Topic 4.2 · Evaluating Performance Using KPIs
Evaluating Performance Using KPIs
What KPIs are, financial, marketing and operations KPIs, and comparing performance against benchmarks.
20 min read Reviewed
Learning objectives
- 4.2.ADescribe key performance indicators (KPIs) used to evaluate business performance.
- 4.2.BDevelop or interpret financial and nonfinancial KPIs to monitor a business’s financial health and progress toward goals.
- 4.2.CExplain how businesses use benchmarks.
Objective statements © College Board, quoted from the Course and Exam Description.
A key performance indicator (KPI) is a data point used to measure performance, including progress toward short- and long-term goals and whether a strategy is working. Managers choose KPIs tied to their mission and goals, profitability and long-term competitiveness. The right KPIs depend on the business and its industry.
| Goal area | Example KPIs |
|---|---|
| Financial health | Revenue, gross profit, gross profit margin, operating profit, operating profit margin, COGS, operating expenses, cash flow |
| Marketing and sales | Customer acquisition cost, customer lifetime value, satisfaction ratings, retention, total sales, market share |
| Operations | Per-unit cost, delivery cost, order accuracy, % of deliveries on time |
Key terms
- Key performance indicator (KPI)
- A data point that measures performance, including progress toward goals and the effectiveness of strategy.
- Benchmark
- A reference point for comparing data to a standard, based on internal history or external industry standards.
- Market share
- A business's portion of total market sales.
- Customer retention
- The share of customers who keep buying over time.
- Order accuracy
- The share of orders fulfilled without errors, an operations KPI.
- On-time delivery rate
- The percentage of deliveries received on time, an operations KPI.
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