Operational metrics and key performance indicators (KPIs) allow a business to measure thestatus of its operations and strategies. Learn which KPIs to track and what they can tellyou about the health of your operations.
What Are Operational Metrics?
Operational metrics are indicators that measure a business’s performance. These numbersprovide a snapshot of key processes like production or sales calls.
Operational metrics tracking shows how well the company performs these processes. The datamay measure efficiency, productivity or quality. For production, this might be unitsmanufactured per day or week. For sales calls, it could be calls per hour per employee. Forcustomer service, it could be how often issues are resolved on the first attempt.
Key takeaways:
- Businesses need both operational metrics and KPIs.
- Evaluate operational performance by comparing KPIs to objectives.
- Dashboards make it easy to see how efficiently a company is functioning.
What Is an Operational KPI?
An operational key performance indicator (KPI) shows how well a company executes itsday-to-day work.
Often, a company tracks operational KPIs in real time. Performance on these KPIs affects thecompany’s competitive position and profitability. Operational efficiency KPIs provide a wayto determine if a company is controlling costs and not wasting time, materials and labor,which is at the heart of operational efficiency.
Difference Between Strategic KPIs and Operational Metrics
Metrics and KPIs are often conflated, but they’re not the same thing. Metrics refer to anydata a company watches to understand its performance and perhaps improve. KPIs are aspecific category of metrics that are of particular interest to the organization, and theyusually have clear goals, which is not always the case with metrics. All KPIs are metrics,but not all metrics are KPIs.
More specifically, operational metrics give nearly real-time feedback on the business, whilestrategic KPIs show progress toward big-picture goals over time. Businesses need to watchboth. Operational metrics are often tied to processes that are critical to a company keepingits doors open and remaining solvent. Certain operational metrics could be tied to strategicKPIs that upper management and executives will pay attention to. They could include hiringworkers, producing goods and delivering orders to customers.
Strategic KPIs shift more slowly as a company executes and shifts its long-term strategy.Changes may only become visible over quarters or years.
Why Tracking Operational Metrics Is Important
Tracking operating metrics is critical for businesses. They show how core operations arefunctioning as they happen. The most important KPIs for an operations department can revealmajor problems so a company can quickly correct them.
If trends are negative, leaders can dig deeper to understand why. Then they can make changesto turn the issue around. If the operational metric is positive, operations managers can domore of what works. That can make the business more efficient and profitable.
How to Evaluate Operational Performance
Use a four-step process to evaluate operational performance.
- Pick meaningful KPIs for operations. You can gather them into a dashboard of operationalmeasures for an instant view.
- Identify your current performance.
- Compare them to your goals. Does this performance meet your objective?
- If the answer is no, dig deeper. Find out which aspects of the operation areunderperforming.
Andy Neely, author of Business Performance Management, concluded five key areasaffect business performance: quality, speed, flexibility, dependability and cost. Neely saidthose areas could guide evaluation in fields such as supply chain and government.
The most prominent evaluation methods are balanced scorecard and objectives and key results(OKRs).
Balanced Scorecard
The best-known evaluation tool is the balanced scorecard, a framework David Norton and RobertKaplan introduced in 1992. It looks at four areas of a business — learning and growth,processes, customers and finance. Companies can use operational metrics to quantifyperformance in these areas.
Objectives and Key Results
Objectives and key results (OKRs) is an alternate method that has grown increasingly popularrecently. OKRs originated with the concept of management by objectives, created by PeterDrucker in the 1950s. Intel integrated this into OKRs in the late 1960s, and Google adoptedthe system early in its history. Since then, the use of OKRs have become more widespread inthe tech industry.
With OKRs, businesses set a target — the objective — that directs where they want to go.Instead of numbers, they use themes such as growth through acquisitions. Key results aremeasurable outcomes needed to achieve the objective. For example, identifying fiveacquisition targets.
Initiatives are the work that will lead to the key results. For example, an initiative mightbe to set up a team to research acquisition targets.
Key Operational Metrics by Department
Leaders can assess performance objectively with key operational metrics. Each industry anddepartment look at different metrics related to their work to measureoperational performance.
The data from metrics helps managers spot problems and correct them early. Using the rightmetrics enables better decision-making. The operations management metrics examples belowlook at the most important KPIs in different domains.
Marketing Operations KPIs
Marketers use KPIs to see if their efforts to appeal to prospects and customers areeffective. Metrics show the cost of attracting a prospect and converting them into acustomer. Marketing KPIs also quantify how much value themarketing team adds to the business.
Marketing operations cover the activities of the marketing team. But marketing operations arealso a function within the team. The role manages technology and coordinates the team’sprocesses. A marketing operations specialist acts like a project manager.
