Performance Metrics – Definition, Benefits, Key Metrics, and what should you measure

machines showing meter value

Performance Metrics track and measure how well employees are performing in their jobs. HRs, Managers, and leaders use tools and their own methods to measure productivity and efficiency against set parameters. These parameters can vary from employee to employee and also from one department to another. Employee performance metrics benefit both the organization and the employee by aligning them towards a single direction and company goals. 

That was the bookish definition of performance metrics. To learn more about performance metrics meaning, let’s look at a small story to understand why merely knowing the word isn’t enough. 

A biscuit factory owner (let’s call him ”Big Boss”) wants his workers to produce more and more. So, he decides to measure their output with a metric. 

To start with, Big Boss settles on the number of biscuit packets produced in a day. But this doesn’t work, as he realizes that his workers manufactured thousands of tiny biscuit packets. They are more in volume but the biscuits are a fraction of their usual size. He now switches the metric to kilos of biscuits per day. When he again visits the factory, he’s left astonished. One gigantic biscuit is occupying the entire factor. 

It is a common tale at many organizations. However, it shows that simply knowing the definition of performance metrics won’t solve problems. Modern workplaces focus on the premise that the value of employees is often boiled down to the quantifiable, whether it’s the output of biscuits, the number of services we offer in a month, the revenue we generate, the sales we get, or something else depending upon the job role. 

So that’s one of the beliefs. When a metric becomes merely a target and the only focus of a job, it proves to be ineffective. However, there is more to metrics than simply setting targets. 

What is Performance Metrics 

Performance metrics for employees help measure the behavior, activities, and performance at work. Through set parameters, data is tracked within a range, allowing one to derive conclusions depending upon the achievement of overall business goals by an individual. Metrics are put in place to promote an output-driven culture. 

Business performance metrics and employee performance metrics go hand in hand in modern organizations. A Business Metric is a quantifiable measure. It tracks and assesses the status of a specific business process. This process is impossible to implement if you don’t spend time understanding the performance of employees at work. 

Here’s a performance metrics example: The Marketing team tracks marketing and social media metrics. For a sales team, sales performance metrics can be lead-conversion and the number of demos delivered during a month. 

image talking about benefits of metrics

Metrics vs KPIs 

They’re not the same. Let’s check out the difference. 

Metrics work when compared to established benchmarks or set objectives. It provides context for any values used in the metric and allows users to better act on the data they’re viewing. For example, a company sets a target of $5M sales in one quarter. It may look humungous for a midsize or small company. But, for an airplane manufacturer like Boeing, this is a tiny amount. Context is the key and allows metrics to make an impact.  

Key Performance Indicators (KPIs), on the other hand, target critical areas of performance. For example, a KPI would monitor how much organic traffic contributed to sales demos during a month. It is a part of evaluating the website performance metrics. 

In short, business performance metrics track all sides of a business, whereas KPIs target a critical part of the performance. 

What should Organizations be Measuring? 

Folks, if you’re confused about what should be measured in your organization via performance metrics, then don’t worry. Read this section to find out. 

Remember the biscuit story we told you at the beginning. See, setting metrics isn’t bad. Defining them vaguely is the problem. Have a look at two laws: 

  • When a target is set to define a metric, it stops being a good measure- Charles Goodhart Law. 
  • Whenever a metric is overused, it is likely to corrupt the process it is intended to monitor- Donald T Campbell’s Law. 

Some organizations measure employee performance with a specific metric, employees optimize everything to hit it. They don’t consider the consequences. So, setting improper targets could: 

  • Encourage employees to game the system. 
  • Incentivize the wrong aspects of work. 
  • Erode moral values at work. 
  • Ignoring existing customers in the process of attracting newer ones. 

And so, before you start giving targets to your employees, remember the true purpose of performance metrics: To motivate and align. It doesn’t mean that you shouldn’t set targets. It’s better if you design metrics around efficiency. Output is what’s produced. Eventually, the results matter and not the number of hours, calls, emails, etc. 

