A KPI is a metric selected to measure progress toward a meaningful objective. Not every metric is a KPI; it should have a clear connection to a decision or expected outcome.
How it works
A good KPI has a shared definition, reliable data source, review cadence and a threshold or target. Operational KPIs can differ from executive KPIs while supporting the same objective.
Practical example
To improve ecommerce profitability, conversion rate may be a diagnostic metric while contribution margin or incremental profit may be KPIs closer to the final objective.
Why it matters
A KPI hierarchy helps different teams work on specific levers without losing the connection to the overall economic outcome.
What to watch
Choosing too many KPIs makes priorities unclear. Dashboards full of numbers but disconnected from decisions are often reporting systems rather than management systems.