Cost Per Click (CPC)
In online advertising, this shows how much the advertiser pays on average when a user clickson the company’s pay-per-click ad.
Cost per click = Ad campaign cost indollars / Total number of clicks
CPC Example: A lawn mower maker runs an ad campaign on a search engine. Thecompany targets people who search for the term “best electric lawn mower.” The companyspends $1,000 running its ad. About 650 people click on the ad.
CPC = $1,000 / 650 = $1.54
Cost Per Acquisition (CPA) / Customer Acquisition Cost (CAC)
This KPI measures how much you spend to get a new customer. A customer can be defined assomeone who made a purchase or took another action, such as filling out a form. CPA looks atthe cost per buyer. CPC only measures if the user clicked on an ad, not what they did afterthat.
Cost per acquisition = Ad campaign cost /Total number of new customers
CPA/CAC Example: A company that sells budgeting software runs an online adcampaign that costs $10,000. Out of a total of 5,000 people who click on the ad, 3,250 signup for the software.
CPA = $10,000 / 3,250 = $3.08
Return on Advertising Spend (ROAS)
This shows how much revenue comes in per dollar you spend on advertising. If you track ROASper campaign, you can see which ads and campaigns drive the best results. Your target forROAS will vary based on your profit margin and costs. A common goal is for every dollarspent on advertising generate at least $4 of revenue.
Return on advertising spend = Revenue /Advertising cost
ROAS Example: A retailer promotes sweaters with emails and pay-per-clickadvertising. The campaign costs $40,000. This includes costs like staff salaries and adplacement. By tracking clicks, the retailer sees customers buy $280,000 in sweaters andother items.
ROAS = $280,000/$40,000 = 7
Time to Payback
This KPI quantifies the months it takes to make back money spent on acquiring a new customer(the customer acquisition cost discussed earlier). When you hit the payback point, you breakeven. Software-as-a-service (SaaS) companies use this metric frequently, and all companieswant to hit the payback point quickly.
If it takes a long time to reach payback, either your CAC is too high, or revenue percustomer is too low. This indicates you should make changes to move those numbers in theright direction.
For subscription-based companies, the formula is as follows. Other companies would usecustomer lifetime value and length of relationship in months instead of annual recurringrevenue and 12 months:
Time to payback = CAC / [(Annual recurringrevenue per customer / 12 months) x gross margin]
Time to Payback Example: A video gaming platform spends $100 acquiring a newcustomer. A customer spends $250 on average a year in subscription fees and in-gamepurchases. The company has a gross margin of 75%.
Time to payback = $100/[(250/12) x 0.75]= 6.4 months
Marketing-Originated Customer Percentage
Marketing-originated customer percentage shows how much new business stems directly from yourmarketing. You measure the ratio of new customers that began as a lead developed bymarketing. This number compares marketing success to methods such as cold calls.
Marketing-originated customer percentage=
Number of marketing-originated customers / Total customers x 100
Marketing-Originated Customer Percentage Example: A computer manufacturerhas an active marketing department and sales teams. Its CRM software records how eachcustomer enters its pipeline. In a year, 3,500 new customers come in via marketing. Another11,750 come from sales. The total number of new customers is 15,250.
Marketing-originated customer percentage =3,500/15,250 = 23%
Retail Operations KPIs
Retailers track KPIs for sales, inventory, pricing and profitability. Doing this in real timehelps them spot problems quickly and can prevent unnecessary costs and wasted time.
Learn how retailers are adapting operations to achanging competitive landscape in this article.
Stock Turnover Rate
This KPI measures how well a retailer manages its inventory. The rate shows how many times aretailer replaces inventory in a year. Product cost and shelf life play a role in this — forexample, milk turns over more than new cars do. But low turnover can signal inventory orpricing problems. (For more on inventorymanagement KPIs and metrics, see this guide.)
Stock turnover rate =
(Cost of goodssold / [(Beginning inventory + ending inventory) / 2]) x 100
OR
Stock turnover rate = [(Average inventoryvalue / Cost of goods sold) x 365] x 100
Stock Turnover Rate Example: A musical instrument store’s cost of goods soldfor the year was $850,000. Its starting inventory was $2 million. Ending inventory was$500,000. It turned over 68% of its inventory.
Stock turnover rate = $850,000 /[($2,000,000 + $500,000)/2] x 100 = 68%
Sell-Through Rate
This metric shows how much inventory has sold as a percentage of the amount bought fromsuppliers in a month. The number tells a retailer if its inventory levels are too high ortoo low. A high sell-through rate can also mean the price is too low. You can calculate thison a unit or dollar basis.
