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Glossary
KPI (Key Performance Indicator)
A key performance indicator: a summary number that measures the performance of a critical aspect of the business.
What is a KPI
A KPI (Key Performance Indicator) is a numerical indicator that measures the performance of a critical area of the business. It's not just any data point: it's the number that, when checked regularly, tells you whether things are heading in the right direction.
Characteristics of a good KPI
- Measurable: it must be a number, not a feeling
- Relevant: it must measure something that matters for business objectives
- Timely: it must be available frequently enough to act on
- Comparable: it must allow comparison over time (this week vs. last, this month vs. the same month last year)
Examples for a manufacturing SME
| Area | KPI | Frequency |
|---|---|---|
| Sales | Weekly revenue | Weekly |
| Margins | Average contribution margin | Weekly |
| Liquidity | 30-day cash balance | Weekly |
| Production | Production efficiency (%) | Weekly |
| Commercial | Order backlog (weeks) | Weekly |
These 5 indicators form the minimum dashboard described in 5 numbers to check every week.
The most common mistake
Monitoring too many KPIs. If there are 30, nobody looks at them. If there are 5, they become a habit. Choosing which indicators to follow is more important than the precision with which they're measured.
Learn more: 5 numbers to check every week | Management control