What performance indicators areSimply put, performance indicators measure the performance of companies, business units, projects or people against their goals and strategic objectives. The most important ones, chosen to track the core objectives, are called key performance indicators, or KPIs.In the broadest sense, indicators provide the most important performance information so that an organization (and its stakeholders) can tell whether or not it is on the right track to reach its stated objectives. Well-designed indicators are navigation instruments: they clearly show the current level of performance and whether the company is where it needs to be. The right set of indicators highlights the main aspects of performance and points to the areas that need attention.Indicators also help with decision-making. Because they reduce the complexity of an organization's performance to a small, manageable number of key indicators, they guide decisions and ultimately help improve performance. That is why choosing the indicators is so important: having many indicators is not the same as being efficient. You can work with just a few, as long as they are comprehensive and well measured.In quality management, measuring is not optional: ISO 9001 (whose 2026 edition replaced the 2015 one) requires, in clause 9.1, that the organization determine what needs to be monitored and measured, the methods to be used, and when the results will be analyzed and evaluated.How to choose a good performance indicatorA good indicator works like a compass, helping you and your team know whether you are heading the right way toward your strategic objectives. To be effective, an indicator must:be well defined and quantifiable, with a clear formula, unit, data source and measurement frequency;be communicated to the whole organization and the departments involved;be essential to achieving the objective and have a target attached to it.The problem is that there are thousands of possible indicators. If you choose the wrong one, you will be measuring something that is not aligned with your objectives. So how do you choose the right indicators for your organization? Here are some tips used by managers.Tip 1: be clear about the business goals of the product or serviceTo choose the right KPIs, you need to be clear about the business goals your product serves. If the product generates revenue directly, for example, revenue can be a key indicator. If you are not sure what the business objectives are, ask yourself how the product benefits the company and why the company invests in it. Then set the goals.Tip 2: make the objectives measurableKnowing the product's business objectives is a prerequisite for choosing the right indicators, but it is not enough. To use indicators well, analyze the data and take the right actions, the goals must be measurable. The challenge is to set measurable goals that are also realistic, especially for new products. The next tips help with this.Tip 3: use rates and rangesUse rates and ranges of values to quantify your objectives. Instead of saying that a new product should generate x in revenue per year, you could say, for example, that it should increase the company's revenue by 5% to 10% in its first year after launch.Tip 4: avoid vanity metricsStay away from vanity metrics: measures that make the product look good but do not show the value it creates. For example, you might measure visits to your online store, and the number may even be quite high. But if you do not measure how many sales were actually completed on the site, there is no point in being proud of the number of visits. Worse, you risk watching the business sink without noticing in time.Tip 5: do not measure everything that can be measuredDo not measure everything that is possible to measure, and do not blindly trust an analytics tool to collect the right data. Use your business goals to choose a small number of metrics that really help you understand how the product is performing. Otherwise, you spend time and effort analyzing data that creates little or no value.Tip 6: use quantitative and qualitative indicatorsAs the name suggests, quantitative indicators, such as daily active users or revenue, measure the quantity of something rather than its quality. Their advantage is that they provide objective, statistically representative data. Qualitative indicators, such as user feedback, help you understand why something happened, for example, why users are less satisfied with the product than expected. Combining both types gives a balanced view of how the product is doing and reduces the risk of forgetting the most important success factor: the people behind the numbers, who buy and use the product.Tip 7: look beyond financial and customer indicatorsFinancial indicators, such as revenue and profit, and customer indicators, such as engagement and satisfaction, are the most common ones in the market. They are undoubtedly important, but they are not enough. Suppose your product is meeting its revenue and profit targets and customer engagement and satisfaction are high. Everything suggests the product is doing well. But if, at the same time, team motivation is low or product quality is getting worse, there is reason for concern: these signs indicate that sustaining success will be much harder in the future. So complement financial and customer indicators with process and people indicators.Tip 8: track trendsCompare your data with other periods, user groups or competitors: for example, how revenue has evolved over the last six weeks, or the cancellation rate from one quarter to the next. This reveals trends, such as revenue rising, flat or falling, and helps you understand what is happening and take the right steps. If a drop is a one-off, there is probably no reason for excessive concern. But if it is a trend, you need to find out how to stop and reverse it, unless you are about to discontinue the product.Tip 9: keep a visible indicator boardOnce you have chosen the product's KPIs, you need to collect the data and analyze it regularly. An indicator board visible to the team is a great tool for this; many managers call it a dashboard.An online store celebrates 500,000 visits in the month, 40% more than the previous month, but the number of completed orders fell by 10%. What does this situation illustrate?Answer: A vanity metric, which looks good but does not show the value created — visits growing while sales fall means the conversion rate got worse (tip 4). The indicator that matters here is completed orders or conversion, not visits.Examples of performance indicatorsAs we said, there is a huge number of indicators in use in the market. To make them easier to study, we will divide them into four groups (financial, customer, process and people) and, at the end, bring together some classic quality management indicators.Financial indicatorsProfit: it is obvious, but worth mentioning, since it is one of the most important performance indicators. Look at gross margin and net margin to better understand the