The Difference Between Business Metrics And KPIs

Business metrics also mistakenly called Key Performance Indicators (KPI) provide a measurable value to the progress of an organization’s strategic goals. Without the metrics involved in strategic business planning, an organization would not succeed. Having to make impulsive decisions doesn’t produce desirable or measurable results with accurate data. 

KPI provides desirable results and tracks milestones within your strategy. Moreover, KPI reliably measures the success of your business strategy. The truth of the matter is that businesses rely on accurate and reliable information these days. 

Main Differences: Metrics vs KPIs 

Metrics and KPIs are often mistakenly used interchangeably, but the only distinction is that KPIs are the key measures that will have the most impact on moving an organization forward. It provides accurate insight and solutions into what an organization needs to measure and achieve in order to reach long-term strategic objectives. Simply put, Key Performance Indicators help define your strategy and keep everyone focused. 

On the other hand, business metrics track and provide data on an organization’s business process standards, but it is not the most important metric an organization needs to measure and monitor. Business metrics are not a viable option for an organization’s progress in lieu of objectives and strategic plans. Metrics are “business as usual” measurements that add value to your organization but aren’t the critical milestones you need to achieve. 

Ultimately, business metrics are used to measure the whole organization’s performance. While KPIs are used to measure subject-specific or process-specific methods within the organization. 

3 Components Of KPIs 

  1. Define your measure 

Defining what is needed to gauge performance is the initial step for monitoring KPIs. A descriptive and categorized approach is a better solution for performance measurement. 

  • Activity measure – measures activity that includes percentages, numbers, activities, or processes.
  • Outcome measure – measures output or progress against a defined outcome. Example: An increased percentage of revenue compared to last year. 
  • Project measure – measure the progress of a particular project. 
  • Target Structure – a result-driven measure based on numerical results against a targeted date.
  1. Define your target 

Define an achievable and realistic objective for the project. Use a numeric value when targeting the objectives in mind, it’s important to have the targets match the measurement type and the due date. 

  1. Outline the data source

A KPI needs a clear data source for its output to be accurate. Be certain when pulling data, the calculations needed to be utilized to create uniform and organized metrics. An accurate analysis of the available data is crucial during the KPI creation process. 

Tips For Measuring The Right Metrics And KPIs 

Crucial business decisions are made in economic situations that can break or make an organization’s longevity. As business leaders or supervisors, having a reliable oversight tool that measures the daily, weekly, monthly, or, yearly operations of the company and its employees is important. However, most businesses lack the knowledge to implement an accurate and reliable business metric process and key performance indicators. Here are three tips for measuring the right metrics and KPI: 

  1. Separate metrics from KPIs 

When it comes to separating KPIs from metrics you need to consider what is most important for your business. Any type of indicator can be a metric, but if this indicator is not providing any valuable information to make you improve then you should discard it. Reverting to the three components mentioned above, defining your measure, and target, and outlining the reliability of your data source works best. 

  1. Pick the right KPI

Choosing the right KPI is important to track business performance efficiently. There are two KPI tracking methods to choose from such as the SMART method and the Six A’s

The SMART method is a good guide for goal setting. It stands for specific, measurable, achievable, relevant, and time-bound. As the culmination of the topics expressly mentioned previously, the SMART method is probably the most efficient technique to use for KPIs. Because it provides clarity for the various and intricate processes within the organization’s structure into a simplified measurement of target objectives. 

While the Six A’s Method stands for Aligned, Attainable, Acute, Accurate, Actionable, Alive. In contrast to the SMART method, this practice also aims to evaluate the relevance of a KPI and it is useful for businesses that have too many indicators and need to narrow it down to a few. 

  1. Chose realistic objectives 

For KPIs and metrics to be efficiently measured, a realistic approach is needed for setting objectives. For example, setting targets of more than a 50% increase in sales from an average 10% sales performance from past years is an over-exaggeration and can be considered wishful thinking. Setting an achievable goal of a modest percentage based on the capacity and capability of the company should be the basis of goal setting. 

The Bottom Line 

That said, KPIs are the key measures that will have the most impact in moving an organization forward, while business metrics track and provide data on an organization’s business process standards, it is not the most important metric an organization needs to measure and monitor. As businesses nowadays scramble to function effectively and efficiently, the importance of both cannot be understated. It’s crucial to keep in mind the distinction between the two, to work towards the same end goal for the success of an organization.