When discussing analytics, the terms metrics and KPIs (Key Performance Indicators) are often treated interchangeably, however, they should both be approached differently because both can have a huge impact on how your business strategy is designed and implemented, as well as impact your inventory reporting.
Metrics are a quantifiable measure of tactical activity while KPIs are a quantifiable strategic measure. In plain English, metrics are tactical activities that help you to achieve strategic goals, KPIs are what you use to measure if these goals are being met.
Comparing metrics and KPIs
Separating your metrics from your KPIs will help to give you a strategic advantage on those organisations unable to tell the difference. As a quantifiable or measurable value, KPIs reflect a strategic business goal or objective and indicate how successful the business is in achieving that goal or objective. A metric while also a quantifiable or measurable value, in contrast, reflects how successful the tactical activities happening in the organisation are supporting the achievement of the KPI. Below is a simple comparison of the two measures:
- Tactical, the doing
- Track the status of a specific business process and shows the exact performance in that area of business
- Smaller scale and easy to duplicate
Metrics simply track the status of a specific business process. In its basic form, a metric is simply a measurement used to track and record some aspect of your business activities, metrics help to measure the success or failure of the activity’s performance.
Metrics are quantifiable, allowing you to specifically state your results and show how well the actual activities are performing with respect to a set target. They track and provide data on your company’s standard business processes and range from something as simple as the number of times information was downloaded from your website to more complex data such as the percentage of conversions resulting from all new leads.
There are numerous examples of metrics, that measure such things as organic website traffic, clicks, new subscription revenue and percentage of new sales. A common marketing metric is SEO keyword ranking for tracking search marketing results against endeavours.
- Strategic, the planning
- Measure performance toward achieving strategic goals and give a holistic view of operations
- Large scale and difficult to copy
KPIs, like metrics, are also quantifiable and must also be well defined. The difference is that KPI measurements relate to a specific strategic business goal and how successful the organisation was in achieving that goal. KPIs must have targets and specific timeframes for achieving these targets, they should be relevant to business outcomes and outline a set of values against which the metrics are measured.
Examples of KPIs may include the targeted percentage increase in market share or the targeted increase in revenue over a specific period.
KPIs need to be specific and clearly defined, for example, to increase repeat customer spend by 20% in the next business quarter. This KPI supports the strategic outcome of increasing net profit and helps clearly outline an outcome.
Metrics and KPIs working together
Metrics support KPIs and KPIs in turn, support the overall strategic goals and objectives of a business. When you combine both measures you can evaluate your progress towards achieving a business goal.
However, you should understand which metrics support your KPIs, for example, you have established a KPI to determine the lifetime value of a customer, this value can be broken down by customer, region or product and used to make sales and marketing decisions. The metrics involved can include such things as customer churn rates, average customer lifetime value and average gross margins.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.