It is essential to identify key performance indicators (KPIs) from every department to allow decision-makers to measure business performance against strategic goals and predict future outcomes. The following is an overview of best practice KPIs for common end-to-end business processes that span departments to help you choose the KPIs that makes sense for your organization.
The following KPIs give insights on revenue generation from each touchpoint of the customer journey. Analyzing combined revenue, sales, marketing, and service data together helps sales, marketing, and finance teams collaborate more effectively. More important, these KPIs enable you to better evaluate the full-funnel effectiveness of your sales and marketing programs.
Why is it important: his KPI measures the average cost for a company to acquire one customer. It is primarily used to quantify the sales and marketing investments in terms of a single customer. It includes marketing and sales expenses as well as salaries and overhead associated with attracting and converting a website visitor to a customer.
How to use: Track the development of your customer acquisition costs over time. Measure against targets. Evaluate each market segment and channel as well as customer segments and territory. These costs vary greatly by industry, size of business, and target customer type.
Why is it important: This KPI provides a picture of a business’ long-term financial viability. It measures how much a business can plan to earn from the average customer over the course of the relationship. It considers a customer's revenue value and compares that number to the company's predicted customer lifespan. It’s an important metric, as it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth.
How to use: Evaluate CLV over time to spot early signs of attrition. Identify customer segments that are most valuable. Value widely varies. High CLV is an indicator of the product-market fit, brand loyalty, and recurring revenue from existing customers.
Why is it important: This KPI measures the change in revenue over a fixed period. It provides an indication of whether revenue goals are on track, indicating the success of business strategy execution. Sales growth is directly tied to revenue, profitability, and to the strength of a sales team.
How to use: Compare revenue over fiscal periods and against sales targets to demonstrate the rate of business growth—positive or negative. Naturally, the goal is to exceed your sales target.
Why is it important: This KPI measures the number of unqualified leads that turn into qualified leads. By looking at what is—and isn’t—working in the entire lead funnel, organizations can find the best ways to qualify marketing leads to guide sales teams.
How to use: Analyzing progress through defined stages within the funnel is an effective way to measure conversion rates. Compare by campaign, by program, by channel and by win/loss outcomes. Conversion rates can vary by many factors such as industry, product, source, etc.
Why is it important: This KPI measures the rate at which customers stop doing business with an entity. It gives a realistic overview of your customer retention strategies.
How to use: Evaluate your churn rate over time to spot early signs of attrition. The higher the churn rate, the more lost customers and revenue.
The following KPIs give insights on driving greater efficiency across the entire order-to-cash process. With visibility into order-to-cash activities and processes including placement of a customer order, order fulfillment, and receipt of payment, organizations can better understand business performance, resulting in more significant savings for an organization.
Why is it important: This KPI tracks the average number of days it takes to collect a payment after a sale. Given the importance of cash flow in running a business, it is in a company's best interest to collect its outstanding account receivables as quickly as possible. The faster a company collects cash, the faster it can reinvest that cash to make more sales.
How to use: See trends by yearly, quarterly, or monthly periods. Identify high-risk customers, understand market forces that influence payment times, and help improve collections execution. Can be compared to industry benchmarks. Generally, a low average DSO is better for maximizing cash flow, but DSO can vary by industry.
Why is it important: This KPI helps companies understand all cost expenditures related to the invoicing process to support its overall spend strategies. It measures average cost expenditures related to invoice processing. Processing cost KPIs can be measured by other factors, such as percentage of revenue, or total process cost per full-time employee.
How to use: Total cost can be assessed for the end-to-end process or by individual subprocesses that make up order-to-cash. Evaluate costs by breaking down by cost types and segments, such as product, location, etc. Track costs over time to see if cost expenditures track to budget. Generally, a lower number is better for cost KPIs.
Why is it important: This KPI helps companies find process inefficiencies by analyzing the duration of their order-to-cash processes from beginning to end. It measures the number of business days that elapse between the receipt of sales orders, delivery of products/services to the customer, invoicing customers, processing accounts receivable, and managing and processing collections.
How to use: Time can be assessed for the end-to-end process or broken down to the individual subprocesses that make up order-to-cash. Tracking over time is a good way to see improvements. A lower number is better.
Why is it important: This KPI indicates organizational efficiency and potentially high customer satisfaction. It measures the number of orders that are fulfilled and shipped out without incidents (inaccuracies, damages, delays, loss, etc.).
