Definition of Key Performance Indicators - KPI

Definition of 'Key Performance Indicators - KPI' A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals. KPIs vary between companies and industries, depending on their priorities or performance criteria. Also referred to as "key success indicators (KSI)". 

A company must establish its strategic and operational goals and then choose the KPIs which best reflect those goals. For example, if a software company's goal is to have the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year-on-year. A company's KPIs will be stated in its annual report. Also, KPIs will often be industry-wide standards, like "same store sales", in the retail sector. KPIs help to get insight in your business performance -- "What gets measured, gets managed". KPIs are also known as performance metrics, business indicators, and performance ratios. 

Example : 
Training penetration rate Measures the percentage of employees completing a course or a content area of training compared to total number of employees employed. % of time sheets in need of correction/validation Percentage of time sheets in need of correction and/or validation by submitter.

KPIs are often seen as a cure to what ails the online ad industry. During AOL's first-quarter earnings call in 2012, CEO Tim Armstrong discussed how he was trying to convince more advertisers to use them:

"The majority of our ad customers are running their display budgets off of KPIs (key performance measures like brand lift)," Armstrong told Adweek. "We need to reconnect brands to KPIs. We've sort of needed to shift from an older display model to a newer display model, and that’s something we’re working through."

Got that? It's time to reconnect with KPIs, man. Dive into that KPI goodness.

What are KPIs, you ask?

The acronym stands for "key performance indicators." Like many phrases adopted by the online ad industry, it has a precedent. Every industry has its own KPIs. In retail, for instance, same-store sales are a KPI, while in the auto industry they might be inventory turns or manufacturing cycle times. "In every line of business there's some kind of metric that someone uses to gauge how they're performing and whether to judge success or failure," says Jing Suk, VP/director of strategy and analysis at Digitas and an adjunct professor at Rutgers Business School.

In online advertising, some KPIs include click-through rates, brand awareness and engagement. Drew Meyers, president of ad agency Gyro's San Francisco office, says the typical online marketing campaign these days usually has about five KPIs. However, it's not unusual for there to be more. "There's a tendency toward a profusion of KPIs," he says, which leads to "an increase in noise versus an increase in intelligent analysis."

Part of this is because online media and social media in particular are still so new that there are no real established metrics. Yet digital offers myriad ways to track a campaign's success. Until recently, the default metric was the click-through rate (CTR), which gave a clear indication of an ad's engagement. The staggering success of search advertising in the 2000s led to the rise of the CTR. After all, what better way to show that your ad worked?

With the rise of social media, companies like Facebook have charged that the CTR is a meaningless metric for branding campaigns. Opponents of CTR as a default metric argue that you can see an ad, not click on it and still be influenced by it. After all, that's the way most advertising has worked until now. You don't interact with a billboard, but it might introduce you to a new brand or product which you eventually might try.

Suk says KPIs vary depending on what stage of the purchase funnel your target customer is at. In the beginning, you may just want to raise awareness, in which case you'd rely on surveys to gauge success. Further along, you might be looking for interaction. Did the customer watch your video? Did she interact with your ad in some way?