What is a KPI? Definition, Types, Examples, and Best Practices

In business, measurement creates momentum. When you have a way to compare results against a target, you’re more likely to improve. That’s the job of key performance indicators (KPIs): They translate raw data into signals that leaders and teams can act on.

With a key performance indicator, you gain a metric that measures how successfully your organization is achieving its most important goals and objectives.

This guide explains what a KPI is (and isn’t), why KPIs matter, common KPI types, how to set them, how to track them, and examples and best practices you can use to build a KPI program that actually drives decisions.

What is a KPI?

A KPI is a measurable value tied to an outcome that that’s important to your company. It’s not “every number you track.” Instead, KPIs focus attention on the few indicators that best represent progress toward a goal like growth, efficiency, customer experience, or risk reduction.

Think in a simple chain:

• Objective: the outcome you want, like “improve customer retention.”
• KPI: how you’ll measure progress (e.g., churn rate).
• Target: what “on track” looks like; for example, “churn ≤ 3 percent monthly.”
• Initiatives: what you’ll do to influence the KPI, such as onboarding improvements or support coverage changes.

KPIs can be financial (profit margin), non-financial (customer satisfaction), or even “intangible” but measurable (patents filed). What makes them KPIs is the direct connection to business objectives and decision-making.

KPI vs metric vs measure

These terms get mixed together, but knowing the differences should help you avoid KPI overload:

• Measure: a raw value, like “1,240 sessions.”
• Metric: a measure in context; for example “sessions up 12 percent WoW.”
• KPI: a metric that’s important (“key”); it’s directly tied to goals, targets, and action.

In practice, while you might monitor dozens of metrics, only a small number should be KPIs. If a number wouldn’t change what you do next, it probably isn’t “key.”

A helpful gut check: If leadership would be concerned (or excited) enough to ask “why?” when the number moves, it’s a KPI candidate. If the number is mostly used for curiosity or background, keep it as a supporting metric.

Why KPIs matter

KPIs are a key component of a company’s business intelligence strategy and are the “metrics that matter most.” Used well, they become the steering system for the business, showing what’s working, what’s off-track, and where to focus next.

Alignment with business goals

KPIs translate strategy into shared, measurable outcomes. They clarify what the organization is optimizing for and help teams align their day-to-day work with those priorities. When goals are visible, measurable, and actionable, it’s easier to coordinate cross-functional work without friction.

Clarity, focus, and accountability

KPIs make expectations visible. When teams know what matters and what “good” looks like, it’s easier to focus effort and assign ownership for outcomes. Clear KPIs also reduce “priority drift,” where teams over-index on urgent tasks that don’t move the business forward.

Better decisions

KPIs improve strategic, tactical, operational, and financial decisions; very few decisions aren’t improved by KPIs when the data is trusted and visible. A KPI doesn’t just report performance but also creates a shared language for tradeoffs (for example, investing in growth vs protecting margin).

Benchmarking and context

KPIs help organizations benchmark performance against industry standards or competitors. Benchmarks aren’t the goal, but they add context for target-setting and can highlight where your business is outperforming—or falling behind—relative to peers.

Types and categories of KPIs

There’s no single “right” taxonomy. The best KPI program uses a few simple categories, so teams know how to interpret (and act on) each indicator.

Strategic vs operational vs functional KPIs

Strategic KPIs reflect company-wide outcomes, typically quarterly or annually, and include things like:

• Revenue growth rate
• Net revenue retention
• Customer churn
• Profit margin
• Cash flow from operations

Operational KPIs track performance of specific processes on shorter horizons (daily/weekly/monthly):

• On-time delivery
• Support response time
• Defect rate
• Production throughput
• Website conversion rate (weekly)

Functional (departmental) KPIs are owned by teams like sales, marketing, finance, or HR and should ladder up to strategic goals:

• Sales win rate
• Marketing sourced pipeline
• Days sales outstanding (DSO)
• Employee retention
• Time to hire

A practical rule: if you can’t explain how a KPI supports strategy, it’s likely just a metric.

Leading vs lagging indicators

Lagging KPIs measure results after the fact (revenue, profit, churn).

Leading KPIs are drivers that tend to predict outcomes (pipeline coverage, adoption rate, preventive maintenance completion).

Strong KPI sets pair one lagging “scoreboard” KPI with a few leading “levers” teams can influence earlier. For example, if “renewal rate” is the lagging KPI, leading indicators might include product adoption milestones, executive sponsor engagement, and support resolution time.

Input, process, output, and outcome KPIs

This framework helps teams avoid focusing only on outcomes (which can be slow to change):

• Inputs: resources invested (spend, headcount, capacity)
• Processes: how work is done (cycle time, SLA adherence)
• Outputs: what gets produced (tickets resolved, units shipped)
• Outcomes: business results (CSAT, retention, margin)

If you only track outcomes, you might not see problems until it’s too late. Process and output KPIs create earlier intervention points.