How to use: See trends by yearly, quarterly, or monthly periods. Often compared to target goals, results can be segmented by product, location, channel, and other factors. A low rate signals an inefficient supply chain and will inevitably affect your customers’ satisfaction as well as your business reputation. A high rate indicates high customer satisfaction means that you will avoid additional costs due to returns or damages.
The following KPIs give insights to help you control cash flow more effectively. By gaining a better understanding of optimum payment terms, you can free up cash for business growth. Procure-to-pay KPIs bring procurement and finance data together to improve operations and payments visibility, helping you to find savings opportunities and build successful, strategic supplier relationships.
Why is it important: This KPI ensures that enough cash is on hand to keep your suppliers happy as well as cover emergencies or strategic investments. It measures the average number of days a company needs to pay its bills and obligations, which may include suppliers, vendors, or financiers.
How to use: See trends by yearly, quarterly, or monthly periods. Compare your DPO to industry benchmarks. Generally, a high DPO is preferred so payments can be delayed, but it may also signal a cash shortfall and inability to pay.
Why is it important: This KPI reflects the alignment between procurement and finance as procurement negotiates terms and finance runs its part of the process to meet these terms, aiding procurement in their long-term customer relationship management. It measures the number of invoices paid before or on the date listed within the terms of the invoice/contract.
How to use: Evaluate by product, category, supplier segments, and buyer. A low value signals inefficient invoice processing, unclear vendor invoice submission guidelines, or subpar employee performance.
Why is it important: Decreasing the cycle times associated with procuring materials and services is an effective way to cut procurement costs and inefficiency. This KPI measures the time duration from requisition to delivery to payment.
How to use: Evaluate by product, suppliers, location, organization, and sourcing events. The lower the cycle time is the better.
Why is it important: Keeping your cost per invoice as low as possible not only creates cost savings; it also helps protect cash flow. This KPI measures average total costs incurred in processing an invoice. Costs related to processing invoices include indirect expenses, late fees, and labor costs related to data entry, exceptions, and corrections.
How to use: Evaluate costs by breaking down by cost types and segments, such as product, location, and other factors. This value can vary greatly from business to business.
Why is it important: This KPI helps identify target areas of unmanaged spend. It measures the percentage of procurement spend controlled by management, which is calculated as the total approved spend subtracted by maverick spend.
How to use: Evaluate spend for different segments, such as product, product category, location, and other categories. A low value may suggest missing out on cost savings/reduction opportunities, high maverick spend, or ineffective procurement processes.
Why is it important: This KPI reflects the alignment between the procurement and finance teams as procurement sets up the discount and finance makes it happen. It measures the amount of savings realized under vendor contracts.
How to use: Evaluate by product, category, top suppliers, and buyer. Most leading organizations average realized savings of nine percent per year.
The following KPIs measure the performance of your manufacturing and supply chain operations. An efficient and streamlined supply chain ensures that your customers’ expectations are met. Supply chain KPIs help pinpoint supply chain risks and enable you to predict future sustainable profitability.
Why is it important: This KPI measures the percentage of on-time deliveries, helping you measure against delivery time estimations. A good track record of on-time deliveries helps ensure customer loyalty.
How to use: See trends by yearly, quarterly, or monthly periods. This KPI is often compared to target goals. The higher the percentage, the better chances you have good customer satisfaction as well as an opportunity to offer employee rewards.
Why is it important: This KPI tracks how well the company generates sales from its inventory. The results are helpful when making decisions about whether to raise prices, increase orders, diversify suppliers, feature a product prominently in a marketing campaign, or buy additional related inventory. It measures the number of times a company has sold and replenished its inventory over a specific amount of time.
How to use: View over time to spot emerging trends driven by market demand or slow-moving inventory. Evaluate different segments, such as SKU, product category, and location. A higher ratio can indicate insufficient inventory on hand and/or strong sales. A lower ratio can indicate too much inventory in stock and/or weak sales.
Why is it important: This KPI tracks all the costs associated with manufacturing a product. It is calculated by dividing the total production costs by the number of units produced over a time period, such as a month or quarter, to show the average cost per unit for that period.
How to use: Analyze costs, such as raw materials and labor, at a granular detail to understand how different factors affect the bottom line. Identify cost-saving opportunities by examining how much is spent on raw materials, labor, and overhead.
Why is it important: This KPI tracks how many products are being produced correctly the first time, without any defects or modifications. It is calculated by dividing total number of perfect products by total number of production runs.
How to use: Understand the main cause of defects in the production process by tracking this metric over a period of time and analyzing the errors.
