KPIs vs. Metrics: How to Stay Focused on the Right Data
It’s impossible to make a qualified decision about the direction of your business without complete visibility into your performance. Many companies have a basic understanding of what data or reports they need to see every month from a financial and operations perspective, but there are other layers of performance measures that should be assessed, tracked, and analyzed to stay on target to reach your primary business goals. To effectively manage productivity and profitability, you need to make strategic and tactical metrics work for you.
Here at insightsoftware, we spend our days working with ERP users who have all their data collected in multiple systems and struggle to consolidate it all and turn it into meaningful reports and insights they can use every day. Each conversation usually starts the same, where we help identify the company’s Key Performance Indicators (KPIs) and metrics. Although you might have heard people use the terms “KPI” and “metric” interchangeably, they are different quantifiable measures that will impact how you set your overall strategy. Here’s a comparison:
|What||Track the status of a specific business process||Measure performance toward achieving your strategic goals or objectives|
|Why||Tactical – shows the exact performance in an area of your business||Strategic – shows the big picture of your entire operations|
|Frequency||Monitored regularly (daily, weekly, monthly)||Monthly, quarterly or yearly basis|
|Example||IT Spend by Business Unit, Average New Deal Size, Web Traffic Sources||Net Profit Margin, Monthly Sales Growth, Cost of Goods Sold|
When you bring both measurements together, you can truly evaluate your progress toward achieving a business goal. For example, a universal KPI used by most companies is Customer Lifetime Value (CLV). CLV can be broken down by individual customers, regions, products, or salespeople and used to make decisions about sales, marketing, product development, and customer support. Metrics that go into CLV include customer churn rate, average customer lifetime value, average gross margin, etc
Understanding what metrics support your KPIs will help you quickly respond to fluctuations and get you closer to achieving your monthly, quarterly, and yearly business goals faster, as long as you have the right systems in place. Managing KPIs and metrics with Excel is time-consuming and frankly, not going to get you anywhere. Which leads us to another key distinction between KPIs and metrics: the tools you need to build and manage them effectively.
Proactively Track KPIs and Metrics with Reporting and Business Intelligence Solutions
Similar to KPIs and metrics, reporting and business intelligence (BI) have a tendency to go hand in hand. Most likely because they are all essential to the success of your business operations. Reports, like metrics, are used to track all areas of the business, while BI and KPIs target critical areas of performance. If you want to build a performance-driven culture fueled by data and insight, it all boils down to having a good reporting and BI solution.
Once you have your KPIs and metrics defined for your business, these built-in systems will do all the heavy lifting for you. Most businesses are familiar with reporting solutions available for their ERP, but not necessarily BI. Luckily, cloud and business analytics over the last few years have made BI systems readily available to businesses of every industry and size. BI solutions work by gathering the most up-to-date information across your entire operations and transforming it into an easy-to-digest format that helps drive instant decision-making and process adjustments. Through intuitive, streamlined reporting and simple dashboards, BI can be used by everyone from your admin team to your executive team, giving you the tools you need to improve budgeting, support forecasting, and make better financial decisions.
A solution like Jet Reports is built to analyze large amounts of data from your Dynamics ERP system that generates real-time reports, while also producing powerful analytics that will help you regularly examine your performance and act on accurate data. Comparable to KPIs and metrics, the best way to take accountability for your performance is through the use of reporting and BI analytics together.