As strategic organisations, we want to make sure we’re creating the right inventory reports and making the right decisions based on the data we are using. With that, we know that Key Performance Indicators (KPIs) and metrics are important. The problem is that many organisations use the terms KPI and metrics interchangeably. However, each term should be treated differently. This isn’t about being pedantic either. While this error is semi-forgivable, it can have a huge impact on how you design and implement your strategy. Taking the time to separate your KPIs from your metrics will help give you a boost over on those who don’t know the difference.
What’s the difference between KPIs and metrics?
The best way to understand the difference between KPIs and metrics is to first define them both as a quantifiable measurement of strategic or tactical activity. So, following this, at the highest level, KPIs are strategic whereas metrics are tactical.
KPIs are a quantifiable or measurable value that reflects a business goal or objective (strategic) and how successful the business is in accomplishing that goal or objective. While a metric is also a quantifiable or measurable value, it differs as it reflects how successful the activities taking place are (tactical) to support the accomplishment of the KPI.
In its simplest form, a metric is a mere measurement you record to track some aspect of your business activity and measure the success or failure of the performance of that activity. Metrics are quantifiable and should be clearly defined as they allow you to specifically state your results and show how well the actual activities are performing with respect to a set target.
In your inventory reports, metrics can range from something as complex as the percentage of new names added to a contact database that were converted into new customers or to simpler, such as the number of website visitors from a particular traffic source. To further explain this, take for example the number of website visitors. This is important to track as it helps fuel your strategy outcome, let’s say increase sales, but it’s not a clearly defined KPI in itself as it’s not related to an outcome. It’s just a valuable metric.
A KPI is also a measurement. Like metrics, KPIs must be very well defined and are also quantifiable. The difference is that these types of measurements relate to a specific strategic business goal and reflect how successful the business is in achieving that goal. To further clarify, KPIs define a set of values against which the metrics are measured that help you understand how your organisation or department is performing.
In your inventory reports, an example of KPIs may include the targeted increase in revenue over a specific period of time such as a 10% increase of monthly sales growth.
What’s the relationship between KPIs and metrics?
How they relate to each other doesn’t need to be overly complicated, in short metrics support the tactics and objectives of KPIs, and in turn, KPIs support the overall strategic goals of the business — and that’s it!
Understanding the differences between KPIs and metrics is simple once you begin to view them as quantifiable measurements where KPIs track performance that is strategic versus metrics track performance concerning tactical goals and objectives. Using KPIs as an umbrella where metrics are used to guide them, help give you a strategic sense for how your business is performing, to feel confident that the right decisions are being made based on your data.
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.