If you’ve ever attended a performance review meeting, the question “What are KPIs?” has likely come up implicitly: everyone talks about numbers, but few agree on which ones really matter. Defining metrics is simple; defining the right metrics is what separates a company that makes decisions based on data from one that merely collects it.
In this article, we’ll explore what KPIs are, how they differ from other metrics, what types there are, and, above all, how to choose the ones that make sense for your business.
What are KPIs?
KPI stands for Key Performance Indicator, or key performance indicator. A KPI is a quantifiable metric linked to a specific objective that shows whether a company, team, or process is moving in the desired direction.
The key word in this definition is key. A company generates hundreds of numbers every month, but only a few truly influence decisions. Understanding what KPIs are involves accepting this filtering process: if an indicator doesn’t change the team’s behavior at all when it goes up or down, it’s not a KPI—it’s just information.
KPIs, Metrics, and Goals: What Are the Differences?
This is the most common misunderstanding among those who are just beginning to learn about KPIs, and it’s worth clearing it up before moving forward.
| Concept | What is | Example |
|---|---|---|
| Objective | The desired outcome | Increase online sales |
| KPI | The indicator that measures progress toward this goal | Website conversion rate |
| Metric | Any measurable data, whether or not it is linked to an objective | Visits to the “About Us” page” |
In other words: all KPIs are metrics, but most metrics are not KPIs. The difference lies in strategic relevance.
What Makes a Good KPI
Once you understand what KPIs are, the next question is how to identify a useful metric. A good KPI generally meets the SMART criteria:
- Specific – measures a single thing, without ambiguity.
- Measurable – There is a reliable data source for calculating it.
- Achievable – The associated goal is ambitious, but realistic.
- Relevant – It is tied to a business objective, not to the vanity of a report.
- Storm – has a defined measurement frequency.
To this list, I would add a sixth criterion that is often overlooked: a good KPI must be enforceable. If no one in the organization can directly influence the metric, it is useful for monitoring, not for managing.
Types of KPIs
When you delve deeper into the topic, you realize that there is no single answer to the question of what KPIs are; there are categories with distinct functions.
Regarding the nature of the data:
- Quantitative – expressed in numbers (revenue, number of leads).
- Qualitative – translate perceptions into measurable metrics (customer satisfaction, NPS).
As for the timing of the measurement:
- Leading (predictive) – predict future outcomes, such as the number of proposals submitted.
- Lagging (earnings) – confirm what has already happened, such as revenue for the quarter.
As for the organizational level:
- Strategic – monitored by management on an annual basis.
- Tactics – linked to departments and campaigns.
- Operations – the day-to-day operations of the teams, with weekly or daily tracking.
A balanced scorecard combines leading and lagging indicators. If a company relies solely on outcome indicators, it will always be reacting too late.
In digital marketing, almost all of these metrics depend on the quality of the traffic coming to your website. Without organic visibility, no conversion KPI will improve in a sustainable way.
Learn more here: https://www.gigantic.pt/seo
How to Set the Right KPIs for Your Business
Knowing what KPIs are is different from knowing how to choose them. This six-step process helps you arrive at a set of KPIs that the team can use.
1. Start with the goals, never with the data
The most common mistake is to open the analytics tool and choose metrics from those already available. Reverse the order: first define what the business needs to achieve over the next 12 months, and only then look for ways to measure that progress.
2. Choose just a few metrics
Three to five KPIs per area is sufficient. A dashboard with thirty metrics isn't more accurate—it's just easier to ignore.
3. Define the formula and the data source
Each indicator requires a written definition: how it is calculated, where the data comes from, how often it is updated, and who is responsible for it. Without this, the same KPI will produce different values in two reports.
4. Set the baseline and the goal
Without knowing the current value, there’s no way to assess progress. Measure it over a reference period, and only then set the goal.
5. Assign a person in charge
Each indicator must have a designated person in charge—someone who presents it, explains any deviations, and proposes corrective actions.
6. Review periodically
Goals change, and metrics must keep pace with them. A quarterly review prevents the company from continuing to measure things that are no longer priorities.
What Are KPIs Used For in Digital Marketing?
Understanding what KPIs are has a particularly direct application in the digital realm, because here each channel generates its own data and the budget is constantly reallocated. When chosen wisely, these metrics serve four functions:
- They translate the strategy into investment. A goal such as “growing in the domestic market” only becomes actionable once you know how much it costs to generate a lead and which channel generates them most cost-effectively.
- They allow you to compare channels with one another. SEO, paid media Email marketing has different costs, timelines, and conversion rates. Without common metrics, comparisons are based on personal preference.
- They anticipate problems before the revenue comes in. A rising CPC or a falling CTR signals a decline in profitability weeks before it shows up in sales figures.
- Support the reallocation of the budget. It's the difference between cutting a channel based on intuition and cutting it because the cost per acquisition is no longer sustainable.
At Gigantic, this principle guides every project: before investing in media, we define measurable goals and ensure that tracking is properly implemented. Without this foundation, any report measures the team’s effort rather than the business outcome.
Simply knowing what KPIs are isn’t enough if the data is scattered across multiple platforms. Turning scattered data into metrics that management can understand requires the right tracking and analytics tools. That’s the business intelligence work we do at Gigantic.
Learn more here: https://www.gigantic.pt/business-intelligence/
Conclusion
Understanding what KPIs are is the first step; the hard work begins when it comes to choosing them. A good system of indicators is concise, linked to real objectives, composed of metrics that someone can influence, and reviewed regularly.
If your business is still tracking everything, start by eliminating some metrics. Keep only the few metrics that, on their own, would allow you to assess the company’s health, and build from there. It is through this exercise that the answer to the question “What are KPIs?” ceases to be theoretical and begins to have a real impact on management.
Selecting, measuring, and interpreting the right metrics is an ongoing process. If you’d like an outside perspective on your business’s KPIs, our team can help.
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