company's ability to generate returns.Cost: assess how efficiently money is spent and the best ways to reduce and control costs.Actual revenue versus target: compares actual revenue with projected revenue. Charting and analyzing the gaps between the two numbers helps you understand how the business is performing.Cost of goods sold (COGS): adds up all the production costs of what the company sells. It shows how the profit margin is built and how much room there is to compete on price.Days sales outstanding (DSO): measures how many days, on average, the company takes to collect the money from a credit sale. It is calculated as DSO = (accounts receivable ÷ credit sales in the period) × number of days in the period. Credit analysts use it widely to assess receivables management and liquidity. The lower the DSO, the faster sales turn into cash. A rising DSO is a warning sign: it may indicate customer defaults or longer payment terms granted to hold on to sales.Sales by region: shows which regions are meeting their sales targets and makes it possible to give more precise feedback to underperforming locations.Actual expenses versus budget: compares actual spending with the budget. Understanding where you deviated from the plan helps you build more realistic departmental budgets in the future.Customer indicatorsCustomer acquisition cost (CAC): divide the total spent on winning customers (marketing and sales) by the number of new customers in the period analyzed. It is one of the most important e-commerce metrics, because it shows the cost-effectiveness of marketing campaigns.Customer satisfaction and retention: it sounds simple: a satisfied customer stays a customer. To measure them, use satisfaction surveys and the percentage of customers who buy again.Net Promoter Score (NPS): measures customers' willingness to recommend the company and is widely used as a sign of long-term growth. Ask customers, on a scale from 0 to 10, how likely they are to recommend the company to someone they know. Those who answer 9 or 10 are promoters; 7 or 8, passives; 0 to 6, detractors. NPS = % promoters − % detractors, and the result ranges from −100 to +100. Set a baseline with the first survey, repeat it periodically (for example, every quarter) and take steps to make the number grow.Number of customers: like profit, it is very simple. Tracking how many customers you gained and lost helps you understand whether you are meeting their needs.A survey of 200 customers had 120 scores of 9 or 10, 50 scores of 7 or 8 and 30 scores from 0 to 6. What is the NPS?Answer: 45 — promoters are 120/200 = 60% and detractors 30/200 = 15%; NPS = 60 − 15 = 45. Passives (scores 7 and 8) count in the total number of respondents but neither add nor subtract. The answer 60 forgets to subtract the detractors.Process indicatorsSupport tickets: the number of tickets opened, the number resolved and the resolution time help build good customer service. This indicator is also widely used by maintenance and IT departments.Percentage of defective products: divide the number of defective units by the total number of units produced in the period. The lower, the better. It is the complement of the conformity rate (100% minus the percentage of defectives).Process efficiency: it can be measured differently in each industry. In manufacturing, for example, you can look at how many units were produced per hour and the percentage of time the plant was running. In the section on quality indicators below, we will see the formulas.People indicatorsEmployee turnover rate: divide the number of employees who left the company in the period by the average number of employees. A variation widely used in Brazil is ((hires + separations) ÷ 2) ÷ average headcount. If turnover is high, look at the company culture, pay and benefits, and the work environment.Qualified applicants per opening: when there is a good share of qualified applicants for open positions, it is a sign that your job postings are reaching the right people, which also increases the number of good interviewees.Employee satisfaction: satisfied employees tend to work harder. Measuring satisfaction through surveys and other indicators is vital to the health of the team and the organization.A company had 110 employees in January and 130 in December. During the year, 6 people left. Using the formula of separations over average headcount, what is the annual turnover rate?Answer: 5.0% — the average headcount is (110 + 130) ÷ 2 = 120, and 6 ÷ 120 = 5.0%. Dividing by January's headcount gives 5.5% and by December's, 4.6%; that is why the average is used.Classic quality indicatorsProductivity: total output divided by resources used (hours, people, raw material, etc.).\[ \frac{\text{total output}}{\text{resources used}} \]Efficiency: planned resources divided by resources used. Above 100% means less was spent than planned.\[ \frac{\text{planned resources}}{\text{resources used}} \]Effectiveness: total conforming outputs divided by total outputs.\[ \frac{\text{conforming outputs}}{\text{total outputs}} \]Quality: quality index achieved divided by the quality index set as the target.\[ \frac{\text{quality achieved}}{\text{target quality}} \]Availability: time producing divided by time available for production.\[ \frac{\text{time producing}}{\text{time available}} \]A team planned 800 hours of work to assemble 1,000 panels and used 1,000 hours. Of the 1,000 panels, 950 were conforming. What are the efficiency and the effectiveness?Answer: Efficiency of 80% and effectiveness of 95% — efficiency = planned resources ÷ resources used = 800 ÷ 1,000 = 80%; effectiveness = conforming outputs ÷ total outputs = 950 ÷ 1,000 = 95%. Inverting the efficiency fraction (1,000 ÷ 800) gives 125%, which would look like a good result when in fact more was spent than planned.Exercises1) A company worked 30 consecutive days, but in only one 8-hour shift (480 minutes). On average, 55 minutes per shift are lost to meals. In addition, during the month, the production line was idle for 10 hours due to lack of demand. Adding up stoppages for maintenance, setup and replenishment, 40 hours were lost in the month.A total of 11,500 units of Item A were produced, 10,000 of which were "good the first time". The rest were considered bad. Calculate as many indicators as possible from this data.Solution: total shift time = 30 × 8 h = 240 h. Available time = 240 h − 30 × 55 min (27.5 h of meals) = 212.5 h. Scheduled time = 212.5 − 10 h without demand = 202.5 h. Producing time = 202.5 − 40 h of stoppages = 162.5 h. Availability = 162.5 ÷ 202.5 = 80.2% (if the 10 h without demand are counted as a loss, 162.5 ÷ 212.5 = 76.5%). Utilization of available time = 202.5 ÷ 212.5 = 95.3%. Quality (good the first time) = 10,000 ÷ 11,500 = 87.0%, and the scrap/rework rate is 13.0%. Productivity = 11,500 ÷ 162.5 h = 70.8 units per producing hour (61.5 good units per hour). Without the line's rated speed (planned units per hour), performance and OEE cannot be calculated.
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