What is a KPI? Choosing measures that change decisions

A KPI (key performance indicator) is a measure you have agreed tracks progress towards one of your most important goals, with a target attached, so that a change in the number tells someone to act. If nobody would do anything differently when it moves, it is a metric, not a KPI.

What is the difference between a KPI and a metric?

Every KPI is a metric; most metrics are not KPIs. A metric is anything you can count: website visits, invoices raised, calls answered. It becomes a key performance indicator when three things are true: it maps to a goal the business has chosen, it has a target, and someone owns the response when it misses.

Microsoft's Power BI documentation on KPI visuals (updated August 2026) frames it the same way: a KPI shows progress towards a measurable goal and answers "What am I ahead or behind on?" Its KPI visual needs a base measure and a target before it will work, which is a useful discipline even outside Power BI.

How do you choose good KPIs?

Start from the goal, not from the data you happen to have. UK government has written the most practical guidance on this, and it scales down well.

• Pick three or four. The GOV.UK Service Manual's guide to setting performance metrics (published December 2017) works from a service's purpose to a small number of benefits, then has teams choose 3 or 4 headline KPIs, with other metrics underneath for detail. Central government services must also publish four standard ones: cost per transaction, user satisfaction, completion rate and digital take-up (GOV.UK, updated April 2021).
• Test each one. The National Audit Office's performance measurement good practice criteria (December 2016) say a good measure is relevant to what you are trying to achieve, well defined, timely, attributable to actions you control, and able to avoid perverse incentives.
• Balance the set. The same NAO document, drawing on the 2001 Choosing the Right FABRIC framework, asks for a picture that covers all significant areas of work. One sales KPI and nothing on cash or customers is not balanced.

The perverse-incentive test is the one most often skipped. Measure calls answered per hour and you may get shorter calls, not happier customers. Pair a speed measure with a quality one.

What does a KPI look like in practice?

A worked example. Picture a 25-person UK distributor whose goal for the year is "grow profitably without running out of cash". Its owners might agree four KPIs:

KPI	Definition	Target	Owner
Gross margin %	Invoiced sales minus cost of goods, over invoiced sales, ex VAT	32% or more each month	Finance lead
Debtor days	Average days from invoice to payment	45 days or fewer	Credit controller
On-time, in-full deliveries	Orders delivered complete on the promised date	95% or more	Warehouse manager
Repeat customer rate	Customers ordering this quarter who also ordered last quarter	70% or more	Sales manager

The figures are illustrative, not benchmarks. Notice what is missing: website visits, emails sent, stock lines. They are still useful metrics, one level down, for diagnosing a KPI that has moved. Writing the definition column down is what stops two reports disagreeing; that is data governance in its smallest form.

How do KPIs show up in Power BI?

Each KPI becomes one measure in your semantic model, defined once, plus a target. On the report, the KPI visual shows the current value, the distance to target and the trend, and lets you say whether high is good (margin) or low is good (debtor days). Put the three or four KPIs across the top of the page and the diagnostic visuals below. Our complete guide to data visualisation covers the layout side.

If people still cannot tell at a glance whether things are going well, that is what our data visualisation and report design work fixes, as part of our wider data and BI practice.

Frequently asked questions

What does KPI stand for?

Key performance indicator. It is a measure that tracks progress towards one of your most important goals, has a target attached, and has a named person who acts when it misses.

How many KPIs should a small business have?

Fewer than you think. The GOV.UK Service Manual advises choosing 3 or 4 headline KPIs, with other metrics underneath for detail. For most SMEs, three to six KPIs across the whole business is a sensible starting point; that range is our view, not a rule.

What is the difference between a KPI and a metric?

A metric is anything you can measure. A KPI is a metric you have tied to a chosen goal, given a target and assigned an owner, so that a change in it prompts a decision.

What makes a bad KPI?

One that nobody can influence, that is defined differently in different reports, that arrives too late to act on, or that rewards the wrong behaviour, such as measuring call speed without call quality.

---

Easy Insight is a UK consultancy for AI, web, apps and data — senior specialists only, no juniors.