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How to Choose the Right KPI

You’re out at sea. The waves, endless. The horizon, elusive. The GPS in your navigation system? It’s more than a tool; it’s your truth. Without it, you’re adrift—moving, yes, but to where? In business, Key Performance Indicators, or KPI serve the same purpose. They’re not just numbers. They’re direction. They’re clarity. They’re survival. But how do you choose the right KPI to follow?

Why It Matters

Imagine two companies. Both hustle, both grind, both push forward. One celebrates 100,000 website visits. Big number. Looks good on a presentation slide. The other? They track conversion rates—clicks turning into purchases. The first company feels busy. The second one makes money.

Numbers can deceive. Metrics can lie. The wrong KPI give you the illusion of progress. The right ones give you the reality of growth.

Think of Amazon. They don’t just track sales—they obsess over customer retention. Netflix? It’s not just about sign-ups; it’s about watch time. Watch time means engagement. Engagement means stickiness. Stickiness means subscribers stay, month after month, year after year.

From Vision to KPI

Always, always start with the vision. Because your business isn’t just a spreadsheet. It’s a belief. A purpose. A story unfolding, one decision at a time.

Take Chai Shots—a quirky quick-commerce startup delivering chai via drones. Their dream? Simple: “Allow anyone, anywhere, to get a chai latte when they need it in 5 minutes.” From that dream, come the goals: 100 deliveries a day. 20,000 paying customers. Expansion into three cities.

Now the KPI practically write themselves:

  • Deliveries per day
  • Paying customers
  • Active cities

The KPI aren’t just numbers on a dashboard—they’re milestones on a map, guiding the company toward its true north.

How Many KPI?

Here’s the thing about metrics: More isn’t better. More is noise. More is confusion. More is standing in a crowded room where everyone’s talking at once.

In contrast, most businesses thrive on just five core drivers:

  • Acquisition: How fast are you bringing new customers in?
  • Engagement: Are customers actually using and enjoying your product?
  • Retention: Do they come back, or do they ghost you?
  • Revenue: How much are you pulling in?
  • Cost: What’s the price of that revenue?

That’s it. Five drivers. Five lenses to view your business through.

A subscription service might track annual contract renewals. A retail store might zero in on repeat purchase rates. Different businesses, same foundation.

Good vs. Bad KPI

Not all KPI are created equal.

Bad KPI are easily manipulated: Phone calls made by a sales team. Quantity goes up. Quality? Questionable. Bad KPI are also too narrow: One department’s performance isn’t the whole story. Finally, bad KPI are also lagging indicators: Metrics that only tell you what happened—after it’s too late to change course.

In contrast, good KPI are customer-driven: They reflect real behavior. Real engagement. Real impact. Good KPI are consistent and stable across time, providing reliable comparisons. Finally, good KPI are leading indicators — they predict the future, so you can act before the wave hits.

Let’s look at two examples:

  • How much money are we making? Don’t look at gross revenue. It’s easily inflated, missing the cost context. Instead, measure net profit because it considers both revenue and cost.
  • How high is our customer engagement? A bad metric is total visits. It can be artificially inflated with ads. A better metric is total purchases because it measures both top of the funnel traffic and conversion rates.

KPI Change as you Grow

Growth isn’t static. Neither are your KPI.

  • In the scrappy early days, track customer acquisition because it is survival.
  • Once you hit product-market fit, focus on retention—customers who come back mean you’ve built something that sticks.
  • When scaling up, profit margins become king.
  • Finally, once you’ve hit massive scale, growth matters again—but in new ways, across new markets.

Revisit. Reevaluate. Refine. Because what guides you at the start might mislead you later.

The Takeaway

KPI are more than data points. They’re your compass. Your guide. Your lifeline.

Choose them with care. Base them on your vision. Track what matters, not what looks good. And when the numbers seem overwhelming, pause. Step back. Ask yourself: Are these metrics leading me toward my true north?

Because a business without direction isn’t just inefficient. It is ineffective.