Sell-through rate = (Sales in month/Monthbeginning inventory) x 100
Sell-Through Rate Example: A bicycle store started the month with 200 bikesin stock. It sold 50 bikes.
Sell-through rate = (50 / 200) x 100= 25%
Average Order Value/Average Purchase Value
This number gives a retailer information on how much its customers spend in a singlepurchase. The retailer can use these insights to adjust marketing, pricing and inventory.
Average order value/Average purchase value= Total sales / Total transactions
Average Order or Purchase Value Example: A candle retailer has $350,000 intotal sales in a month from 15,000 transactions.
Average purchase value = $350,000/15,000= $23.33
The next month the retailer launches a promotion. Customers who buy three candles get onefree. Sales totaled $750,000 from 15,000 transactions. Customers liked the promotion andbought more.
Average purchase value = $750,000/15,000= $50
Sales Year-Over-Year
This KPI shows if sales are growing and is a critical measurement of a company’s health andcan help shape its priorities moving forward.
Sales year-over-year =
[(Sales thisyear – sales for the same period last year) / Sales for last year] x 100
Sales Year-Over-Year Example: A hardware store sold $2 million worth ofgoods in September last year. A hurricane struck the community this August. In September,residents bought building supplies to repair damaged structures. Sales totaled $4 million.Sales grew 100% year-over-year in September.
Sales year-over-year = [($4,000,000 –$2,000,000) / $2,000,000] x 100 = 100%
Human Resource Operations KPIs
Human resources (HR) departments use KPIs to assess worker productivity and job satisfaction.These metrics also shed light on quality and company culture.
Absenteeism Rate
This KPI measures unexcused worker absences. Absenteeism does not include approved sick daysor vacation.
Staff may be absent due to family problems, drug/alcohol issues, burnout or job hunting.Partial absences include late arrival, early departure or extended breaks. Absenteeismdisrupts normal operations and can harm trust. It may signal a need for culture ormanagement change.
Absenteeism Rate = [(Average number ofemployees in period x missed workdays) / (Average number of employees x total workdays)] x100
Absenteeism Rate Example: A lumber mill started the month with 75 employees.It hired five people during the month. One worker retired. At the end of the month, it had79 employees. Average those by adding the start and end numbers, then divide by two to get77.
Then count the number of workdays in the month. In this example, there were 22.
Now determine lost workdays due to absenteeism. One employee missed two days, and anothermissed one day. A third worker left four hours early one day (half of an eight-hourworkday). The total time missed is 3.5 days.
Absenteeism rate = [(77 x 3.5) / (77 x 22)]x 100 = 15.9%
Overtime Hours
Many countries, including the United States, have laws around overtime work, or hours beyondthe standard workweek. In the U.S., employers must pay workers 1.5 times regular pay after40 hours in a week.
In many fields and for most salaried staff, unpaid overtime is common. Calculating overtimepay is complex. State and industry-specific laws, as well as union contracts, all play arole. The easiest way to prevent mistakes is payroll software. Make sureall staff use the system to track work hours, so you know when overtime costs are rising.
If overtime is excessive, you may need to hire more workers. Or this may signal a need fornew workflows or cross-training staff.
Average weekly overtime = Weekly totalovertime hours / Weeks in period
Overtime Hours Example: An insurance company employs 500 claims processors.Usually, 10 to 20 workers claim overtime hours each week. An HR specialist adds up overtimehours in the quarter. The total is 784, and a quarter has 14 weeks.
Average weekly overtime = 784/14 = 56 hours
The insurance company sees overtime averages more than 40 hours. This means it has enoughwork to justifying hiring at least one more claims processor, and would be more economicalthan paying overtime.
Employee Turnover Rate
This KPI tells you how frequently staff leave your company. Compare your rate to that ofsimilar companies to see if it’s unusually higher, which can indicate problems in your workenvironment. High turnover may be a sign of poor work-life balance or bias, or your salariesmay lag competitors’. High turnover is especially worrisome when it affects key personnelsuch as those with technical skills. Even if turnover isn’t high, understanding the typicalhiring needs of the business helps HR improve recruiting.
Employee turnover rate =
(Number ofemployees leaving / Average total number of employees) x 100
Employee Turnover Rate Example: A consulting firm employed an average of 360employees in the year (starting number plus ending number divided by two). During the year,the firm lost 17 consultants.
(17 / 360) x 100 = 4.7%
Employee Efficiency Metrics
Employee efficiency metrics measure worker productivity. Looking at volume is part of this.But quality counts too. For example, a support desk worker may handle a high number ofcalls, but if they resolve very few of the issues, they were not truly efficient.
