Performance metrics provide a quantifiable way to help business leaders judge the performance of their business processes. There are numerous ways to track and calculate these metrics. It’s up to managers to decide which metrics matter most to help them improve performance, identify potential issues, benchmark against competitors and provide transparency to investors and regulators. Choosing the right performance metrics and using them effectively takes careful consideration. For example, leaders must assess how relevant each metric is to business performance, how reasonably it can be measured and how it can predict future performance, as well as account for past performance. In this guide, we’ll break down the types of performance metrics companies should be tracking and provide detailed explanations and formulas for some of the most common metrics used by high-performing enterprises today.

What Are Performance Metrics?

Performance metrics are data and calculations that businesses use to track activities, behaviors and capabilities within an organization. Some performance metrics, such as operating cash flow ratio, measure financial performance. Others, including mean time to repair, keep track of operational performance. Performance metrics can be implemented at the individual, team or organizational level of a business.

Each function within a business is beholden to relevant performance metrics. Sales teams are tracked against metrics like lead-to-sale conversion rates, while project management teams must track metrics like cost performance index. Then there are those all-important performance metrics, such as net income and net profit margin, that the entire organization contributes to. After all, profitability is the ultimate goal that all other performance management efforts are designed to support.

Key Takeaways

  • Performance metrics help business leaders assess the processes and operations of an organization.
  • Performance metrics need to be relevant and accurate, as well as consistently and frequently measured, in order to be useful.
  • A performance metric is most powerful when it’s used to show change over time or when it’s compared with an industry benchmark.
  • Companies use performance metrics to measure progress and growth, identify operational issues and hold people and teams accountable.

Performance Metrics Explained

Performance metrics provide a crucial way for business stakeholders to continually assess the financial health and productivity of the various parts of a business. These metrics come in a wide variety of formats, and their relevance may vary based on a stakeholder’s role in the company and the objectives being managed.

For example, an investor or board director may be most interested in higher-level performance metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA). Meanwhile, a CEO may frequently track metrics like revenue growth and profit margin, as well as customer satisfaction. Further down the chain of command, a project management executive’s most pertinent performance metrics may be cost variance and cycle time, while a human resources (HR) manager might be most interested in tracking employee satisfaction and engagement.

Some performance metrics, such as return on investment (ROI), are universal, regardless of business or industry. Others are industry-specific. For example, a hospital may track bed utilization and mortality rates as crucial performance metrics, while a retailer may watch foot traffic and sales per square foot. Regardless, most effective managers and executives operate with the implicit understanding that tracking and measuring business activities and outcomes make it easier to drive accountability and improvement. As the old business adage goes, “If it can be measured, it can be managed.”

Of course, getting value out of performance metrics can be complicated; the simple act of measuring something doesn’t necessarily drive effective management in and of itself. Business theorists and consultants say that to get the most out of them, performance metrics should:

  • Be accurately, consistently and frequently collected to ensure that they’re a trustworthy gauge of performance at any given point in time.
  • Measure things that really matter in order to be relevant to leadership objectives.
  • Be made easily available, as transparency and good communication are important for using metrics effectively.
  • Be tied to consequences — good and bad — to foster accountability and favorable outcomes.

The power of performance metrics is also determined by judging them relative to some other key piece of information. In many instances, a performance metric in isolation isn’t necessarily good or bad — it’s just a number. But that number will become more meaningful once it’s compared with something. For example, a business can derive meaning by looking at how a performance metric:

  • Changes over time, especially following a business decision or action.
  • Compares with the same measurement across its industry or competition.
  • Measures a business unit’s performance compared with the rest of the business.
  • Is correlated with profitability or productivity.

Performance metrics are sometimes referred to synonymously as key performance indicators (KPIs). However, there’s a distinction: Performance metrics provide general measures of performance across various areas, while KPIs are performance metrics strategically chosen by business leaders to monitor and drive progress toward specific organizational goals and objectives. So, not every performance metric is a KPI, but every KPI is a performance metric.

Consider the common performance metric of cost of goods sold (COGS). On its own, COGS may not necessarily be a KPI. However, if a cost management team is tasked with cutting costs by 10%, then a relevant KPI may be COGS as a percentage of revenue or gross profit. Similarly, if a sales team has an objective to increase sales during a specific period, it may be held to an inventory turnover KPI that is measured by dividing COGS by average inventory.

Quantitative vs. Qualitative Metrics

Performance metrics can typically be divided into two buckets: quantitative and qualitative. Quantitative metrics are the straightforward measures that can be calculated easily without any kind of human judgment or subjective ranking. Financial performance metrics are some of the most significant measures that fall into this category. Qualitative metrics, on the other hand, tend to track opinions or subjective traits, such as service levels, satisfaction and loyalty. They’re usually a quantitative interpretation of judgments that are measured through surveys or feedback.

