The terms metrics, KPIs, and OKRs are often used by various resources for businesses out there. Some will say to focus on certain metrics while others will say to focus on a certain KPI or to develop OKRs for growth. But what do they all mean for your business? How do you use them? Which ones are most important? And so on…
Well, here we will dig deeper into these terms and try to uncover the mystery behind them.
What’s the difference between a metric and a KPI?
Metrics and KPIs are very similar but there are some distinct differences.
First, let’s look at what a metric is. A metric is anything that measures a process. So, a metric for a brewery could be how long it takes to brew a 15-barrel batch of beer. Another metric could be how many pints are sold in the taproom. And yet another metric is revenue for the month.
As you can see, a metric is just a measure of a process. In our above example, the time it takes to brew a 15-barrel batch of beer measures the brewing process. And the pints sold in the taproom and revenue are both metrics for the sales process. Of course, revenue has a lot of applications, but the sales process relies heavily on the revenue metric to measure that process.
Now, let’s look at KPIs. A KPI, or Key Performance Indicator and some people prefer Key Predictive Indicator, is a metric focused on targets and performance. So, it’s like a souped-up metric. The difference is that the metric that makes up a KPI is a guidepost for knowing whether a business is headed towards its goals or not. A KPI is a metric that is key to understanding the performance of the business and if you are able to predict future outcomes from this metric it’s even more valuable. KPIs tend to be chosen in a strategic way as well as something chosen to improve upon.
If you don’t have KPIs selected, some basic ones to look at are gross profit percentage and net profit percentage. Gross profit is excellent since it lets you know how much money you have left after cost of goods sold to cover your overhead costs. This is related to our post about pricing and how your price needs to cover your costs.
What about OKRs?
OKR, or Objectives and Key Results, is more a goal/objective setting framework that uses KPIs to measure success.
There are two main components to all OKRs – 1) Objectives and 2) Key Results.
Objectives are a lot like goals but much more specific, measurable, and time bound. Sometimes people will call objectives SMART goals. SMART being an acronym for Specific, Measurable, Attainable, Relevant, Timely. All of which are required for an objective but not necessarily for a goal. Sometimes you can have what some call BHAGs or Big Hairy A** Goal. This is a goal that is so big and crazy that it’s a big risk to go after, but the process, obtaining those objectives to reach that goal, is what a BHAG is all about.
Now, key results are ways in which you can measure whether you are hitting those objectives. Essentially, these are activities that need to be done for your objectives to be met. Sometimes each objective will have one or a few key results. And then to take it further, KPIs are the ways you’ll measure the key results.
Here is an example of an OKR for a brewpub:
Increase profits by 50%
Increase revenue by 50% each month
- Increase total tab amount per customer by 25%
- Add 25% more capacity to floorplan
- To measure the increase in total tab amount you will want to use a KPI like average tab amount per customer
- To measure adding 25% more capacity to floorplan you will want to use a KPI like revenue per square foot
Now, of course, this example is purely hypothetical and clearly maybe not even realistic, but it still shows the interplay between objectives, key results for those objectives, and KPIs to measure the key results. A good metaphor I have read to illustrate this is archery. The objective is the target, the key results are the bow and arrows, and the KPIs are measuring how fast the arrows are moving and how much tension is on the bowstring.
Some tips about OKRs, KPIs, and metrics
The most apparent benefit is now you have a framework to use to develop ways to measure success towards your goals. You probably have goals for your business but are you measuring them and holding your team, and yourself, accountable for those measurements? If not, this framework is for you.
What is great about OKRs is that you can share them with specific areas of your business and now everyone has something to work towards together. Not only does this create accountability around your goals it also improves employee engagement since the employees at any level will be participating in some part of establishing and/or working towards these results. You may even find new ways of doing things because of this increased involvement. And the employees will see exactly how their work can impact the overall business.
Don’t worry if you don’t necessarily hit your objectives. Because of the process of using key results and KPIs to measure those results you likely made a lot of improvement on in that specific area. Of course, making them too difficult to achieve will just make it seem unattainable and no one will want to work on it. So, if you can hit most of the results in an OKR you are making great progress.
Be sure to keep your OKRs simple and only focus on a few in any given quarter or even year when you start out. This is an iterative process so you will constantly be improving on OKRs to make them applicable to your business. As you do this you will be in much better place to grow your business.