Common efficiency KPIs include:
- Average time to complete a task
- Percent of tasks completed within goal time
- Error rate
- Revenue per employee
- Volume of simultaneous tasks
- Resolution rate
Let’s break down the average time to complete a task.
Average task time = Total task times /Number of repetitions
Employee Efficiency Metrics Example: Using specialized machinery, a foundrymakes iron castings to precise customer specifications. The foundry sets a maximumacceptable defect rate of 1%.
Software records how long workers take to set up the casting equipment. Only production runsthat meet the quality standard are included. Over a year, 12,000 setups take 276,000minutes.
Average task time = 276,000/12,000 = 23 minutes
The foundry can use this benchmark to assess worker efficiency.
Quality of Work Metrics
Quality can be hard to translate to numbers. For jobs where accuracy is important, error anddefect rates can help measure quality.
In other roles, employers may judge quality based on customer, peer, manager and subordinatefeedback. A company might ask a customer if they would refer friends to the person. That isa variation of the Net Promoter Score, a trademarked metric.
A business could judge a middle manager’s work quality by how well she prioritizes her timeand projects.
Error rate = (Number of errors / Number ofinstances) x 100
Quality of Work Metrics Example: A package delivery firm wants every parcelto go to the correct address. The company assesses driver quality partly on delivery errorrate. It sets a 3% error rate as the highest it will accept.
In a month, a driver delivers 3,500 packages. Of those, 103 go to the wrong addresses. Two ofthose do not count because they had the wrong addresses and were not the driver’s fault.
Error rate = (101 misdelivered packages /3,000 packages delivered) x 100 = 3.4%
That means the driver exceeded the acceptable error rate this month.
Sales Operations KPIs
Many companies depend on sales teams to generate revenue. KPIs track how effectively salesdepartments and sales representatives drive revenue.
Deals Closed YTD
This metric looks at how many sales occurred in the year to date. The manager compares thisto prior years’ numbers for the same period to determine if the number of sales are risingor falling. The year-to-date figure can be dollars or units.
Deals closed YTD = Quantity or value ofdeals for month + Quantity or value of deals for all other months in period
Deals Closed YTD Example: At the start of March, a car dealership adds upthe number of cars sold in January to the number sold in February for the sales year todate.
120 sold in January + 175 sold in February = 295cars sold YTD
Number of Customers
These metrics demonstrate the potential size of a market or the rate at which existingcustomers stop doing business with you.
Customer base shows how many current customers a company has. You can easilycount the number of current customers. Then define the target audience by geography andother attributes by looking at the characteristics of your current customers. This requiresresearch and some assumptions. The process varies by product and industry, so there is noone formula for this metric.
Number of Customers Example: A pizza restaurant is considering a secondlocation. Its current location draws diners mostly from a 10-mile radius. Families withchildren and income of $80,000 or more frequent the restaurant. The business serves about37,000 diners a year, which is about 20% of the population of 185,000 in the 10-mile radius.
The owners look at census and school district data for neighborhoods that do not overlap withthe 10-mile radius of the first pizzeria to select a spot for a second location. They focuson an area mostly populated by young middle-class families, which has a population of225,000 within a 10-mile radius. Applying the 20% standard from their first restaurant, thepotential customer base is 45,000.
Customer churn rate: This is the rate at which customers stop doing businesswith a company in a specific time period. This is an important metric for subscriptionbusinesses.
In this formula, you do not count any sales to new customers during the period. You want tomeasure attrition of current customers.
Customer churn rate = [(Customers at start– customers at end) / Customers at start] x 100
You can also use dollar revenue for this calculation.
Customer Churn Rate Example: A wine club company had 1,500 customers at thestart of the month and 1,350 at the end.
Churn rate = [(1,500-1,350)/1,500] x 100= 10%
Number of Opportunities
This KPI is the total number of accounts or people that meet the characteristics of yourtypical buyer. Employees usually need to communicate with the lead to determine if it isqualified.
A sales rep will ask if the potential customer needs the product and has an interest in it.Is it a good fit? For example, is the complexity and cost reasonable for the lead’s budgetand capacity? Does the product solve any of the buyer’s problems? If the answer to any ofthese is no, the lead is no longer qualified and the account stops being an opportunity.
To calculate the number of opportunities, add up the qualified leads in the pipeline orsubtract disqualified leads from qualified leads.
Number of Opportunities Example: The sales manager of a company that makessecurity systems for large buildings looks at each rep’s pipeline. The manager sees a totalof 4,000 accounts near the top of the funnel.
Of these, 3,800 plan to break ground on a building in the next six months. That is thetypical buyer profile. Among them, 3,730 of the building projects have a budget of $10million and above. But only 3,660 have a need for sophisticated security (those that do notare disqualified).