Common examples of quantitative metrics tracked by companies are sales growth, gross profit, customer retention rates and employee absenteeism rates. In contrast, common examples of qualitative metrics include customer satisfaction, brand value, net promoter scores and employee satisfaction.

Leading vs. Lagging Indicators

Performance metrics can also be categorized as leading or lagging indicators of business trends. Most performance metrics tend to be lagging indicators, which are metrics that provide information or context about past performance. They offer a reliable assessment of the current state of the business and give managers numbers that hold employees and departments accountable for business outcomes to date. Meanwhile, leading indicators are forward-looking metrics that help business leaders forecast, make strategic adjustments and identify areas of future risk.

For example, in a sales context, win rates or renewals would be considered lagging indicators. They offer a measurement of outcomes based on past actions. In contrast, performance metrics around lead generation, sales pipeline statistics and sales activity metrics, such as calls made or meetings scheduled, would be considered leading indicators that could be used to predict future sales volumes.

Why Track Performance Metrics?

Performance metrics provide businesses with a no-nonsense way to assess the state of the business. Tracking performance allows businesses to measure progress and growth, identify operational problems, inform future decisions, hold people accountable and incentivize success.

Tracking performance metrics plays an important role in business management and goal setting across an organization. Consider the commonly used SMART goal-setting framework that many managers use to establish goals and hold teams accountable. SMART is a mnemonic rule of thumb that stipulates that the best goals are the ones that are specific, measurable, attainable, relevant and time-bound. Performance metrics fall into the “measurable” bucket and are the linchpin by which managers can prove progress against an objective by identifying KPIs.

7 Types of Performance Metrics

Performance metrics can be sliced and diced into a number of different categories and leveraged to keep tabs on the state of affairs across a range of activities. The following are the seven most common types of performance metrics tracked by organizations today.

  1. Business Performance Metrics

    Business performance metrics are the broadest class of performance metrics, including measurements that cut across finance, operations, marketing, sales and customer relations. A well-balanced set of business performance metrics can provide a bird’s-eye view of the business that helps management set a comprehensive strategy. Below are examples of common business performance metrics and how they’re calculated.

    Metric What it measures How it’s calculated
    Gross revenue Sales and topline revenue-generation capacity Number of goods sold x price per item
    Return on investment How well an investment has performed (Net profit or loss / project cost) / 100
    Employee turnover rate Effectiveness of retaining employees (Employees who left during a specific time period / average number of employees) x 100
    Cost of goods sold Total direct costs incurred by manufacturing or procuring finished goods sold in a given period Beginning inventory costs + purchases during the period – ending inventory value
    Customer satisfaction rate Level of customer satisfaction as measured by a feedback or survey scale (Total number of customers who rank themselves as satisfied / total number of responses) x 100
    Revenue vs. forecast variance Whether a company is meeting revenue expectations [(Actual revenue – forecasted revenue) / actual revenue] x 100
    These business performance metrics can provide a high-level view of the state of a business.
  2. Financial Performance Metrics

    Financial performance metrics track a company’s financial health and performance. The most common metrics in this category fall into five buckets: profitability, liquidity, efficiency, valuation and leverage. Financial performance metrics are typically derived from accounting data, and, at the end of the day, these types of measures help leaders understand the relationship between business actions and financial outcomes. Below are examples of common financial performance metrics and how they’re calculated.

    Metric What it measures How it’s calculated
    Net income Amount of money a company makes after deducting costs Total revenue – COGS – operating expenses – other expenses — interest – taxes – depreciation and amortization
    Net profit margin Amount of profit a company makes for every dollar of revenue made (Net income / total revenue) x 100
    Operating cash flow ratio Capability to pay for short-term liabilities through cash generated by core operations Operating cash flow / total liabilities
    Debt-to-equity ratio How leveraged a company is Total liabilities / total shareholder equity
    Accounts receivable turnover Effectiveness of a company at collecting money from customers Sales on account / average accounts receivable balance for period
    Days sales outstanding How quickly customers pay their bills 365 days / accounts receivable turnover
    Financial performance metrics track a company’s overall financial health and performance.
  3. Operational Performance Metrics

    Operational performance metrics measure how well a company executes the processes that run its business. These metrics tend to revolve around factors that impact productivity, efficiency, quality and safety. Because operations are largely defined by the industry that a company participates in and the departmental work being done, the operational performance metrics that managers choose will vary widely based on industry or business unit. For example, manufacturers are most likely to monitor operational metrics, such as production downtime, throughput, on-time delivery rate and rate-of-return merchandise authorizations, while the field services division of a company will be looking at measures like average repair time, first-time fix rates and service level agreement (SLA) compliance rates.

