Performance Metrics | Meaning and Definition

What is Performance Metrics?

Performance metrics are those indicators that help to track the processes in the business. It is achieved by employee performance and productivity.

It is considered one of the most important tools to measure organizational performance. Analyzing organizational performance may be tricky and time-consuming sometimes but it is necessary to analyze it.

Performance Measurement Necessities

The performance measurement necessities are the same whether you are measuring the performance of business sector, service sector or laboratory variables. Together they constitute the whole measurement plan.

  • Definition of Purpose- What is the purpose of measuring performance metrics? What process or variables are being measured? For what purpose the resulting data will be used. The purpose can vary according to the need. The data can be used for research purposes or to design out the growth plan.
  • Statement of the required measurement performance indicators- The performance measurement indicators may vary depending on the need. It can be accuracy, precession or resolution. These are well maintained standards used to measure actual performance.
  • The unit of variable being measured- It states the reason for why the particular variable is being measured. It supports the purpose of measuring particular variables.
  • Operational definition- A detailed and clear description of the performance measurement process.
    Example- An operational definition for the measurement of success of marketing plan might be “ The revenue brought by the marketing plan in a particular period of time”
  • An analysis plan- An analysis plan is to be made based on various metrics. Analysis can be made on various criteria based on the organization. The data of the current month can be compared with the previous month or the top performing month to analyze the improvement and success.

Control Chart- A control chart is a simple analysis plan template. It provides a graphical representation that shows the continuity of changes over the time period plus some extra analysis (control limits) that enables the viewer to easily differentiate between variations occurring and results.

Why track Performance Metrics?

There are various reasons to track performance metrics of an organization. Some of the reasons to track performance metrics of an organization are:

1. To take essential business decisions

It is important to track performance metrics of an organization in order to take essential business decisions. These decisions are related to the growth and performance of an organization.

In order to take business to the new heights it is necessary to track the performance metrics.

2. To achieve organizational goals

Performance metrics are key indicators to achieve the goals of an organization. Organization as a whole has certain goals to achieve in a certain period of time. To achieve these goals it is essential to track the performance metrics.

3. To measure employee performance

In order to measure the performance of the employee regularly it is essential to track their performance metrics. This helps the management to take strategic decisions for employees based on their performance. These decisions include promotion or appraisal of employees, suitable training plans for employees who are underperforming.

What is the difference between KPIs and Performance Metrics?

KPIs refers to Key Performance Indicators are the metrics by which you determine various strategic business decisions. KPIs act as a measurable benchmark against defined goals. KPIs can be of multiple metrics.

For example if the goal of the business is to increase the sales by 25% over the next quarter the KPIs may include new customer acquisition, upsell and cross sell rate, low churn out rate etc.

KPIs measure progress towards specific goals metrics or performance metrics are measured towards overall goals of organizations.

Some of them may be referred to as vanity metrics. 

For example you might track the website traffic as a metric but unless it is tied to a specific area it is a metric not a KPI.

What types of Performance Metrics should be tracked?

Businesses use various metrics to measure various aspects of business performance.

These metrics can be grouped into four categories:

  • Business Performance
  • Sales Performance
  • Project Management Performance
  • Employee Performance

1. Business Performance

Business Performance metrics help us to assess the performance of the business. This is in sales, marketing, content, product team and overall profitability.

These metrics help businesses make various strategic decisions to boost performance and growth.

It also focuses on productivity with overall growth.

2. Sales Performance

  • Sales performance metrics include sales action, lead generation and lead retention
  • Lead Generation- Lead generation metrics are important to track the performance of business as it helps to track sales and new customer acquisition of business.
  • Sales Productivity- They are used to track the rate at which a salesperson or team meets the revenue goal. Sales performance metrics are tracked using various tools.

The performance of the sales team as well as the individual salesperson is measured.

This helps the business to measure the underperformance and overperformance of the organization.

3. Project Management

These metrics are used to measure the performance of an individual project. Any action necessary for the project is implemented based on these metrics. The data compiled can be used to make projects even more efficient in the future.

A project manager tracks performance metrics from key areas including:

  • Productivity- Tracking productivity provides data to assess various information including project completion rate, work-in-progress, days left etc.
  • Cost- Cost metrics are performance indicators that help to track the cost incurred on a specific project within a specified time.
  • Gross Margin-  Gross Margin refers to the difference between the revenue earned from the project and cost incurred on the project.

   Gross Margin=  Total Revenue- Total Expenses

4. Employee Performance

It is essential to measure employees’ performance as the organization’s performance depends on how employees perform.

Therefore these metrics can show you how to take necessary actions if an employee is not performing or underperforming.

You can measure the employee performance by their quality, efficiency and productivity of work.

Overall performance of a business is analyzed and measured using these four key performance metrics- business performance, sales performance, project performance and the most important employee performance.