Key Performance Indicators (KPIs), the Compass of Business

Establishing goals and plans is the top priority when starting anything. Even when starting a diet, we set a goal to lose a certain amount of weight. In business, a commonly used term for company or project goals is KPI. The term KPI is used in every department, from HR to marketing, planning, and development. What is KPI, and how can it be applied to business?

What is KPI?

KPI stands for Key Performance Indicator, which can be translated as 'core performance indicator.' KPI refers to a measure that allows for the objective evaluation of the performance needed to achieve the most important goals. In other words, it is an indicator that measures the performance of factors with a high contribution to achieving an individual's or organization's strategic goals.

KPIs must be able to clearly understand the contribution and impact of the objectives and should be objective, quantifiable goals that can be measured. For example, if an individual's most important goal is to 'become a healthy, standard weight body,' the KPI for this could be 'lose 20 kg within a year.' In the case of business, to provide effective service that solves the target's problem, you can set a KPI like 'increase NPS (Net Promoter Score) by 2 points.'

Types of KPIs and How to Use KPI Concepts

The reason for using KPIs is that after setting a destination as the most important goal, you need a business compass to guide you to the destination while also checking your current position. To effectively use KPIs, it is a good idea to use the well-known SMART goal-setting method.

- Specific: Set specific goals related to the work being performed by the team.

- Measurable: Set objective and quantitative means to clearly judge success and failure.

- Achievable: Do not set goals beyond the achievable range, but also avoid goals that are too easy to achieve.

- Realistic: Set realistic goals in resource management, etc. (Ex. 'All team members work 80 hours a week for 3 months' may be achievable but is not realistic.)

- Time-bound: Set a clear end date.

When setting KPIs, it is important to set output indicators (Output KPIs) that can be directly verified as performance, but it is also important to set input indicators (Input KPIs) that tell you how much and where to invest.

You might also find Essential KPIs Every Web Service Should Track helpful.

- Output KPI: This is the primary result of business activities, such as sales, MAU, new subscribers, and monthly transaction volume, which indicate what has been produced and accomplished through the process of conducting business.

- Input KPI: These are indicators that guide the team's immediate actions to derive Output KPIs. For example, if the Output KPI of a community business is 'a certain number of MAUs,' you can take the necessary actions by setting input KPIs such as 'a certain number of posts written per day' and 'a certain number of comments per post.' For an early SaaS or service idea, a landing page can also provide input KPIs such as sign-up rate, demo request rate, pricing-click rate, and inquiry conversion rate before a full product is built.

Setting and managing effective KPIs can determine the success or failure of a business. It's not about doing a lot of work but considering what work should be done for what purpose and reflecting on it. Moreover, setting KPIs is important, but measuring KPIs after conducting business based on them is also crucial. Data analysis becomes an important skill. With all the preparations in place, the business can further develop through the appropriate use of KPIs.

Need measurable early signals before building the full product? ⇒ Use Waveon to create a validation landing page and track sign-ups, inquiries, and pricing clicks as practical startup KPIs.

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