By CFO Brew Staff
less than 3 min read
Definition:
Finance leaders don’t want their companies running on vibes alone. They need to watch metrics to make sure they're meeting finance and operational objectives. Enter the key performance indicator: a measurement that’s quantifiable and can tell, at least in part, the story of how a company is doing over a period of time. CFOs really do love them some KPIs.
How KPI tracking keeps businesses on the right path.
- What makes for a good KPI? According to the KPI Institute, key performance indicators should be relevant, have a clear definition, and be easy to understand, among other criteria. Relevant KPIs demonstrably tie in with company strategy. KPIs ideally should be comparable over time or to other organizations.
- The basic steps for proper KPI tracking: Identify the indicators based on company objectives, set targets, regularly review them, and discuss the indicators with stakeholders such as employees.
- Here’s a sample KPI. While a KPI can be anything from debt-to-asset ratio to levels of customer satisfaction, a common and important indicator is gross profit margin. “It’s important because whatever is left over allows you to invest in other areas of the company, like sales, marketing, or R&D,” ReShape Lifesciences CFO Tom Stankovich told us in 2024. “It’s something I focus on and maximize however I can.”
Related content on Key Performance Indicator (KPI)
CFOville
Leading indicators: profitable growth metrics
Treasury
Leading indicators: Nonprofit KPIs
Strategy