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Companies generate enormous amounts of data every day.
Sales, revenue, expenses, cash flow, customer acquisition, productivity, website traffic and dozens of other numbers can be measured.
But measuring everything does not necessarily mean understanding the business.
That is where KPIs become important.
A Key Performance Indicator, or KPI, is a measurable indicator used to evaluate progress toward a specific business objective.
A good KPI helps management answer a very practical question:
Are we getting closer to the result we want?
Microsoft describes a KPI as an indicator that communicates progress toward a measurable goal and compares the current result with a defined target. See Microsoft’s guidance on KPI measurement
For companies, KPIs transform accounting, financial, commercial and operational data into information that can support decisions.
What does KPI mean?
KPI stands for Key Performance Indicator.
It is a measurable value selected by a company to monitor how effectively it is achieving an important objective.
For example, imagine that a company wants to improve cash flow.
Simply looking at total revenue may not be enough.
The company could track Days Sales Outstanding, or DSO, which measures approximately how long customers take to pay their invoices.
If the company currently takes 60 days to collect payments and wants to reduce that period to 40 days, DSO becomes a relevant KPI.
The indicator now has four essential elements:
Business objective: improve cash flow.
Indicator: DSO.
Current result: 60 days.
Target: 40 days.
This connection between indicator and objective is what makes a KPI useful.
AWS also recommends defining KPIs according to business objectives, setting measurable targets and periodically reviewing whether those indicators remain relevant. See AWS guidance on establishing KPIs
What is the difference between a KPI and a metric?
This is one of the most important distinctions.
Every KPI is a metric, but not every metric is a KPI.
A metric simply measures something.
A KPI measures something that is considered critical to achieving a particular objective.
Consider a company’s website.
The number of page views is a metric.
The conversion rate from website visitors into qualified leads could become a KPI if increasing lead generation is an important strategic objective.
The same logic applies to finance.
The number of invoices issued is a metric.
The percentage of invoices paid on time may become a KPI if reducing late payments is critical to improving cash flow.
The mistake many companies make is tracking dozens or even hundreds of numbers without defining which ones actually affect business performance.
A useful KPI should always answer:
Why are we measuring this?
If there is no clear answer, the number may simply be a metric.
Why are KPIs important?
KPIs help transform management from intuition into measurable analysis.
Without indicators, managers may know that something “doesn’t feel right” but have difficulty identifying the cause.
Imagine that revenue increased 15%.
At first glance, this seems positive.
But suppose operating expenses increased 30% during the same period.
Revenue alone would suggest growth, while profitability indicators could show that the company is actually becoming less efficient.
KPIs make these relationships visible.
They can help companies identify problems earlier, compare actual results with targets, evaluate whether strategies are working and prioritize areas that require action.
The value of a KPI is therefore not the number itself.
The value comes from the decision the number helps management make.
Leading vs. lagging KPIs
KPIs can also help managers understand what has already happened and what may happen next.
A lagging indicator measures a result that has already occurred.
Revenue, net profit, EBITDA margin and employee turnover are examples.
They tell management what happened during a period.
A leading indicator, on the other hand, can provide clues about future results.
For a sales team, the number of qualified opportunities entering the pipeline may be a leading indicator.
Revenue from closed deals is the lagging result.
Imagine that monthly revenue is still strong, but the number of new qualified opportunities has fallen sharply for three consecutive months.
The lagging indicator still looks healthy.
The leading indicator is already flashing a warning light.
Strong management usually combines both perspectives.
How do you create a good KPI?
A good KPI begins with the business objective, not with the spreadsheet.
Suppose management says:
“We need to improve profitability.”
That is an objective, but it is still too broad.
The next step is identifying which measurable result represents improvement.
Management might choose net profit margin.
If the company’s current margin is 8%, it could establish a target of 12% within the next 12 months.
The KPI could then be structured as:
Objective: improve profitability.
KPI: Net Profit Margin.
Current result: 8%.
Target: 12%.
Owner: CFO or Financial Manager.
Review frequency: monthly.
The person responsible for the KPI is particularly important.
A dashboard full of red indicators without anyone responsible for acting on them is just expensive decoration.
Good KPIs should therefore have a clear objective, reliable data source, target, responsible person and review frequency.
Financial KPI examples
Financial indicators are among the most important KPIs because they show whether growth is actually producing sustainable economic results.
Net Profit Margin
Net Profit Margin measures how much profit remains after expenses relative to revenue.
Formula:
Net Profit ÷ Revenue × 100
If a company generates $1 million in revenue and $100,000 in net profit:
Net Profit Margin = 10%
Monitoring margins over time can reveal whether increased sales are translating into increased profitability.
Operating Cash Flow
Operating Cash Flow shows the cash generated by the company’s core business activities.
A company can report accounting profit and still experience cash flow problems.
This is why cash flow indicators should be monitored alongside profitability.
