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What Is A Key Performance Indicator (KPI)?

Managing employee performance and the daily operations of a business is hard work. A business will often use metrics to evaluate employee performance measure progress towards specific goals. Employee performance goals should be clear and aligned with the business strategy, and should specify what measure will be used to evaluate and improve business outcomes.  Individual employee Key Performance Indicators (KPIs) are metrics that can assist in tracking the ability of your employees to meet your expectations as well as their impact on the business objectives.

Well-drafted KPIs are not goals, they are a means to express what you want to achieve and when in order to reach the goal, and to assess and manage employee performance. They are a tool to meet business outcomes, review business health and growth, and a way of identifying new opportunities for the business.

At an employee level, they can be used to measure  performance and manage underperforming staff members, structure incentive payments such as bonuses, and also identify training opportunities to upskill the workforce. KPIs can be included in the employee position description and will help set the expectation between employer and employee.

BrightHR together with BrightSafe can help set expectations, by delivering online health and safety e-learning modules for employees to do their training online, and you can use the Responsibilities Navigator to set up task reminders, delegate responsibilities, and save task records.  You can store all relevant documents in the cloud for easy access and request read receipts to check if employees have accessed specific documents.

The Importance Of KPIs In A Business

A KPI is only as good as its ability to measure employee performance and to deliver real business outcomes by improving that performance. Managers need to adjust constantly to optimise performance in response to ever-changing business circumstances. This will often mean the business will be required to give continuous constructive feedback to employees to communicate the areas that require improvement. BrightHR can ease some of the load for you and send you notifications of key dates, as well as generate Smart Reminders for employees based on their roster. You can also add notes to rosters or shifts for employees to see as they clock-in.

The benefit of having KPIs means employees are aware of what outputs or outcomes need to occur to satisfy their employer’s expectations. Should the employee continuously fail to meet their KPIs it is recommended the business should actively manage their performance with on-going training and ultimately performance improvement plans.

Setting SMART KPIs

Each business has KPIs relevant to their specific industry. Depending on the size of your business, the metrics could involve the overall performance of the business or smaller tasks related to each department such as sales, marketing, finance, and customer service. An example of a sales metric would be a lead-to-sale conversion rate.

The key to setting KPIs is to identify desired outcomes for the business, and isolate means and ways employees can meaningfully help to achieve these outcomes. Employee goals should align with business goals which need to be constantly re-assessed in light of the changing business environment. Changes should be clearly communicated to employees and put into context. Whether it be increasing profit, reducing costs or acquiring a certain number of new customers, the KPIs must relate to a specific desired business outcome.

Using the SMART criteria is an effective way to assist in drafting KPI’s that will be instrumental in achieving business objectives.

Each letter outlines certain criteria the KPI should meet:

  • Specific: Is the objective specific enough?
  • Measurable: Can the progress be quantified or easily measured?
  • Attainable: How realistic is the goal? Can it be achieved within a reasonable time-frame?
  • Relevant: Is the goal relevant to the needs of the business? Does it improve performance?
  • Time-frame: How much time is needed to achieve the goal? Can it be done within the given timeframe?

To illustrate, the owner of a bicycle shop may set the following SMART KPIs for their employees: 1,000 bicycle sales per month, increase customer satisfaction by 10% within a financial quarter, increase total number of customers by 5% each financial quarter, and increase total revenue from bicycle accessories by 25% in the financial year.

BrightHR’s Pop can help you track employee expenses incurred while meeting SMART KPIs. You can view photographs of receipts and approve or decline reimbursement submissions on the go with this expense and mileage application.

Common Examples Of Business KPI’s

Below are some common examples of KPIs found in different industries:

  • increase number of leads and prospects
  • cost per lead through each channel
  • level of customer engagement
  • average value of purchases
  • number of abandoned shopping carts for an e-commerce website
  • monthly sales quota
  • number of returned goods and warranties
  • types of products/services used every day

However, the below are also KPIs:

  • Express your opinion and contribute to more team meetings
  • Produce more work on an efficient and effective timeline
  • Complete an advanced technical course to upgrade skills
  • Develop and practice coaching skills to enable direct reports to perform at higher levels
  • Provide high-quality customer service resulting in an 85% customer satisfaction rating on accuracy and timeliness

You can use BrightHR to store key information relating to employee performance securely in the cloud, and ask for read receipts to make sure employees have accessed this information.

Employsure can help you understand KPIs and help you implement them in your workplace. Call us for free initial advice on 1300 207 182.

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Need some guidance when it comes to managing performance? Get in touch and we can discuss how we can help you.

This guide has been compiled on the basis of general information current at the time of publication and reflects an opinion only and is not intended to provide anything other than an opinion at any time. Your specific circumstances as well as any changes in circumstances after publication may affect the relevance, completeness or accuracy of this information. To the maximum extent permitted by law, we disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, currency and reliability of the information on this website, and to seek professional advice where necessary. Nothing contained on this website is to be interpreted as a recommendation to use any product, process or formulation or any information on this website. For clarity, Employsure does not recommend any material, products or services of any third parties. 

Frequently Asked Questions

  • What Does KPI Stand For?

    KPI stands for Key Performance Indicator.

  • What Is The Purpose Of A KPI?

    A KPI is a means of measuring performance within your business and tracking progress towards specific business outcomes.

  • What Are The Most Important KPIs In A Business Strategy?

    This will depend on the nature of your business, however, below are some that may be relevant:

    • Sales Growth
    • Varied Sources of Income
    • A Diverse Client Base
    • Profitability
    • Cash Flow
  • What Are Examples Of KPIs?

    Some common examples of KPIs found in different industries:

    • increase number of leads and prospects
    • cost per lead through each channel
    • level of customer engagement
    • average value of purchases
    • number of abandoned shopping carts for an e-commerce website
    • monthly sales quota
    • number of returned goods and warranties
    • types of products/services used every day
  • Who Determines KPIs In The Business?

    Management usually determine the KPIs as they should align to the strategic business goals and evolve in accordance with changing business circumstances.

  • How Do I Create A KPI?

    Use the following SMART criteria to create effective KPIs:

     

    • Specific: Is the objective specific enough?
    • Measurable: Can the progress be quantified or easily measured?
    • Attainable: How realistic is the goal? Can it be achieved within a reasonable time-frame?
    • Relevant: Is the goal relevant to the needs of the business? Does it improve performance?
    • Time-frame: How much time is needed to achieve the goal? Can it be done within the given timeframe?
  • Which Companies Use KPIs?

    Most Companies use KPIs of some kind, as they are essentially a means of measuring the progress made towards achieving company goals.

  • What Is A Good KPI?

    A good performance indicator measures the performance necessary to reach the desired outcome but is not a goal in itself e.g.in the case of sales calls, you should not make the KPI the amount of calls made to prospects, but the amount of calls that converted to a sale.

  • How Many KIPIs Should You Have?

    As many KPIs as is necessary to measure progress towards the objective. However too many KPIs can be overwhelming, so focus on the most important business objectives, and formulate a couple of KPIs for each one that measure progress in different ways.

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