KPI

In a company, almost everything can be counted: clicks, customers, returns, sick days. Most of these numbers say little on their own. That’s why a few are selected that really show whether things are going well. These selected numbers are exactly what’s called a KPI, short for Key Performance Indicator. In German it’s called a “Leistungskennzahl.” The crucial part of the term is the word “key”: a KPI isn’t just any number, but one that a decision depends on.

Why companies focus on just a few numbers

A company consists of many people who don’t all see the same things. The development department knows its software, sales knows its customers. A KPI creates a common language. Everyone looks at the same number and then argues about the causes, not about the facts.

For investors and journalists, KPIs are the fastest way to assess a company. When a streaming provider publishes quarterly results, what matters is often less the profit than the number of new subscribers. This single number can move the stock price more than the entire rest of the report. That’s why KPIs appear so frequently in business news.

The downside is well known and even has a name: what gets measured gets optimized. If a call center uses average call duration as a KPI, calls get shorter. But whether customers are satisfied afterward isn’t reflected in that number. A poorly chosen KPI can steer an entire organization in the wrong direction.

From goal to measurable number

At the start there’s a goal expressed in words, such as “we want customers to stay.” Sentences like that can’t be measured. So you look for a quantity that can be counted and is closely tied to the goal. In this example, that would be the churn rate: the share of customers who cancel per month. This always requires a target value and a time period, otherwise no one knows when the number is good.

A distinction is made between lagging and leading indicators. A quarter’s revenue is a lagging indicator: it describes what has already happened. The number of trial users in the same quarter is a leading indicator, since it points to future revenue. Good KPI systems mix both, because otherwise you only react once the damage is already done.

A common mistake is confusing a KPI with a metric. Every metric is simply a measurable quantity, and there are hundreds of them. A KPI is a metric that someone has deliberately selected for management purposes. Anyone tracking fifty KPIs actually has none at all.

KPIs in AI products and tech news

In the tech industry, KPIs are especially visible because digital products can be measured comprehensively. Typical examples are the number of daily active users, page load time, or cost per request. Providers of AI services have their own additional metric: how much compute time a single response costs. If this value drops, the company earns more from the same users.

The quality of AI systems is also described through metrics. For instance, you measure how often a model makes up an answer, or how often people rate the output as helpful. Such numbers are harder to determine than revenue figures, because someone has to review the answers. That’s exactly why they’re so widely debated.

You encounter KPIs in everyday life more often than you might think. The fitness tracker value of “10,000 steps” is essentially a personal KPI with a target value. And anyone who uploads a YouTube video sees views, watch time, and subscriber growth. These are the same mechanisms as in a large corporation, just on a smaller scale.