Companies that need better visibility over accounts payable, receivables, bank reconciliation and cash flow can use CLM Controller’s Financial Management services in Brazil.
EBITDA Margin
EBITDA Margin helps management evaluate operating performance before interest, taxes, depreciation and amortization.
Formula:
EBITDA ÷ Revenue × 100
The indicator can be useful for comparing operating efficiency over time or between companies, although it should not be analyzed in isolation.
Days Sales Outstanding
DSO estimates how long a company takes to collect accounts receivable.
A simplified formula is:
Accounts Receivable ÷ Credit Sales × Number of Days
A rising DSO may indicate slower customer payments and increasing pressure on cash flow.
Current Ratio
The Current Ratio helps evaluate short-term liquidity.
Formula:
Current Assets ÷ Current Liabilities
It compares resources expected to become available in the short term with obligations the company needs to pay.
The ideal result depends on the company’s industry and business model, so it should always be interpreted in context.
Sales KPI examples
Sales teams can use KPIs to understand not only how much they sell but also how efficiently the commercial process works.
Conversion Rate
Conversion Rate measures the percentage of opportunities that become customers.
Formula:
Customers Won ÷ Qualified Opportunities × 100
If a company had 100 qualified opportunities and closed 20 deals, its conversion rate would be 20%.
Average Deal Size
Average Deal Size shows the average value generated by each sale.
Formula:
Total Sales Value ÷ Number of Deals
Changes in average deal size can help explain revenue growth or decline.
Sales Cycle Length
The Sales Cycle measures how long it typically takes for an opportunity to become a customer.
A longer sales cycle may affect revenue forecasts and cash flow planning.
This indicator becomes particularly useful when combined with pipeline value and conversion rate.
Marketing KPI examples
Marketing teams often have access to hundreds of metrics.
The challenge is identifying which numbers actually contribute to business outcomes.
Customer Acquisition Cost
CAC measures approximately how much the company spends to acquire each new customer.
Formula:
Sales and Marketing Costs ÷ New Customers Acquired
If a business spends $50,000 on marketing and sales during a period and acquires 100 customers:
CAC = $500
The indicator becomes more useful when compared with the revenue or value generated by those customers.
Cost per Lead
Cost per Lead measures marketing investment relative to leads generated.
Formula:
Marketing Investment ÷ Leads Generated
This helps compare campaigns and channels.
Marketing Conversion Rate
Marketing Conversion Rate can measure the percentage of visitors, leads or opportunities that complete the desired action.
The exact definition should always be documented.
Otherwise, marketing and sales teams may use the same word “conversion” while measuring completely different stages of the funnel.
Operational KPI examples
Operational KPIs measure how efficiently the company transforms resources into products or services.
Cost per Unit
Cost per Unit measures how much the company spends to produce each unit.
Formula:
Total Production Cost ÷ Units Produced
It can help identify changes in productivity, raw material costs or operational efficiency.
Revenue per Employee
Revenue per Employee is calculated by dividing revenue by the average number of employees.
It can provide a broad view of workforce productivity, although differences between industries make external comparisons difficult.
Order Fulfillment Time
For companies selling physical products, Order Fulfillment Time measures the time between receiving an order and completing delivery or shipment.
Delays may affect customer satisfaction, logistics costs and working capital.
How many KPIs should a company monitor?
There is no universal number.
The goal should not be to create the largest dashboard possible.
Management should focus on the indicators that are directly connected to strategic objectives.
If executives receive a report containing 80 “critical” indicators, none of them are actually critical.
The number may vary according to company size, department and management level.
An executive dashboard could contain only a small group of strategic KPIs, while operational departments monitor more detailed supporting metrics.
The key is hierarchy.
Executives need strategic visibility.
Managers need departmental indicators.
Operational teams need the metrics they can directly influence.
How often should KPIs be reviewed?
The review frequency depends on how quickly the underlying business situation changes.
A cash balance might need daily monitoring.
Sales pipeline indicators might be reviewed weekly.
Financial statements and profitability KPIs are often reviewed monthly.
Strategic indicators may also be analyzed quarterly.
The important thing is that review frequency should match the speed at which management can realistically react.
Checking a strategic indicator every hour creates noise.
Reviewing a cash flow problem once a year is obviously too late.
KPIs should also be reviewed when business objectives change.
AWS specifically recommends revisiting indicators when strategies, business goals or user requirements evolve. See AWS KPI best practices
What should a KPI dashboard show?
A useful dashboard should provide context, not just numbers.
For each important KPI, management should ideally be able to see:
Current result → target → historical trend → variance → status.
Microsoft’s Power BI documentation similarly describes KPI visualization around a current value, a target and the status of the metric relative to that target. See how Power BI structures KPI visuals
Imagine a dashboard showing:
Net Profit Margin: 9.2%
By itself, that number says very little.
Now add:
Target: 12%
Previous month: 10.1%
Previous year: 8.5%
Suddenly management has context.
The margin is above last year’s result but deteriorated from the previous month and remains below target.