One-day delivery schemes won’t work if it leads to package loss. More articles are worthless if they don’t bring any traffic or fail to deliver quality content. Dialing 50 cold calls is worthless if there is no prior research done on potential clients and no plan to offer solutions. 

While setting metrics, think deeply about what you want to measure. Why it matters, and how it’ll contribute towards the growth of the company.  

Types of Performance Metrics for Employees 

Employee performance metrics can be divided into four core categories.  

Work Quality Metrics 

Work quality metrics reflect the quality of an employee’s work. 

A strategic model that helps organizations strategize and improve the performance of their employees.   

The manager defines goals. The employee works towards these goals and the manager tracks the progress. Upon successful completion, a report is provided to the employee to define performance. 

  • Employee Appraisal 

In most companies, employee performance evaluation happens once a year.  

Nowadays, performance tools are used to measure performance. One of the key employee assessment methods is using a 9-box matrix system. It’s a 3*3 table that divides employees between high performance and poor performance. This process is helpful for succession planning. 

  • NPS (Net Promoter Score) 

Indicator of employee performance, Net promoter score (NPS) has a scale of 1 to 10. A customer can recommend your company/ product/ services to other potential businesses/ clients. It’s a simple method. Higher the score, the better. The problem is that employees ask customers to give them higher ratings, and it can be misleading. 

By being multi-dimensional, the 360-degree feedback system helps employees receive feedback from every possible angle and direction. Multiple stakeholders are allowed to provide feedback, and this helps in identifying the scope of performance effectively. 

Work Quantity Metrics 

Work quality metrics are often easier to calculate than the quality of work. 

  • Number of Sales 

Sales is numbers-driven. You calculate the number, and you get the revenue, profits, loss, and so much more. It’s a great example of a purely outcome-driven metric. 

  •  Units/Handling time 

This metric is important for the manufacturing industry. However, it is now used in service-based industry as well. For example, a customer care executive’s performance is measured by the number of tickets closed in a day.  

Work Efficiency Metrics 

Efficiency measures create a balance between quality and quantity. For example, a content writer is writing 2000 words a day. But the content is not worth reading and also not ranking on different channels. So, the quantity is there, but the quality isn’t. Similarly, someone might be writing great content but only about 100 words a day. Here, the quantity part is missing. A balance is required, and that’s where efficiency comes into the picture. 

Companywide Employee Performance Metrics 

Depending upon the requirements, organizations can use performance metrics to assess the level of competitiveness.  

  • Revenue per employee 

This metric shows an estimate of how much money an individual is generating for the company. Low revenue means low cash reserves, and this can impact the organization’s short-term and long-term decisions. Also, higher recurring revenue might lead to higher profits, which is the ultimate goal of every business. 

  • Profit per employee 

This metric focuses on total profit instead of revenue. A high profit per employee means that the company is stable and sound when it comes to business health. 

A company’s profit = Revenue – Expenses.  

  • Human Capital ROI 

Every organization’s human capital adds a certain to the success of the organization. Through knowledge, habits, attributes, employees at any organization play a significant role in building the company. The human capital ROI assesses the value of human capital. 

  • Overtime 

While some organizations push their employees to work overtime (some don’t even pay extra), this will hamper the performance in the long run, and your workforce might lose the motivation to work. Result: A high attrition rate. 

It is not possible to understand the performance of employees using a single metric. Understand your requirements and use different metrics for different situations, departments, and individuals. 

To end… 

Keep things human. Have some space for change, flexibility, innovation, and failure in regards to your employees. Measurement is, after all, dependent on perception. 

Ok. That’s all…now go set performance metrics for your team! 

Contributing Author
anubhav

Sr. Content Writer

Anubhav is forever weird, but he’s a fun Copywriter and interview host at Keka. Anubhav figured out in college days that with COPY you can get a bunch of very-targeted people to come to your website, consume your material, and even buy. His focus is on making HR easier for professionals and anyone wanting to make a difference in the workplace. When he isn’t writing, he’s either traveling to the mountains, playing football, reading about Tigers, or doing nothing.