Common KPI categories

At a high level, KPIs often fall into categories like financial, marketing, customer-focused, operations, and pipeline metrics. You can also organize by audience (executive vs frontline), by business unit (regional KPIs), or by business model (SaaS, retail, manufacturing, services).

How to develop and set KPIs

Well-designed KPIs come from strategy first, then data—not the other way around.

1. Start with objectives and success questions

Define three to seven strategic objectives for the next 6 to 18 months, then convert each into a measurable question:

• “Are we growing efficiently?”
• “Are customers adopting and staying?”
• “Are we delivering with consistent quality?”
• “Are we managing cash well enough to fund priorities?”

This prevents “KPI shopping” based on what’s easiest to measure.

2. Select meaningful KPIs

A KPI should be:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

Domo recommends KPIs follow these SMART guidelines to align with overall strategy.

Practical selection filters:

• Decision trigger: Will this KPI drive a decision or action?
• Controllability: Can a team influence it through real levers?
• Signal strength: Does it reliably indicate progress toward the objective?
• Stability: Is it resistant to “gaming” and one-off noise?

3. Write a clear KPI definition (the “KPI spec”)

KPI confusion kills trust. For each KPI, document, include:

• Name and purpose
• Formula (exact calculation)
• Data sources (systems of record)
• Segmenting rules (region, product, channel, customer type)
• Inclusions/exclusions (edge cases and business rules)
• Owner (definition + performance)

This prevents “same KPI, different number” debates and keeps reporting consistent across teams.

4. Set targets, thresholds, and cadence

Targets make KPIs actionable. Define:

• Unit ($, %, count, time, score)
• Timeframe (weekly/monthly/quarterly)
• Baseline (current performance)
• Thresholds (green/yellow/red)

Example: “Improve on-time delivery from 92 to 96 percent by end of Q2” is clearer than “Improve delivery.” If benchmarks exist, use them as input—but tailor targets to your strategy, constraints, and maturity.

5. Assign owners and build the review rhythm

A KPI without an owner is just a number. Assign a responsible owner who can validate definitions, monitor performance, and coordinate follow-through.

Domo also notes KPIs should be communicated broadly and reviewed regularly so course corrections happen early.

A typical cadence:

• Daily or weekly standups: operational KPIs and exceptions.
• Weekly business review: execution drivers and near-term decisions.
• Monthly/quarterly reviews: strategic outcomes and resource shifts.

How to measure and monitor KPIs

Connect to reliable data sources

KPIs commonly pull from CRM, ERP/finance, marketing platforms, support systems, product analytics, and HR systems. The goal is to connect KPIs to systems of record so the organization trusts the numbers and doesn’t waste meeting time debating definitions.

Match monitoring frequency to actionability

• Daily/weekly: operational KPIs (support, fulfillment, uptime)
• Weekly/monthly: pipeline and execution KPIs
• Monthly/quarterly: strategic outcomes (retention, profitability)

For slow-moving outcomes, add leading KPIs so you don’t wait too long to intervene. Also consider rolling windows (for example, 28-day churn) to balance responsiveness with stability.

Use dashboards (and alerts) to operationalize KPIs

A KPI dashboard is a centralized visual display of your organization’s most critical indicators, pulling data from multiple sources and turning it into interactive visualizations.

Dashboards work best when they’re role-based and actionable: targets, thresholds, owners, and drill-down for diagnosis. Alerts can notify owners when performance dips below target so teams don’t have to “babysit” dashboards.

Choose visualization formats that fit the decision

• KPI card: current value, variance to target, and directional change
• Trend line: whether performance is improving over time
• Bars: compare regions/teams/products
• Funnel: diagnose conversion by stage
• Tables with conditional formatting: quickly spot exceptions

The goal isn’t “more charts.” It’s faster understanding: what changed, where, and what to do next.

KPI dashboards and reporting

Dashboards and reporting are how KPIs become part of the operating rhythm.

What KPI dashboards do

Done well, a KPI dashboard acts as a shared source of truth: it shows current performance, highlights exceptions, and supports fast decisions. Because dashboards are dynamic and actionable, teams can drill into drivers without relying on static reports.

Dashboard best practices

• Start from decisions (what must we act on?)
• Keep it scannable (KPI cards + trends)
• Make targets obvious (variance to goal)
• Design for the audience (exec vs operator)
• Enable drill-down (from summary to diagnosis)
• Use consistent definitions and governed data sets
• Add alerts for threshold breaches

Reporting rhythm

For weekly/monthly reviews, keep it simple:

1. What changed?
2. Why did it change?
3. What are we doing next (owner + timeline)?
4. What decisions or support are needed?

This keeps KPI meetings focused on action and not “spreadsheet archaeology.”

KPI examples by function

Use these as starting points, then tailor to your strategy and business model.

