Both terms, metric and KPI, are used to give a quantifiable description of an event, process, or development. Every good article starts with a definition, and as we definitely want this one to be a good one, let’s start exactly here. A metric is a measure used to describe a specific business process and provide detailed insights into various aspects of business operations. They are inherently descriptive and neutral, like the number your scale shows you in the morning. It is per se neutral before you start adding interpretation to it and the sense of “should.” Your metrics help you understand your basics and gather your bearings. Other examples include website traffic, demographic data, number of new leads, customer acquisition cost, etc. You can think of metrics as your honest yet sweet and non-judging friend, who is practicing a healthy mix of Buddhism and stoicism: they tell you what the state of affairs is without adding any kind of assessment to it.

When a metric is directly tied to a critical organizational process or a goal, it becomes a Key Performance Indicator (KPI). KPIs are a subset of metrics, so every KPI is a metric, but not every metric is a KPI. More to the point, KPIs are specific metrics that have been identified as central to the success of an organization. KPIs are closely aligned with strategic objectives and provide a clear picture of performance in critical areas and allow you to see its development. Examples include market share growth (for a company aiming to become the market leader), customer satisfaction score (for an organization that has the customer as the apple of their eye), and net profit margin (for an enterprise seeking to become more profitable). The purpose and nature of KPIs are quite different from that of metrics: they exist to steer and gauge business processes in the desired direction and assess the progress. If a metric is your sweet non-judging friend, a KPI is your diligent coach (Ted Lasso or Major Payne, whatever floats your boat).

Choosing good KPIs is a mix of science and art. Your key performance indicators must be relevant – in the sense, they must be an adequate translation of your business goals. If your business goal is gaining clients for life, then your customer retention rate is a matching KPI. This is why your vision and business goals are exactly the point where you start the formulation of KPIs. At the same time, KPIs must be extremely operational – in the sense, it must be clear what process is behind them. KPIs must bridge the gap between the present and the future. They help you to ensure that your today’s actions influence the likelihood of your organization reaching its ambitious goals and fulfilling its strategic mission.

If you see a KPI and the points of leverage are clear (preferably, unambiguous), then you are looking at a well-formulated KPI. As such, the number of your clients per month is a metric, while a related KPI can be customer acquisition cost. This KPI has integrated valuable information about the process and the boundaries – yes, we want new clients, but no, not at all costs.

On a closing note: No matter how smart you are when defining KPIs, your employees – and you yourself – can almost certainly find a way to outsmart and manipulate them. Just give it enough time. Keep in mind the classical “when a measure becomes the target, it ceases to be a good measure.” It is crucial to every now and then check your KPIs against reality and see to what extent they are (or have become) falsifiable. Having a set of KPIs that allows you to have a bigger and more objective picture of reality is always a good idea.

Just before you take off for the weekend, one for the road: