Foundations of Data Analytics

What is the Difference Between KPIs and Metrics?

Introduction

The difference between Metrics and Key Performance Indicators (KPIs) is one that many find confusing. Do you also find it confusing? Well, this article will decipher the distinction for you by threading a practical and situation-based example throughout.

We’ll start by looking at the two concepts individually, then understand how they work together and ultimately conclude if KPIs should precede Metrics, or otherwise.

For the purpose of this article, we will be looking at an example of Marketing KPIs and Metrics for an e-commerce business goal of increasing website visits by 20% in the next quarter.

What are KPIs?

KPIs are defined as quantifiable measures that indicate the progress towards any business goal. They are strategic in nature and highlight the big picture for the manager.

KPIs answer the question, “Are we reaching the business goal?”

Ideally, for every business goal there should not be more than 4 KPIs. Since the purpose of KPIs is to narrow the focus on goal associated metrics only, having more than four KPIs may not add any value to the analysis.

What are Metrics?

Metrics, or Business Metrics are also defined as quantifiable measures but are used to track all of an organization’s activities using quantitative or qualitative data. They are tactical in nature, i.e. they track the actual performance of activities taking place towards meeting the business goal. They are more focused on the journey of the activities.

Metrics answer the question, “How are we performing?”

 

 

The Relationship Between KPIs and Metrics

Now that we have clearly established what the two concepts mean, let us understand how they relate to each other. Although KPIs largely depend on the industry and the growth stage of the business, they are essentially a subgroup of all the Business Metrics.

Business Metrics, as mentioned earlier, are measures that quantify all the activities happening in the business. But are all these metrics indicative of the progress towards achieving the goal?

This is where KPIs come into the picture. As KPIs are closely related to the business goals, metrics that communicate direct progress towards a business goal qualify as key performance indicators. Thus even though all KPIs are metrics, all metrics do not qualify as KPIs. Like the example above, while there are many marketing metrics to track in the given scenario, the KPIs are just a handful out of those metrics.

 

What is More Important, KPI or a Metric?

The next obvious question that comes to our mind is, what is more important, KPI or Metric? The answer is, both.

Being indicative of meeting the business goal, it is natural to conclude that the scales tip more towards KPIs; but that is incorrect. Both are equally crucial for a thorough business analysis. Let’s see why.

While KPIs indicate the progress towards a business goal, metrics play the role of providing data to analyze any problem/scenario from all aspects.

In the example above, we detected the problem with the help of a KPI (Traffic generated through emails). To dig deeper and have a 360-degree approach, we look at the data provided by the supporting metrics. Thus KPIs and Metrics need to be combined for proper data analysis.

 

Ideal Sequence

The first and foremost step is determining the business goals. Once the goals are clearly defined, we can then move on to set KPIs based on these business goals. Since KPIs are measures that matter the most, setting them before tracking all the metrics is the best way to optimize the resources and save time. Metrics can then be tracked based on these KPIs.

Metrics play the role of tracking all that is measurable. It can be very distracting and less productive to measure everything if the KPIs are yet to be defined.

In our example above, we incorporated the sequence by first understanding the business goal, then setting KPIs and ultimately listing out the metrics to track based on the KPIs.

As the saying goes, “Not everything measurable is good”. Determining KPIs before tracking metrics is an ideal way of going about the process because it eliminates the possibility of tracking vanity metrics (those that are invaluable and non-actionable).

Conclusion

KPIs and metrics go hand-in-hand. While one is strategic, the other supports it tactically. Understanding the difference between the two is important because KPIs and Metrics play a vital role in business analysis. While KPIs measure the performance, Metrics highlight issues that may otherwise go unnoticed.

Now that you know the difference between the two, check out more tutorials on Data School to understand how to incorporate dashboards to track KPIs and Metrics.

 

About Gargi Shirish Joshi

Hello readers! I am from India, currently studying dual masters in international business and business analytics from Hult International Business School in San Francisco. I am passionate about numbers/data and hence working with Chartio as a content marketing intern for data analysis at Data School. Keep learning!