It is important for any business to track and monitor its performance against the goals it has set for itself. Often a business will use measurements such as number of sales, average invoice, or customer satisfaction ratings. The question some may ask is whether these measurements would qualify as key performance indicators -- commonly called KPI -- or metrics.

What’s the Difference?

The primary difference between a KPI and a metric is that a KPI explains what is being measured, while a metric is the numeric value of the measure itself. According to the American Society for Quality, KPIs help organizations evaluate progress toward a goal by using quantifiable measures that are important to the business. Determining whether or not a KPI can be represented with a number is one good way of assessing its value. To track progress and find out whether performance is on track or off, businesses will often use a balanced scorecard. A balanced scorecard will typically measure key operating elements of the business, such as financial goals, learning and growth, key business processes, and customer experiences.

Establishing KPIs

When starting a new business, one of the primary goals is to ensure that the business can break even as soon as possible. When a business breaks even, all of the cost to run the business, such as rent, salaries, and materials costs, are covered by the sales revenue. The break-even goal may be considered a financial KPI and measured on the balanced scorecard. For example, the break-even KPI for a sandwich restaurant might be to ensure that 200 sandwiches a day are sold. Another scorecard element could measure business processes. The business processes KPI might be to ensure that each sandwich is made in two minutes or less. Learning and growth might be measured on the balanced scorecard as training. A focused KPI might be to ensure that all employees spend one hour per week training on restaurant operations. Finally, to ensure a favorable customer experience, a KPI to achieve an average customer satisfaction rating of four out of five or better could be established.

Measuring KPIs

Peter Drucker, an expert in business management, once said, “What gets measured, gets managed.” Unless a business can tie a numeric value to something, it becomes difficult to determine if it is getting better or worse. Establishing a numeric value for performance also helps employees better understand what is expected of them, and helps management determine the appropriate level of performance coaching that may be necessary to help them improve. Using the KPIs established for the sandwich restaurant, the business owner can begin to collect data daily, weekly or monthly to ensure the measures established for success are met.

Improved Communication

By combining sensible KPIs with metrics, a business can better communicate its performance internally and externally. Depending on the KPI and metric, a business may find a need to communicate KPI results daily, weekly, monthly, quarterly or annually. Typically, internal communications with employees and key stakeholders would happen most frequently, while external communications to customers, suppliers and investors would occur less frequently. When a business can articulate what is being measured, why it is important, and whether its performance relative to established goals are being met, it can satisfy the information needs of many.