This is from the “Accounting Makes Cents” podcast episode #97 released on Monday, 8 September 2025.

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Before we dive into the nuts and bolts of KPIs, let me share a quick story that actually inspired this whole episode. I was listening to a podcast where an AI kept saying something like “kaypees.” At first, I wasn’t sure what it meant. Was it some new tech buzzword or jargon?

Then it hit me: the AI was talking about KPIs, Key Performance Indicators. That moment really made me think about how easy it is to hear a term and not fully understand its meaning or its power.

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Even more importantly, it reminded me how using the wrong KPIs, or tracking too many irrelevant ones, can seriously mislead a business. It’s like following a faulty compass: you might feel confident about the direction you’re heading, but in reality, you’re off course.

Wrong KPIs waste time, confuse teams, and encourage behaviours that can hurt long-term success like focusing on volume over quality or chasing vanity metrics that don’t move the needle.

So, this story inspired me to create this episode to help us all figure out how to measure what really matters, by choosing the right KPIs that align with our true business goals.

WHAT ARE KPIS? AND WHY DO THEY MATTER?

So, what exactly are KPIs? Well, KPIs or Key Performance Indicators are essentially measurable values that show how well a company is hitting its important business goals. Think of them like the vital signs of a business’s health. Are sales growing? Is the customer base happy and staying loyal? Is production running efficiently? All of these can be tracked using KPIs.

But here’s the thing: KPIs aren’t just some numbers on a spreadsheet or a flashy dashboard you glance at once a month. They’re powerful tools that help teams focus on what really matters. They guide decisions, highlight when things are going well, and also flag problems before they become crises. So, when done right, KPIs help everyone, from the frontline staff to top management, stay aligned and work towards the same goals.

And that’s why understanding KPIs properly is so important. Because if you don’t, you might either ignore them completely or end up following metrics that don’t really reflect your business’s true performance.

LINKING KPIS TO REAL BUSINESS SCENARIOS

Let’s make this a bit more concrete. Imagine you’re managing a manufacturing company. What are the things you would really want to know? Probably stuff like how often the machines are running without breaks, what we call production uptime, or how many products come off the line with defects. These KPIs directly tell you whether your factory is running smoothly or if there are problems that need attention.

Now, let’s flip it and think about a service business. Maybe it’s a call center or a software company that really depends on how satisfied their customers are. In that case, KPIs like customer retention rate—which shows how many customers keep coming back—or first contact resolution rate, meaning how often a customer’s issue is solved the first time they call or message, become critical. These numbers give you insight into how well the service team is doing and whether customers are happy enough to stick around.

What’s important here is that your KPIs need to reflect what your business is truly trying to achieve. It’s easy to fall into the trap of just measuring what’s easy to count or what looks impressive, but that doesn’t always give you the full picture. The right KPIs help you zoom in on what really drives success for your specific business.

BENEFITS OF WELL-DESIGNED KPIS

So, why go through all this effort to design good KPIs? Well, good KPIs do a lot more than just collect data. They help align your whole team around clear, measurable goals. When everyone understands what success looks like, it’s easier to work together to get there.

They also boost accountability. If you’ve got clear targets, you know who’s responsible for what. That transparency means problems get noticed and fixed faster. And KPIs can actually motivate people. There’s something powerful about seeing progress in real time and knowing your work makes a difference.

Another big benefit is that well-designed KPIs act like early warning systems. They can alert you to trouble spots before they turn into full-blown crises, so you can take action sooner rather than later. Put all this together, and KPIs become a powerful lever to drive business growth.

PITFALLS OF IRRELEVANT OR POORLY CHOSEN KPIS

But, and this is a big but, KPIs can also trip you up if you’re not careful.

One common mistake is choosing too many KPIs. When you have dozens or even hundreds, it becomes overwhelming. It’s like trying to watch too many screens at once. You can’t focus on what really matters.

Another trap is chasing vanity metrics, those flashy numbers that look good on paper but don’t actually help you make decisions. Imagine a sales team focusing only on the number of deals closed, without considering whether customers are satisfied or if the deals are profitable. They might hit their targets, but the business suffers in the long run.

There’s also the danger of KPIs that don’t line up with your business strategy. If your KPIs pull your team in different directions, you end up with confusion and wasted effort. For example, if marketing focuses on social media likes just because it’s trendy, but it doesn’t lead to more sales or customer loyalty, then that KPI isn’t really helping.

So picking the wrong KPIs can lead to wasted time, misaligned priorities, and even harmful behaviours.

NON-FINANCIAL KPIS

Now, let’s talk about non-financial KPIs — and why they’re just as important, if not more important, than the financial ones.

Here’s the thing: financial KPIs, like profit margin or return on investment, tell you the outcome of what’s already happened. They’re backward-looking. Useful, but they don’t always give you insight into what’s driving performance right now.

That’s where non-financial KPIs step in. They’re often leading indicators — signals that can predict future financial outcomes.

For example, if you’re running a retail business, customer satisfaction scores or net promoter scores (NPS) can tell you if customers are likely to come back and spend more. A dip in these scores today could signal lower revenues next quarter.

In a production environment, on-time delivery rates or quality defect percentages can be better predictors of long-term profitability than just looking at last month’s revenue figures.

The benefit of non-financial KPIs is that they often capture the things that really drive sustainable success:

• Customer loyalty
• Employee engagement
• Innovation and R&D progress
• Operational efficiency
• Environmental and social impact

But here’s the trap: because non-financial KPIs are a little fuzzier, companies sometimes pick ones that sound good but don’t actually tie back to strategy. For example, tracking “number of social media followers” sounds modern, but unless your business model directly relies on converting those followers into revenue, it’s not necessarily meaningful.

So, the key is relevance. A non-financial KPI should always answer: does this measure tell me something that will help achieve my business objectives? If the answer’s no, it’s just noise.

HOW TO SELECT EFFECTIVE KPIS?

So, how do you make sure your KPIs really work for you?

First, keep them SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. If your KPIs aren’t clear and actionable, they won’t help much.

Second, regularly review your KPIs. Business priorities change, so your KPIs should evolve too. What mattered a year ago might not be as important today.

Third, balance financial and non-financial KPIs. You want to see the full story, not just one side of it.

And finally, involve your team and stakeholders when picking KPIs. When people help choose the measures they’re accountable for, they’re more likely to care about and act on them.

Show notes simplified

In this episode, MJ the tutor breaks down the essentials of Key Performance Indicators (KPIs): what they are, why they matter, and how to choose the right ones for your business. She explores real-world examples, discusses common pitfalls of poorly chosen KPIs, and dives into why balancing financial and non-financial metrics is critical.