I read a lot about goals and it has always annoyed me when people use the terms metrics, KPIs and key results interchangeably, as if they all mean the same thing. In this video I'll try to create some clarity by explaining what each of these terms mean, how they differ and why many people confuse them. Let's start with metrics. The Oxford Dictionary defines a metric as a system or standard of measurement. Specifically for businesses, they use the definition a set of figures or statistics that measure results.
As you can see, the word measure is encapsulated in the term metric. Historically, that makes sense since the word metric is originally derived from the Greek word metron which means measure or something used to measure. In other words, a metric is a tool to measure something. Now, Let's say you want to measure the success of your product. There are different metrics you could look at to measure this, such as customer renewal rate or customer churn rate.
You could also look at monthly active users or net promoter score. If you want to measure the financial performance of your organization, you could use metrics such as EBIT, cash flow or burn rate. A metric will always have a current value, which is simply the value that your metric has at this moment.
For some metrics, the way the current value is calculated may differ from organization to organization. For example, when calculating the current value of your customer renewal rate, you could say customers that renewed this month divided by the customers that were up for renewal this month. But you could also say customers that renewed this month divided by the total number of customers.
Or you could say customers that renewed this quarter divided by the total number of customers. When calculating something like the growth of your website traffic, you could use Unique visitors this month divided by the unique visitors last month. But you could also look at unique visitors this month divided by the unique visitors in the same month last year. You could also look at sessions this quarter divided by the sessions of the previous quarter.
However you calculate the current value, it is critical that everyone who will be looking at it understands how it is calculated. Metrics are being used in both KPIs as well as QResults, which is probably where a lot of the confusion comes from. However, a KPI or a Key Result consists of more than just a metric, so you can't use the different terms as synonyms.
Let's have a closer look at KPIs. KPI is an abbreviation for Key Performance Indicator. While setting your KPIs, you are defining what the key areas of your business are, and you are using a metric as well as a target value to indicate how that key area is performing.
A KPI consists of the following elements. Metric, a current value, a target value and a title. The metric and current value we have already covered.
If you are a Purdue user, I recommend you to store the formula for the current value on the KPI itself. You can use the description field for this. The target value is the minimum or maximum value that you want that metric to have. The title should consist of the metric and the target value. Right above the title you can then display the current value.
and that's all the information someone needs to see what the KPI is and if the KPI is healthy or not. Now for more information about the anatomy of a KPI, check out the article in this video's description. As a side note, if something is designated as a key area of your business, it is likely something that you constantly need to work on and monitor.
In other words, it becomes your business as usual. Therefore, a KPI defines what is your critical business as usual, and it enables you to easily monitor how it is performing. Key results always belong to an objective. They kill two birds with one stone.
One, they remove ambiguity by clarifying and quantifying what success for an objective looks like. And two, they help you measure progress towards that objective. An objective usually has two to three key results, for the same reasons that a GPS needs two to three satellites to accurately pinpoint your location. Each Key Result is designed to positively impact a certain metric.
The anatomy of a Key Result is very similar to that of a KPI, except that a Key Result always has a target value that is different from the start value. Remember, a Key Result is designed to positively impact a certain metric. A Key Result consists of the following components.
A metric, a current value, a start value, a target value, and the title. Again, the metric and current value we have already covered. And, if you are a Purdue user, I recommend you to store the formula for the current value on the Key Result itself. Also here you can use the description field for that.
The start value is the value that your metric has at the start of a certain time frame. Again, it's really important that everyone understands how the start and target value are calculated. The target value is the value that you want that metric to have at the end of that time frame.
A good key result title bundles all the components of your key result. For example, a good title will be increase NPS from 20 to 40, where your metric will be NPS, your start value 20, and your target value 40. For more information about the anatomy of a key result, have a look at the article in the video description. Also here I have a side note. As you can see, a key result is anatomically a bit different from a KPI. Also, a KPI and a key result each serve a different purpose.
It therefore is important that you don't mix up these terms. It can happen that the metric used in a KPI is also used in a key result. For instance, when the KPI is above or below its target value. The article in the video description explains in detail how KPIs and key results can work together. To conclude, for results-driven organizations, metrics, KPIs, and key results are indispensable tools.
However, they can be slightly confusing since there is some overlap between them. A metric is a tool to measure something. A KPI is a tool to keep track of how a key area of your business is performing.
A KPI always contains a metric to measure the performance of that key area. And the key result is a tool to positively impact the performance of a certain metric. Therefore, a key result always makes use of a metric.
If you'll only remember one thing from this video, just remember that KPIs and key results make use of a metric, but they are much more than just a metric. We're very committed in developing content that truly helps anyone working with goals. So if you have any questions you'd like us to answer or topics you'd like more information on, leave a comment on this video. For updates, remember to subscribe to our YouTube channel.