Opportunities = 3,800 – 140 = 3,660
Lead-to-Opportunity Ratio
This metric compares total leads to qualified leads. The number indicates if your marketingtargets the right customer. It also tells if leads who are unlikely to buy clog the salesfunnel.
Lead-to-opportunity ratio = (totalopportunities/total leads) x 100
Lead-to-Opportunity Ratio Example
A company that manufactures commercial espresso machines has 250 inbound leads in its salesfunnel from people that filled out a form on the website asking for a brochure. There areanother 175 outbound leads. Sales reps called these accounts, and they want to learn more.
During the qualification process, it turns out that 90 of the leads cannot afford the$17,000-plus price tag. Another 30 do not have sufficient counter space. That leaves 335qualified leads or opportunities who plan to buy a machine and fit the buyer profile.
Lead-to-opportunity ratio = (305 / 425) x100 = 71.8%
Lead Conversion Rate
This KPI measures the percentage of leads that result in a deal.
Lead conversion rate = (Deals in period /Leads in period) x 100
Lead Conversion Rate Example: The espresso machine maker in the priorexample conducts demonstrations and espresso tastings with the 305 accounts. This persuades212 of them to make purchases.
Lead conversion rate = (212 / 335) x 100= 69.5%
Logistics Operations KPIs
Logistics managers use KPIs to gauge the efficiency of key processes. These include varioussteps in the supply chain, including transportation, warehousing, distribution and delivery.
Delivery Time
Getting orders to customers quickly is vital. Knowing how long it takes from order todelivery is the first step. A company can use this information to provide an expecteddelivery date, which can help the customer decide whether to purchase the item.
Going forward, the company needs to track on-time delivery (OTD). This measures how manyorders arrive when promised.
On-time delivery = (Number of on-timeorders / Total number of orders) x 100
Delivery Time Example: An after-market auto parts manufacturer promisesorders will be delivered in three days. Of 4,065 orders in the month, 75 are late. Thatmeans 3,990 are on time.
On-time delivery rate = (3,990 / 4,065) x100 = 98.2%
Bear in mind that numbers can hide problems. For example, order processing took longer thanit should, but the company upgraded to express shipping to deliver the products on time. Theon-time rate looks good, but the extra expense is an issue.
Transportation Costs
Freight cost per unit shipped is the most important metric.
Freight cost per unit = Total cost / Numberof units
A company should track this metric for each of its product categories.
Transportation Costs Example: A furniture company makes dining room tablesand chairs. It sells sets as well as tables and chairs separately. Shipping costs for 226sets were $118,000 last year, while costs for 298 chairs were $33,972.
Dining room set freight cost per unit =$118,000 / 226 = $522
Chair freight cost per unit = $33,972 / 298= $114
Order Accuracy
This metric looks at how common mistakes are in orders. This includes wrong and missingitems, as well as address errors. Errors are not only costly, but disappoint customers.
Order accuracy = (Number of orders withouterrors / Number of orders) x 100
Order Accuracy Example: A rug manufacturer fulfilled 7,800 orders in a year.Of those, 681 had an accuracy issue such as wrong color, style or quantity. That means 7,119were accurate.
Order accuracy = (7,119 / 7,800) x 100= 91.3%
Capacity Utilization
This number demonstrates how much transportation, storage or other capacity a company usesout of the total resources available. Low capacity utilization represents waste.
Capacity utilization = (Capacity used /Total capacity available) x 100
Capacity Utilization Example: A company’s 150 trucks can hold 50,000 poundsof product each. In the month, 983 shipments totaled 36.4 million pounds or an average ofabout 37,000 pounds.
Capacity utilization = (37,000 / 50,000) x100 = 74%
Inventory Accuracy
Inventory accuracy is an indicator of how closely inventory records match what is actually onthe shelves. You can measure this in dollar terms, location and units. Each looks at thevariance as a percent of the total.
Inventory accuracy = [1– (Variance /Reported number)] x 100
Inventory Accuracy Example: An ecommerce company does a physical inventorycount. It finds 250 units of a certain SKU. The inventory system says there should be 273 ofthis SKU, a variance of 23.
Inventory accuracy = [1 - (23/273)] x 100= 91%
IT Operations KPIs
IT operations metrics look at the frequency of technology issues and their duration. Theyalso show how quickly technicians respond to problems.
Total Tickets vs. Open Tickets
This metric compares the total number of trouble reports to those still outstanding at theend of a period.
