A matter of perspective: a way to look at metrics and KPI'S

Let’s start with a little, admittedly somewhat odd example: think of metrics and KPI's as being like a utility app for your smartphone - The app lets you solve a specific problem. Let’s say a step counter for example. It informs you of how many steps you have walked within a specific period of time. You may use this app ‘for fun’ which would imply that it tells you something about yourself, something that is measured, but not much more.

Hence, this information is arbitrary if there is no specific context for it. In this case the metric is just a metric that tells me something, but I can interpret the result in any way I like. I can say for instance that I have covered a lot of ground, or I can deduce (falsely) that I must have spent a lot of time walking.

However, if the app in the example is employed by an athlete who aims at reaching a specific number of steps in order to get fit, the information becomes a lot more relevant. The metric becomes an indicator for the progress which the athlete has made towards reaching his goal. Hence, the ‘simple metric’ has become a Key Performance Indicator’.

To be more precise, we can define a metric as a standard measure for a something specific. For example, a metric may measure the speed of a process. Now, if this metric measures an instance that is essential to a business’ overall performance, it become a Key Performance Indicator. Hence, it no longer only tells something about a part of the business that may be arbitrary but with its specific context, the metric becomes so important that is serves as a proxy for the performance of the entire business.

Per definition, there are no universal KPI’s. What serves as a KPI for one business may only be a metric for another. When a metric becomes a KPI is strongly related to the type of business and, more importantly, the goal of its business operation. For example, a company that focusses on retaining customers for a long period of time will choose a KPI such as customer retention or customer loyalty as KPI and not something like profit per unit sold or cost per unit sold. However, another company that aims at increasing profitability might well do so.
Similarly, a boat company that ferries individuals across a lake may employ the number of customers per trip as KPI, since a high number of customers implies lower unit costs per trip. On the other hand, a luxury brand will rather utilize the revenue per customer as a KPI due to the fact that loyal customers tend to add more value to the bottom line than one-timers.

In conclusion, metrics and KPI’s may be understood as related, but not as exchangeable terms. Furthermore, metrics are measures for a specific part of a business operation, while KPI’s are measures for the part of a business that represent the overall performance of that business.

Why is he wrriting about this?

If you are new to this blog, and you probably are, since this blog is new itself, you must be wondering: what is this guy writing about? Why on earth has he picked KPI’s and metrics as a topic for a blog? Aren’t there much more exiting topics to be writing about?
If I’d have the chance to provide you with an answer it would probably be: “Yes, you are right. I could be writing about cars, celebrities, my favorite wines or even politics. There are topics from the world of business that are way more interesting than KPI’s or metrics. Buuuut…”
And this is where it starts: Understanding metrics and KPI’s is becoming increasingly more important for comprehending business performance and managing it effectively. This is owed to the fact that the economy is ever more strongly driven by analytics. Numbers and indicators are ingrained within the very fibre of the New Economy. Thriving in the New Economy will be what sets the successful business apart from the unsuccessful ones in the years to come. The internet has enabled and is forcing businesses to focus on the numbers.

I encourage you acquire a basic understanding of what metrics are, how they work and how you can apply them as Key Performance Indicators in your business. I am by no means an expert on the topic and still have the majority of learning ahead of me. That is why I invite you to join me in discovering this fascinating and important topic.

Who am I and why am I writing this blog?

Hi,

I am Carsten, 27 years old, business administration student and general business enthusiast. During my studies and my practical experiences, I realized the potential of metrics and key performance indicators. They provide a basis for making decisions which are grounded and solidified within a numerical reflection of the status quo.

However, I know and have applied about five of countless interesting, important and useful metrics. Surely not enough! I decided that this needs to change and hence, acquired a series of books on the topic and started reading. There is a plethora of books on the topic, with most books being extremely well written. For a fantastic book restricted to marketing metrics see Paul Farris, Neil Bendle, Phillip Pfeifer and David J. Reibstein’s book called: Key Marketing Metrics: The 50+ Metrics Every Manager Needs to Know (Buy it on Amazon)

However, most books that I have seen are both severely unstructured and somewhat cumbersome to understand. Especially for young students and entrepreneurs that lack years of practical experience.

That is where I decided to create this blog. The goal is to post one metric/KPI per week, explaining what it does and how it works. In the end this blog should serve as a comprehensive list of metrics ranging from basic financial metrics that everyone should know to complex and very specific marketing metrics. I hope that this journey will be a process of step by step learning and sharing what I have learned. Enjoy reading!