    Metric What it measures How it’s calculated
    Production downtime The amount of time a factory or system isn’t operational Sum of all downtime during specified time frame
    Production downtime costs Lost revenue or productivity due to downtime Sum of all downtime during specified time frame / revenue (or productivity) typically generated by downed system during specified time frame
    Throughput Volume of product made during specified time frame Total number of goods produced / specified time frame
    On-time delivery How well an operational unit is meeting commitments for product delivery Number of products delivered on time / total number of products delivered
    Rate-of-return merchandise authorizations (RMAs) How often customers aren’t satisfied and request a refund (Number of RMAs / number of orders delivered) x 100
    Mean time to repair Time to diagnose and repair faulty equipment or systems Total maintenance time / number of repairs
    First-time fix rate How well a team is resolving problems it’s tasked to fix Number of service calls not requiring a second visit or contact / total number of service calls
    Service level agreement (SLA) compliance rate How well a team is meeting contractual SLAs Number of repairs that met SLA / total number of repairs
    Operational performance metrics like these measure how well a company executes the processes that run its business.
  4. Sales Performance Metrics

    Sales performance metrics can offer business leaders visibility into sales volumes, as well as the productivity of sales teams and the effectiveness of marketing investments relative to sales. Some of the insights that sales performance metrics help uncover include which sales reps are most productive, which products are easiest to sell, which methods of contact work best with customers and how well sales teams are managing relationships after initial sales to retain customers. Some examples of sales performance metrics are outlined below.

    Metric What it measures How it’s calculated
    Quote-to-close ratio Effectiveness of teams or individuals in closing sales (Number of closed deals / number of quotes or contacts made) x 100
    Month-over-month growth Sales capability in generating new business [(Month 2 sales totals – month 1 sales totals) / month 1 sales totals] x 100
    Lead-to-sale conversion rate Success of sales team in converting leads (Converted leads / total lead volume) x 100
    Customer lifetime value Value of continued service and sales to customers over the course of a relationship Average purchase rate x number of purchases x average customer life span
    Customer acquisition cost Effectiveness of sales and marketing spend in generating income (Cost of sales + cost of marketing) / new customers acquired
    These are some of the performance metrics that companies can use to measure sales performance.
  5. Project Management Performance Metrics

    Project management performance metrics track project progress and financial performance throughout the life cycle of a specific project or across a project portfolio. These measurables are relevant to project managers in any industry, but they’re particularly vital for services businesses that derive their revenue from delivering client-facing projects. This means that there’s likely to be significant overlap between operational performance metrics and project management performance metrics for businesses in fields like professional services, construction services and IT consulting. Here are some of the more common project management performance metrics.

    Metric What it measures How it’s calculated
    Planned value Approved value of work at a given point of time Planned % of project completed to date x total project budget
    Earned value Actual value earned at a given point in time Actual % of project completed to date x total project budget
    Resource capacity Availability of people resources during a given time frame (Individual working hours during time frame – vacation and sick hours – other absences – administrative and meeting time) x available individuals
    Cost performance index Cost effectiveness of a project Earned value / actual cost
    Schedule variance How ahead of or behind schedule a project is, in dollar value Earned value – planned value
    Above are examples of some of the more common project management performance metrics.
  6. Marketing Performance Metrics

    Marketing performance metrics provide leadership with evidence of the efficacy and cost efficiency of marketing efforts. With the rise of AdTech and MarTech software tools, marketers are increasingly being held accountable for marketing metrics that help guide decisions and experimentation in everything from messaging and creative choices to customer targeting and campaign strategy. According to recent data, some 58% of marketers report that they’re chasing more aggressive KPI targets in 2024 as they face a more challenging economic climate. Some typical marketing performance metrics are outlined below.

    Metric What it measures How it’s calculated
    Cost per lead The cost of generating new leads Total marketing spend / total attributed leads
    Click-through rate Likelihood of a prospect to click for more information from an ad, email or other content asset (Clicks / impressions) x 100
    Lead-conversion rate Effectiveness of marketing in turning site visitors into leads (Total number of leads generated / total number of visitors) x 100
    Customer acquisition cost payback period Time it takes to recoup marketing and sales investments Customer acquisition cost / (new monthly recurring revenue x gross margin)
    Marketing performance metrics such as these help companies hold marketers accountable.
  7. Employee Performance Metrics

    Employee performance metrics measure the productivity and effectiveness of individual employees relative to their peers, as well as employee engagement and labor efficiency across teams or an entire workforce. Managers can use these measurements to keep employees accountable and to understand when cultural changes need to be made in order to improve morale and workforce efficacy. Here are some of the metrics businesses typically use to measure employee performance.