Total tickets vs. open tickets = (Number ofunresolved issues / Total issues over time period) x 100
Total Tickets vs. Open Tickets Example: A corporate help desk gets 2,450calls in the month it launches a new time-tracking system. At the end of the month, 833tickets are still open.
Total tickets vs. open tickets = (833 /2,450) x 100 = 34%
Ticket Response Time
Ticket response time calculates how long users have to wait on average after reporting aproblem before a technician responds, excluding automated responses.
Ticket response time = Total time elapsedbetween report and response / Number of reports
Ticket Response Time Example: Depending on the volume of issues, a help desktakes from a minute to two days to respond. In the month, users contacted the help desk3,487 times. They waited a total of 52,305 minutes.
Average ticket response time = 52,305minutes / 3,487 tickets = 15 minutes
Resolution Rate / Average Handle Time
These KPIs look at how frequently and how quickly technicians fix problems.
Resolution rate calculates how many tickets are resolved in a set a period of time.
Resolution Rate = (Fixed tickets / Receivedtickets) x 100
Resolution Rate Example: A support agent gets 78 tickets in one day. At theend of the date, 71 are closed.
Resolution rate = (71 / 78) x 100 = 91%
Average handle time (AHT) is most often used in call centers. It measures the average lengthof time spent talking and on hold, plus after-call actions the agent performs.
Average handle time = (Talk time + holdtime + after-call tasks) / Total number of calls
Average Handle Time Example: An agent handles 748 calls in a month. A total3,304 minutes are spent on hold. A further 4,920 minutes are spent talking. Then the agentspends 2,992 minutes when she hangs up making notes in the system and doing other tasks, fora total of 11,216 minutes handling calls.
Average handle time = (3,304 + 4,920 +2,992) / 748 = 15 minutes per call
Mean Time to Recover (MTTR)
This metric represents the average length of IT outages. This covers the time from the firstreport until the system is fully operational again. That includes diagnosis, repair andtesting.
MTTR = Total minutes from failure torecovery / Total number of incidents
MTTR Example: A company’s network was down a total of 803 minutes in amonth. There were 14 outages.
MTTR = 803 / 14 = 57.4 minutes
MTTR can also stand for mean time to repair. This is similar to mean time to recover, exceptthe clock does not begin until repair work starts. In the above example, let’s say it took105 minutes for technicians to respond, then 250 minutes to diagnose, and repairs lasted 448minutes.
Mean time to repair = 448 / 14 = 32 minutes
System/Technology Downtime
This KPI indicates system reliability. It represents the percentage of time that the systemwas not working.
The inverse of this shows the uptime percentage, or the percentage of time the system wasworking.
Percentage downtime = (Total seconds orminutes of downtime in period / Total seconds or minutes in period) x 100
Technology Downtime Example: An ecommerce website goes down during a busyholiday shopping period. Over seven days, the site was down 5,867 seconds. In the sevendays, there were 604,800 seconds total.
Percentage downtime = (5,867 / 604,800) x100 = 0.97%
KPI and Metric Management Through Business Dashboards
A business dashboard gathers KPIs in a central place. Teams can use interconnectedoperational metrics and KPIs to manage and improve performance. Every dashboard shouldinclude metrics that measures progress toward a team’s main strategic goals, as well asindicators of real-time performance.
Types of Business Dashboards
Marketing Operations Dashboard
A general marketing operations dashboard includes customer acquisition cost, cost perclick, marketing-originated customer percentage, traffic sources, click-through rateand bounce rate.
Human Resources Operations Dashboard
An HR operations dashboard covers headcount, absenteeism, overtime recorded, turnoverrate, average time to fill a vacancy and compensation metrics.
Sales Operations Dashboard
Keep close tabs on sales by monitoring leads by source, win/loss ratio, opportunitiesby pipeline stage, average sales cycle duration and percentage of sales that are newbusiness.
IT Operations Dashboard
Cover average application load or response time, uptime, service-level agreement(SLA) performance, number of security vulnerabilities and mean time to repair.
Logistics Operations Dashboard
A logistics dashboard can monitor order accuracy, average delivery time, inventoryturnover, on-time percentage, transportation cost and volume of shipments.
Customer Service Operations Dashboard
This includes ticket volume, average response time, customer satisfaction rate,average handle time, percent resolution on first call and Net Promoter Score.
How to Select Operational Metrics KPIs
Operational metrics and KPIs help companies improve performance. By choosing the right KPIs,a company sees the true state of its business, which helps the organization make betterdecisions.
Technology has made data collection easier. As a result, many companies are inundated indata. Remember: KPIs are more than just data. They show business performance related themost important strategic objectives.
Tips for Selecting the Right Operational Metrics for Your Business
Organizations must identify the right operational metrics to track in order to realize thetrue value of this reporting. Here are tips to narrow down the list.