Sales KPIs

• ARR/MRR growth = outcome KPI for subscription businesses
• Win rate = deals won ÷ deals closed
• Average deal size = revenue ÷ number of deals
• Sales cycle length = time from first touch to close
• Pipeline coverage = pipeline value ÷ quota
• Quota attainment = actual ÷ target
• Sales velocity = (pipeline × win rate × average deal size) ÷ cycle length (use as a diagnostic KPI)

Marketing KPIs

• CAC = sales + marketing spend ÷ new customers
• MQLs/SQLs = leading indicators (only if definitions are aligned with sales)
• Lead-to-customer conversion rate
• Website conversion rate
• ROAS = revenue attributed to ads ÷ ad spend (be clear about attribution)
• Pipeline sourced vs influenced helps separate “created” demand from “assisted” demand

Avoid the vanity trap: traffic, impressions, or followers aren’t KPIs unless they connect to pipeline, revenue, or retention decisions.

Operations KPIs

• On-time delivery rate
• Cycle time
• Throughput
• First-pass yield / defect rate
• Downtime
• Cost per unit / cost per transaction: useful when paired with quality and timeliness metrics

Operational KPIs are often the most actionable day to day—and typically need clear thresholds and fast escalation paths.

Customer success and support KPIs

• CSAT
• First response time
• Time to resolution
• Retention rate / churn rate
• Expansion revenue (for account growth)
• Product adoption milestones: leading indicator for retention in many models

Financial and HR KPIs

• Gross margin
• Operating margin
• DSO
• Forecast accuracy
• Employee retention/turnover
• Time to hire
• Offer acceptance rate
• Time to productivity: how quickly new hires reach expected performance

KPIs should be easy to understand while still meaningful at multiple levels in the organization.

Best practices

Keep KPIs few and focused

If everything is “key,” then nothing is. As a baseline, many organizations do well with:

• Three to five strategic KPIs for leadership.
• A small set of operational KPIs per function and role.

Separate “KPIs to act on” from “metrics to analyze” so dashboards stay usable.

Pair outcomes with drivers

Pair a lagging outcome KPI with leading drivers you can influence:

• Outcome: churn
  Drivers: activation, adoption, support response time
• Outcome: revenue
  Drivers: pipeline coverage, win rate, cycle length

This makes KPI reviews more actionable because teams can diagnose causes and pull levers, not just report results.

Define ownership and next steps

For each KPI, document:

• Owner
• Target and thresholds
• Review cadence
• What happens when the KPI is off-track (the action playbook)

Even a lightweight playbook helps: “If on-time delivery drops below 95 percent for two weeks, review carrier performance, warehouse staffing, and top delay codes; propose corrective actions within five business days.”

Review and refine

KPIs should evolve with strategy. Regular reviews help you retire outdated KPIs, update targets, and improve definitions as business rules change.

Common pitfalls to avoid

• Vanity metrics: impressive numbers that don’t guide action
• Unclear definitions: inconsistent formulas, filters, or sources
• Too many KPIs: creates noise and conflicting incentives
• No governance: no owner, no cadence, no accountability
• Gaming: when teams optimize the KPI but harm the outcome (e.g., “tickets closed” without “CSAT”)
• One-number obsession: a single KPI rarely tells the whole story. Use a small set that balances growth, efficiency, and customer impact

KPI maturity and evolution over time

KPI programs aren’t static. As organizations grow, mature, or change strategy, the KPIs that once worked well can lose relevance. Understanding KPI maturity helps teams avoid clinging to outdated indicators and ensures measurement evolves alongside the business.

Early-stage or less mature organizations often focus on foundational KPIs, like basic financial health, pipeline creation, customer acquisition, and operational stability. At this stage, KPIs help answer simple questions: Are we growing? Can we deliver consistently? Do we have enough cash to operate?

As organizations mature, KPIs tend to become more predictive and diagnostic. Instead of only tracking outcomes, teams add leading indicators and driver metrics to understand why results are changing. For example, revenue remains a core KPI, but it’s paired with indicators like product adoption, expansion opportunities, or customer engagement.

Advanced KPI maturity emphasizes cross-functional alignment and optimization. KPIs are shared across departments, tradeoffs are explicit, and dashboards support scenario analysis and decision-making at scale. At this stage, organizations regularly retire KPIs that no longer serve strategy and introduce new ones as priorities shift.

The key takeaway: effective KPIs are reviewed not just for performance, but for relevance. Periodic KPI audits, like asking whether each KPI still reflects current goals, help ensure measurement continues to drive the right behavior.

Conclusion and next steps

A KPI is a metric that measures success against your most important goals. When KPIs are few, clearly defined, and consistently monitored, they create focus, accountability, and faster decision-making.

Next steps:

1. Define your objectives.
2. Pick a small KPI set that reflects progress.
3. Document definitions and assign owners.
4. Set targets and review cadences.
5. Monitor with dashboards and refine over time.

Turn KPIs into action with Domo

KPIs work best when they’re visible, trusted, and easy to act on. Domo helps you connect data across the business, define and govern key metrics, and share real-time KPI dashboards that keep every team aligned on what matters most. If you’re ready to move beyond spreadsheets and static reports, explore Domo and see how quickly you can build KPI dashboards your organization will actually use.