Glossary
What Is a Key Performance Indicator (KPI)?
Updated · Team Fonda
Short answer
A key performance indicator (KPI) is a measurable number that shows whether your business is making progress toward a specific goal. Every KPI is a metric, but only the few metrics tied to a goal and a target are KPIs. A new business usually needs three to five.
Key takeaways
- A KPI has four parts: a goal, a number, a target and a date.
- Pick three to five that fit your current stage, and change them as you move on.
- Mix leading indicators (early warnings) with lagging ones (results).
- A KPI is only useful if a bad reading would make you do something different.
What a KPI means in plain words
Any business produces more numbers than one person can watch: visits, calls, orders, refunds, bank balance. A metric is any of those numbers. A KPI is one you have chosen because it tells you whether a goal is being met. "Website visits" is a metric. "Reach 40 paying customers by the end of June" turns paying customers into a KPI.
The word "key" is doing the work. If you track twenty KPIs you are tracking none, because nothing stands out when something goes wrong.
How to choose and set KPIs
- Write the goal for the next three months. One sentence, for example "prove people will pay for this".
- Choose the number that shows it. Prefer what customers do over what you do.
- Set a target and a date. Without both, you cannot tell good from bad.
- Decide how often you will check. Weekly suits most early businesses.
- Decide in advance what a miss means. If you would carry on the same way whatever the number says, it is not a KPI.
Leading vs lagging
A lagging indicator reports a result after it happens, such as monthly revenue. A leading indicator moves earlier and hints at the result, such as demos booked this week. Track at least one of each.
Useful KPIs by stage
| Stage | Goal | Example KPIs |
|---|---|---|
| Testing the idea | Learn whether the problem is real | Customer interviews completed, share who describe the problem unprompted, pre-orders or deposits |
| First customers | Show people will pay and stay | Paying customers, conversion rate, repeat purchase or retention, runway in months |
| Growing | Grow without losing money on each sale | Monthly recurring revenue, customer acquisition cost, customer lifetime value, churn rate, gross margin |
Examples to choose from, not a list to adopt in full.
Several of these have a free calculator on this site, including the CAC calculator and the churn rate calculator.
A worked example
This is an illustration with made-up numbers. Say you run a mobile car detailing business and your goal for the quarter is to fill your week with repeat customers. You set three KPIs and check them at the end of month one.
| KPI | Target | Actual | Reading |
|---|---|---|---|
| Jobs completed per week | 20 | 14 | Behind |
| Customers who rebook within 6 weeks | 40% | 45% | Ahead |
| Cost to win a new customer | $30 or less | $42 | Over |
Read together, the three numbers tell a clear story. People who try the service come back, so the service is good. The problem is the front end: too few new customers, each costing too much. Say you spent $420 on local ads and won 10 customers, which gives the $42. The useful response is to test a cheaper channel, such as a referral offer to the customers who already rebook, not to change the service. One number alone would not have shown that.
Why it matters for a first-time founder
KPIs replace a vague feeling of "it's going okay" with something you can check. You meet them properly once you have customers, and again when you write a plan or talk to a lender or investor, who will ask which numbers you track and why. A business plan usually names them in its financial or milestones chapter.
Many founders also pick one KPI to sit above the rest, called the North Star metric. In Fonda's journey, the Scale phase has a Key metrics step for the point when you have launched. Earlier steps use simpler evidence, such as what customers told you in interviews.
Common mistakes
- Tracking too many. More than five and you stop looking at any of them.
- Tracking vanity metrics. Followers and page views rise easily and rarely change a decision.
- No target. A number without a target is a statistic, not an indicator.
- Only lagging indicators. By the time revenue drops, the cause is weeks old.
- Copying a big company's dashboard. Their goals are not yours. A business with five customers does not need the same KPIs as one with five thousand.
- Never retiring a KPI. When the goal changes, the numbers should too.
Frequently asked questions
What is the difference between a KPI and a metric?
A metric is any number you can measure about the business. A KPI is a metric you have chosen because it shows progress toward a specific goal, with a target attached. All KPIs are metrics, but most metrics are not KPIs.
How many KPIs should a startup have?
Three to five is a workable number for an early business. It is enough to cover customers, money and growth, and few enough to review every week without it becoming a chore.
What is the difference between KPIs and OKRs?
OKR stands for objectives and key results. It is a goal-setting method: you write an objective and a few measurable results that would prove you reached it. KPIs are the ongoing numbers you monitor. A key result is often a KPI with a target and deadline.
What KPIs do investors look at?
It varies by business type and stage. Common ones are revenue growth, retention or churn, the cost of winning a customer compared with what that customer is worth, gross margin and months of runway. Ask the investors you plan to approach which ones they weigh most.