Make sure KPIs link to strategic businessgoals
Match KPIs to the organization’s most important goals. KPIs should help move theneedle on the things that matter most. Pick one or a few clear goals, then pick aKPI directly linked to them. The metric should make it clear where the companystands in relation to the goal.
Use both short- and long-term goals
Choose a mix of operational metrics and KPIs that shed light on immediate and moredistant objectives. Look at both near- and long-term objectives for balance.
Look at your industry
A B2B business and a consumer-packaged goods company will track different metrics. ASaaS firm will follow subscription metrics such as churn, while a brick-and-mortarretailer needs to know foot traffic or sales per square foot.
Make the metrics actionable
Pick metrics that will inspire people to action and can be improved. And make surethere are adjustments that will improve the KPI.
Measure metrics at the right frequency
Track operational metrics by hour, day or week. This will help the company see ifthere is an improvement or decline in its performance.
Make sure primary KPIs are easily measurable
Don’t pick a KPI that is difficult to track. If data is not readily available, staffmay estimate it and there’s a greater chance it’s inaccurate. And data gatheringcould require too much time and focus, so the KPI becomes a distraction.
(Video) How to Measure Innovation & Choose the Right KPIsLook at ranges and ratios
Set goals that aim for a percentage improvement or change in the ratio between twometrics. Fixed goals may turn out to be unrealistic or too easy. Alternately, teamcommitment drops when it hits a number. Percentage and ratio goals require staff tofocus on improving processes.
Provide broader context
Select metrics that you can put in context. This means having a basis for assessingthe numbers. For example, compare a sales rep’s close ratio to the team average. Orcompare customer satisfaction this month to last month. Industry benchmarks can alsoprovide context. This helps staff see that objectives are not arbitrary orunrealistic.
Track trends, not just numbers
Use metrics to see if the company is progressing. Look at the direction and speed ofchange over time. Is a move in the wrong direction a one-off event? The trend shouldbe improvement. If not, changes are in order.
Choose metrics appropriate for company stage
A mature multinational corporation should track different KPIs than a startup. Themature company might target small efficiencies because that will make a bigdifference given its large volume. The startup, on the other hand, needs to watchnumbers that ensure its business remains viable.
Ensure departments feel their KPIs are relevant
Pick KPIs that are meaningful to your target audience. The finance department needsmetrics specific to its activities, just as IT does. Ask for input from staff aboutwhich actions and metrics are most relevant to department goals.
Build simple, easily sharable dashboards
Use business systems and analytics tools to put KPIs into one graphical view. Thismakes trends visible in an instant, making it easier for employees to understand andincreasing the chances they monitor these numbers closely.
Educate everyone on their KPIs and all KPIs
Make sure all employees understand their own KPIs, as well as the top KPIs for thewhole company.
Keep KPIs limited to key metrics, not all metrics
The availability of data makes it tempting to try to track everything. But resistthat — too many metrics will devalue the effort and staff will lose focus.
Measure the ROI of KPI
Calculate the value of KPI changes. For example, show the increased revenue thatresulted from higher traffic to your website. This connects KPIs to the rest of thebusiness.
Roll out slowly and build advocates for KPIs
At the start, employees may worry metrics mean more work or that the company isconstantly looking over their shoulder. Start small and encourage staff to shareways that KPIs help.
Only use metrics that can be impacted
Do not set KPIs that staff have no control over. This sounds simple, but a commonmistake is targeting a KPI that a department cannot directly influence or thatdepends on macro factors. For example, do not ask the customer service department toreduce complaints about order mistakes.
Ensure the data is trustworthy
Confirm that the data really reflects what you think it does. Also, make sure thenumbers do not contain errors. Check that data collection is consistent. Dataanomalies due to collection errors can throw off KPIs.
Use both forward- and backward-looking KPIs
Track some KPIs that help forecast and others to gauge performance. Forward-lookingmetrics are data such as sales opportunities in the pipeline. Backward-lookingmetrics include profitability over the past year. Both are valuable, but don’toverlook the importance of metrics showcasing current performance.
Do not neglect quality and satisfaction metrics
Metrics on quality and customer satisfaction are harder to gather than quantitativeindicators. But to have a balanced view of its business, a company needs both.Qualitative measures include brand perception, Net Promoter Score and employeesatisfaction. Surveys and focus groups help a company track these items.
Avoid vanity KPIs
Resist the temptation to track metrics that impress but do not provide meaningfulinsights. An example of a vanity metric is app downloads. How many of those usersbecame paying customers? Similarly, page views do not mean much when the bounce rateis high.