    Metric What it measures How it’s calculated
    Payroll-to-revenue ratio Productivity of a workforce in generating revenue (Total payroll costs / total net sales) x 100
    Employee productivity rate Productivity of an employee in delivering products or services Total output in units or billable rates / total input in time
    Error rate Number of errors an individual or team is likely to make (Total output containing errors / total output) x 100
    Employee satisfaction rate Level of employee satisfaction as measured by a feedback or survey scale (Total number of employees who rank themselves satisfied / total number of responses) x 100
    Employee turnover Likelihood of employees to leave in a given time frame (Employees who leave during specified time / average number of employees during that time) x 100
    These are some of the more common employee performance metrics.

How to Set Performance Metrics

Many leaders find it challenging to pick the best performance metrics for their business. Because every organization has different operational realities and business objectives, a valuable performance metric for one company may be useless for another. As a result, business leaders should take a deliberate approach when choosing relevant performance metrics in order to derive meaningful insights. There’s also an art and a science to communicating those insights. Getting the gist across to stakeholders requires clear explanation, effective data visualization and easily accessed reporting platforms. The following steps are important for companies to take in order to set relevant performance metrics and get the most out of them.

  1. Get Stakeholders Involved

    A recent Gallup study found that only 21% of employees strongly agree that they have performance metrics that are within their control, and fewer than one in three employees reports that their manager involves them in goal setting. Establishing performance metrics and KPIs should be a collaborative process among executives, management and employees, all of whom may have different perspectives about why and how a particular measurement could be used to drive better outcomes.

  2. Analyze Baseline Data

    Performance metrics can only be leveraged as an accountability tool when they’re evaluated relative to what normal looks like. Baseline data provides that control statistic with which a metric can be compared. Baseline data can include everything from historical averages within a company to industry benchmarks. This early analysis of baseline data will be the foundation upon which performance targets and benchmarks will be set.

  3. Balance Leading and Lagging Indicators

    Companies should ideally employ a balanced set of performance metrics that includes a healthy mix of both leading and lagging indicators. Lagging indicators are often the easiest metrics to collect, as they’re based on observable past performance. But leading indicators are crucial for forecasting and data-backed decision-making. Depending on context, certain lagging indicators could also be used as leading indicators — for example, recruitment metrics may be a lagging indicator for HR but a leading indicator of overall future business performance.

  4. Ensure Flexibility and Adaptability

    Establishing and maintaining a relevant set of performance metrics is never a set-it-and-forget-it process. As a company and its business goals (and market realities) change, leadership may find that they need to adapt their performance metrics accordingly — both in terms of what and how they measure. Additionally, advances in technology could make it easier to measure certain aspects of performance in ways that weren’t possible in the past. These factors mean that companies need to remain flexible in both mindset and measurement tooling to ensure that their metrics align with what matters most to the business.

  5. Set Targets and Benchmarks

    Once baseline data has been established and analyzed for a particular performance metric, management can use this information to set target performance goals for the company as a whole or for an individual, team or business unit. Performance targets are most effective when paired with meaningful rewards and consequences for those who influence how those numbers change over time.

  6. Communicate and Implement Metrics

    Only about one in five employees today believes that their performance is managed in a way that motivates them to do outstanding work. While there’s a lot to unpack from that statistic, it’s very likely that poor communication and implementation of performance metrics factor into this lack of motivation. The best business leaders know how to communicate to stakeholders what performance metrics mean to the business — as well as to individual employees — and implement them in a way that manages expectations and accountability.

  7. Monitor and Review Metrics

    Performance metrics are most useful for a business when measured and monitored over time. Swings in performance over the course of a month, a quarter or a year can provide telling information about trends and milestones. Monitoring metrics over time can also provide guidance when achieving a business objective or rolling out a new initiative. Leaders should regularly review the relevance of performance metrics and the accuracy of how they’re measured so they can make any necessary adjustments to improve their value to the business.

Performance Metrics Business Examples

The best implementations of performance metrics are those that drive action and inform decision-makers. The following are theoretical examples of how companies might use metrics to track and manage performance in real-world situations.