Why is it important: This KPI shows the performance of each step in the manufacturing process to identify areas for improvement. Overall operations effectiveness (OOE) is calculated by dividing actual production time by operating time. The more efficient a company's manufacturing processes are, the higher this KPI will be.
How to use: Gain visibility and identify areas for improvement in performance, quality, and availability and compare those metrics over specific periods of time. Recognize issues that need to addressed immediately by analyzing bottlenecks from sourcing raw materials all the way through delivery.
The following KPIs help answer strategic questions about workforce dynamics that can help your organization improve performance. These KPIs can help you understand your workforce needs in terms of skills and job roles and enable you to link recruiting performance to business outcomes. With a better view of your hiring process, you can identify high performers early on and prevent them from leaving.
Why is it important: This KPI assists in workforce planning by tracking how efficient the hiring process is in terms of time. It measures the average number of days it takes your company to fill an open job position or requisition.
How to use: Evaluate for various departmental areas. View over time to see process improvement. A high value is typically associated with inefficient—and potentially ineffective—recruiting and hiring processes.
Why is it important: This KPI tracks how well an organization is holding onto its workers. It measures the percentage of employees who have left the company over a given time frame.
How to use: Evaluate different segments, such as business unit, job role, department, top talent, and more. A high turnover rate is particularly problematic for positions that are difficult to fill, which often leads to further examination of potential drivers of turnover, such as lack of career development opportunities, poor work-life balance, and compensation.
Why is it important: This KPI gives a clear picture of whether a business is growing or declining in overall efficiency. It measures the total revenue by the current number of employees.
How to use: Evaluate different revenue segments, such as geographies, subsidies, and more. This KPI is often used to compare with companies within the same industry. It gives a strong signal for evaluating the workforce efficiency and productivity levels—the higher the amount, the greater the productivity.
Why is it important: This KPI provides insight into the vitality of a company, employee satisfaction, and employee health. It measures the rate of unplanned absence due to sickness or other causes.
How to use: See trends for an individual, team, or organization. Compare against local industry and country. Both a low or high value for this KPI that will compel companies to investigate the underlying reasons for the numbers and implement appropriate measures to remediate situations.
With an increased focus on environmental, social, and governance responsibility (ESG), businesses are adopting ESG initiatives, such as reducing greenhouse gas emissions, improving workforce diversity, and strengthening workplace safety. Tracking the progress of your ESG initiatives with key performance indicators is critical to measure success.
Why is it important: This KPI measures the proportion of people across your business who identify as female, giving insight into a key facet of workforce diversity. Understanding this demographic, along with other diversity and inclusion (D&I) metrics, such as ethnic and racial distribution, helps businesses cultivate a diverse workplace and allows you to identify whether there is any over or under representation in your company.
How to use: For example, the female gender ratio KPI within the diversity and inclusion subject area helps to measure and track the proportion of people who identify as female across your business. With it, you can easily identify which group within the company has the least representation for women.
Why is it important: This KPI measures the portion of waste that is not sent to a landfill. It is measured either as a percentage or by weight.
How to use: Tracking your diversion rate over time is a great way to measure of the effectiveness of reuse, recycling, and organic composting programs. With this KPI, organizations can measure wastage created both upstream and downstream in the value chain and monitor it against benchmarks.
Why is it important: This KPI measures the number of accidents/incidents, giving organizations a high-level benchmark to track if workplace safety is improving or worsening.
How to use: Health and safety teams can use this KPI to track and determine their progress on specific business objectives. In addition to monitoring the number of accidents or incidents, you can also identify the percentage of incidents that have affected employees. Stay on top of this health and safety KPI during times of change, such as the introduction of new processes or machines.
Why is it important: This KPI measures the direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization, for example, emissions associated with fuel combustion in boilers, furnaces, or vehicles. Scope emission reporting helps organizations identify the risks and opportunities associated with their direct and indirect emissions.
How to use: Keep track of scope 1, 2, and 3 emissions and continuously monitor which type of corporate activity is contributing the highest emission levels. For example, understand the carbon emission level from logistics, third-party warehousing, and employee travel by location.
Why is it important: This KPI measures the scope 3 emissions to identify emission hotspots, resources, and energy risks in the supply chain. It enables companies to assess and engage suppliers regarding their sustainability performance and improve the energy efficiency of their products.
How to use: This KPI allows businesses to score their suppliers on the suppliers’ ability to reduce their carbon footprint. Compare to emissions targets and to other factors of supplier performance.