That is actionable information.
Common KPI mistakes
One common mistake is measuring too many indicators.
Another is selecting indicators simply because the data is easy to obtain.
Companies also frequently create KPIs without targets.
Saying “our conversion rate is 18%” is information.
Knowing the target is 25% transforms that information into a management signal.
Another mistake is changing the calculation methodology constantly.
If one department calculates customer acquisition cost differently from another, comparisons become unreliable.
The formula, data source and business definition should therefore be documented.
And KPIs should never become permanent simply because “we’ve always measured this.”
Indicators should evolve together with the strategy.
Accounting data can become powerful business KPIs
Accounting should not exist only to fulfill statutory obligations.
Reliable accounting information can provide some of the most important indicators used by company management.
Financial statements can support analysis of:
profitability, liquidity, margins, expenses, debt, working capital and cash generation.
This is especially important for companies that have financial data scattered across different systems or spreadsheets.
CLM Controller’s Accounting Outsourcing in Brazil includes management reports and financial information designed to give management greater visibility into company performance.
When accounting records are reliable and management reports are well structured, KPIs can be calculated from consistent information instead of manually assembled spreadsheets.
When does a company need more strategic financial management?
As companies grow, reporting only what happened is often no longer enough.
Management also needs to understand:
Why did the result happen?
What could happen next?
Which action should we take?
This is where financial planning, budgeting, forecasting and KPI analysis become strategic management tools.
CLM Controller’s CFO as a Service in Brazil combines financial planning, cash flow analysis, profitability monitoring, financial KPIs and executive reporting to help management interpret financial information and make better decisions.
The goal is not to create more reports.
It is to create better decisions from the reports the company already produces.
KPIs should lead to action
A KPI that nobody uses has very little value.
If DSO increases sharply, management should investigate collections and customer payment behavior.
If margins fall, the company may need to investigate pricing, costs or operating efficiency.
If customer acquisition cost rises, marketing and sales should evaluate channels, conversion rates and commercial productivity.
The best KPI systems therefore create a simple management cycle:
Measure → compare → understand → act → measure again.
Companies that follow this cycle turn financial and operational information into an ongoing management process.
How CLM Controller can help companies monitor performance
Reliable KPIs depend on reliable data.
CLM Controller helps Brazilian and international companies organize accounting and financial information so managers have clearer visibility into business performance.
Through Financial Management in Brazil, companies can improve control over cash flow, accounts payable, accounts receivable, bank reconciliation and management reporting.
Through Accounting Outsourcing, companies receive structured accounting information, financial statements and management reports that can support financial KPI analysis.
And with CFO as a Service, companies can integrate KPIs with budgeting, forecasting, profitability analysis and strategic financial decisions.
Need better visibility into your company’s financial performance? Talk to CLM Controller and turn accounting and financial data into information that supports better business decisions.
Frequently Asked Questions
What is a KPI in simple terms?
A KPI, or Key Performance Indicator, is a measurable value used to evaluate whether a company, department or project is progressing toward an important objective.
What is an example of a KPI?
If a company’s objective is to improve profitability, Net Profit Margin could be a KPI.
If the objective is to improve cash flow, DSO could be a KPI.
The right KPI depends on the objective being measured.
What is the difference between a KPI and a metric?
A metric measures an activity or result.
A KPI is a metric that has been selected because it directly represents progress toward an important business objective.
Therefore, every KPI is a metric, but not every metric should be considered a KPI.
What are the most important financial KPIs?
Common financial KPIs include Net Profit Margin, EBITDA Margin, Operating Cash Flow, DSO, Current Ratio, working capital indicators and debt ratios.
The most relevant indicators depend on the company’s business model and objectives.
How do you calculate a KPI?
Each KPI has its own formula.
Net Profit Margin, for example, can be calculated by dividing net profit by revenue and multiplying the result by 100.
The formula should be clearly documented so the indicator is calculated consistently over time.
How many KPIs should a company have?
There is no fixed number.
Companies should focus on a limited group of indicators that represent their most important objectives rather than monitoring dozens of numbers without clear priorities.
How often should KPIs be reviewed?
It depends on the indicator.
Cash flow may require daily or weekly monitoring, while financial results and profitability are commonly reviewed monthly.
Strategic KPIs may be evaluated monthly or quarterly.
What is a KPI dashboard?
A KPI dashboard is a visual management tool that combines indicators and shows current performance, targets, trends and status.
Tools such as Power BI can be used to create dashboards that integrate information from different data sources.
Can accounting information be used to create KPIs?
Yes.
Accounting data provides information about revenue, expenses, profitability, liquidity, debt, working capital and cash generation.
Reliable accounting is therefore an important foundation for financial KPIs.
What happens if a company tracks the wrong KPIs?
The company may spend time optimizing activities that do not materially improve its business objectives.
For this reason, KPIs should start with strategic goals and be reviewed whenever the company’s priorities change.