Responding to inflationary pressure: Management at a sports retailer is worried that inflationary pressures are impacting profit margins, prompting a need to start looking at supplier costs to decide whether to drive down costs or raise prices. To that end, management is closely watching COGS to understand how supplier prices are impacting profit. Two years ago, COGS was $13 million. This past year, the retailer started with $5 million in existing inventory and made another $15 million in purchases. At the end of the year, it had $4 million left in inventory. This year’s COGS is calculated like so:

$5 million + $15 million – $4 million = $16 million in COGS

This shows that COGS has increased by a little over 23%, and managers should rightfully be thinking about adjusting cost management and pricing strategy.

Project management capacity planning: A professional services firm is about to sign a new client with a big project that is expected to last an entire year. The company needs to figure out if it has enough workers and contractors to fulfill the contract, so managers decide to use the resource capacity metric. The contract will be for 20,000 hours in a 12-month period. The company has approximately nine full-time resources available during that time. It closes for 11 holidays per year, and each resource has two weeks of vacation and five sick days available to them. The company also requires two days of annual training and two weekly hour-long meetings from these resources. The resource capacity metric is calculated as follows:

  • Working days available per resource: 260 working days per year – 11 holidays – 10 vacation days – 5 sick days = 234 working days

  • Capacity for project per resource: (234 working days x 8 hours) – (2 training days x 8 hours) – (50 weekly meetings x 2 hours) = 1,756 hours per resource

  • Total resource capacity: 1,756 hours x 9 resources = 15,804 project hours available

Based on this metric, managers will need an additional 4,196 hours of capacity in order to fulfill the new contract. This means they’ll need to hire at least three more full-time employees with comparable benefits to make up the difference.

Manufacturing maintenance improvement: A manufacturer has been plagued with increasing amounts of downtime caused by equipment issues. Leadership is trying to improve maintenance performance and is keeping a close eye on metrics like production downtime costs and mean time to repair (MTTR). Last year, the company found that it experienced 450 hours of downtime on systems that generate $150,000 in revenue per hour. This means production downtime costs were:

$150,000 lost revenue per hour x 450 hours = $67.5 million in downtime costs

Managers believe that if they can get their maintenance teams to work more quickly and efficiently, they can bring these costs down. The performance metric they’ll use to hold the teams accountable is MTTR. Last year, the maintenance team dealt with 1,100 downtime incidents. This means that MTTR was:

(450 hours downtime x 60 minutes) / 1,100 incidents = 24.5 minutes in MTTR

Leadership would like to reduce downtime costs by $10 million next year, which means that if the company experiences a similar number of incidents as it did the prior year, maintenance teams could achieve that savings by reducing MTTR by a little under four minutes:

  • Targeted downtime cost reduction: $10 million

  • Targeted downtime reduction: ($10 million / $150,000 per hour) = 66.6 fewer downtime hours

  • Targeted MTTR reduction across 1,100 incidents: (66.6 hours x 60 minutes) / 1,100 incidents = 3.6 minutes

Track and Improve Business Performance With NetSuite ERP

Enterprise resource planning (ERP) systems can help organizations improve business performance by leveraging advanced tracking and automation capabilities. NetSuite ERP is an all-in-one business management solution that powers a plethora of performance metrics, along with complex analytical capabilities that calculate how different metrics work together and what it all means for profitability.

NetSuite ERP also creates easily digestible reports and visualizations to effectively communicate the meaning of performance metrics to stakeholders. The cloud-based system performs at enterprise scale, meaning that leadership can offer all stakeholders the kind of visibility they need to keep individuals, teams, business units and subsidiaries accountable for business objectives in real time.

Performance metrics provide the bearings that successful managers need to navigate their roadmaps for success. Whether it’s CEOs managing profitability, inventory managers trying to improve efficiency or sales executives looking to bolster revenue generation, relevant performance metrics can help determine how well their teams are doing in meeting those objectives. Collecting this data is just the start. The real value comes when managers put this information into analytical context and incentivize their teams to make changes that will influence the business’s bottom line.

Performance Metrics FAQs

What is the difference between performance metrics and KPIs?

Not all performance metrics measure progress against specific business objectives. Key performance indicators (KPIs) are a subcategory of performance metrics that indicate the progress being made toward meeting business goals.

What are the best performance metrics?

The best performance metrics are accurate, relevant, timely, transparent and tied to consequences for those whose performance can influence them.

What is an example of a performance metric?

A classic example of a performance metric is net sales revenue, which is a top-line performance metric that measures how well a company’s sales function is generating income for the company. It’s calculated by subtracting discounts, returns and their associated costs from gross sales.

What are the four main metrics in a balanced scorecard?

The four main performance metrics used to establish a balanced scorecard are financial metrics, customer metrics, internal process metrics and organizational capacity metrics.

What are three metrics to measure performance?

Three common metrics used to measure performance are return on investment, gross margin and cost of goods sold.