Key Performance Indicators, or KPIs, measure the drivers of business success. Measure the drivers, manage the drivers, and the results will come. Barb and Kathy discuss metrics that enable owners to manage sales, productivity, marketing, gross profit margin and more.
What Does KPI Stand For?
KPI means Key Performance Indicator — a measurable value that shows how effectively a company is achieving key business objectives.
Leading vs. Lagging Indicators – What’s the Difference?
Leading indicators measure activities that drive future outcomes.
Lagging indicators reflect the results of those activities.
Real-Life Example of a Lagging Indicator:
In a weight-loss scenario, current weight is a lagging indicator — it shows results after the work has been done.
Example of a Leading Indicator in Sales:
The number of leads generated is a leading indicator — it drives potential future revenue growth.
The Risk of Focusing Only on Marketing Volume:
Emphasizing lead quantity alone may result in low-quality leads, which won’t necessarily convert into sales.
Boosting Labor Productivity — A Leading Indicator:
Overtime pay as a percent of payroll can indicate labor inefficiencies and signal productivity trends before they show up in results.
Why Bankers and Accountants Prefer Lagging Indicators:
They mainly rely on financial statements, which report on historical performance, not on predictive behavior.