Skip metrics that can be manipulated
Some numbers can be easily manipulated and are therefore not effective indicators ofunderlying performance. The number of sales calls made is an example of this — salesreps can make meaningless calls to boost this KPI.
Be careful about linking a KPI to an incentive
In some fields, pay bonuses or salary increases are always tied to metrics. But thismay lead some staff to juice the numbers. An example of this would be a car salesmanwho on the last day of the month sells a car below cost to meet a monthly target.Think carefully when using this incentive.
Try a system
A few methods of narrowing KPIs are available. The TIE system limits KPIs to thosethat are trackable, important and explainable. IPA is similar but focuses on thosethat are important and have potential improvement and authority (authority meansstaff has permission to improve them). AARRR, otherwise known as Pirate Metrics, isoften a relevant approach for new online ventures. It stands for acquisition,activation, retention, referral and revenue.
Don’t only measure financial and customer KPIs
Data related to sales and finance are the easiest to track, and many organizationsrestrict their KPIs to these areas. But other attributes may have equal or greaterinfluence on your goals, like employee satisfaction, safety, environmental andquality KPIs.
Beware unintended consequences
Think through your KPI selections carefully to make sure they will not backfire. Forexample, by making the employee retention rate a KPI, you could encourage managersto keep bad employees. Or a financial services company may target sales per branch,but to hit targets, employees deceitfully sell products to customers who do not needthem. An airline’s effort to increase on-time performance could prompt baggagehandlers to stop loading late suitcases. Ask questions such as: Could this sabotageanother result? Will this prompt anyone to game the system? Will this encourage aquick, short-term fix? Will it hurt cooperation? Will it create more waste? Couldthis embarrass anyone?
What Is Operational Excellence?
Operational excellence is when a business executes its strategy more consistently andeffectively than competitors. Companies seeking this type of excellence are always trying toimprove.
There is no agreed-upon definition of operational excellence. Lean management theory saysoperational excellence is when every person in the business can see how value flows to thecustomer and works to improve that delivery.
Other advocates say operational excellence is more of a mindset. Teamwork, problem-solvingand exemplary leadership drive continuous improvement.
Steps to Implement a Successful Operational Excellence System
To implement operational excellence, first establish meaningful KPIs and then improve thebusiness in ways that move them. Build processes and systems that drive improvement. Thegoals at the heart of the excellence drive must align with the KPIs selected.
Tracking key performance metrics for operational excellence is also critical. Withoutevidence of whether a change is working, the pursuit of excellence will fade, and dashboardsmake the impact easy to assess.
This case study on global consulting firm Prophetshows how they made progress on achieving operations improvement.
How to Track Operational Metrics
Tracking operational metrics requires having all the necessary information in an easilyaccessible format. That’s why it’s much easier to monitor all your metrics with all data ina single place. An ERP system that consolidatesinformation from across your business in a single database is usually the best way to reporton and track these metrics. Your ERP solution should be tightly integrated with accounting,supply chain, CRM, HR and ecommerce solutions, giving a company everything it needs tocalculate various departmental and company-wide metrics and KPIs.
Software can automate much of the actual reporting and analysis, as well. Users can selectwhich metrics they want to track and create dashboards that display these crucial numbers.As the ERP receives data, it will continuously update these dashboards so the business cantrack its progress and quickly identify any positive or concerning trends.
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How NetSuite Helps You Track Operational KPIs and Metrics
NetSuite’s cloud-based ERP system provides a comprehensive platform for tracking operationalmetrics and KPIs across the entire organization. With NetSuite Financial Management, financedepartments and CFOs have real-time insight into key finance data like recurring revenue,accounts payable (AP), accounts receivable (AR), billing and more. Meanwhile NetSuiteCRM provides key customer and sales data to produce metrics like Net Promoter Score,lead-to-opportunity ratios and churn, all tied directly to the financial system of record.
For product-based companies, NetSuite’s inventorymanagement software makes it easy to monitor metrics like turnover, delivery timeand more, while NetSuite warehousemanagement software helps ensure efficient warehouse operations. Together, thesemodules can help organizations reduce costs related to procurement, fulfillment and shippingwhile enhancing the customer experience.
Meanwhile, built-in business intelligence and analytics deliver real-time insights viametrics and KPIs that employees need with role-based, industry-based and customized dashboards.
All businesses, regardless of size or industry, should agree on and then start tracking theirmost important operational metrics. They give a company a deeper understanding of itsperformance and help leaders determine the success of various initiatives and address anyproblems holding it back. When an organization tracks operational metrics acrossdepartments, it can embrace data-driven decision-making, which will ultimately increase thechance it succeeds and grows.