to look at metrics such as site conversions, CRM data, ad impressions and clicks, etc.
Managing metrics and KPIs with a dashboard
We recommend using a data dashboard to manage your metrics and KPIs. Dragging data from 18+ apps into an Excel spreadsheet isn’t just a colossal waste of time; it creates reports that are hard to read, hard to understand … and pretty ugly (if we’re being brutally honest). Plus, you have to deal with the headache of creating them on a regular basis.
On the other hand, business intelligence dashboards bring your metrics to life with beautiful visualization (much better than endless spreadsheet cells). They also allow you to create specific KPI-only dashboards to stay focused. A dashboard is not only easier to use, but it’s an extremely effective way to track key objectives, drive your business decisions, and accelerate growth.