What are employee KPIs?
Employee KPIs are measurable values that demonstrate how effectively individuals, teams or departments are contributing to strategic goals. Rather than relying on general impressions of performance, KPIs provide data-driven insights into productivity, efficiency and quality of work.
KPIs can relate to almost any aspect of work, from customer satisfaction to sales results to project delivery timelines. What they all have in common is that they offer a clear picture and thus help employers identify what success looks like in a specific role or function, and whether current performance levels meet those expectations.
Organisations often use frameworks such as the balanced scorecard to map employee KPIs to business goals. This ensures that day-to-day performance is not viewed in isolation, but rather as part of a broader picture.
Why are KPIs important for employee performance?
Clear and relevant KPIs serve multiple purposes in an organisation. At their best, KPIs do more than just measure output. They:
- help employees understand what is expected of them
- keep teams focused on outcomes that matter to the business
- make performance trackable over time
- highlight strengths and identify areas for improvement
- support fair, transparent performance reviews
- contribute to improved employee engagement and retention.
When used correctly, KPIs allow managers and employees to work together towards shared objectives. They also make it easier to provide constructive feedback and celebrate progress, rather than relying on non-specific assessments or gut feelings.
How to set employee KPIs
Establishing meaningful KPIs requires a structured approach. The following steps can help ensure that your employee KPIs are useful, measurable and directly support your organisational goals.
1. Involve employees in the process
One of the most effective ways to build employee engagement with KPIs is to involve staff in setting them. Employees often have valuable insights into which aspects of their role can be tracked effectively, contribute to business objectives and within their control. By encouraging participation in the KPI-setting process, you can ensure greater buy-in among staff and consequently increase the likelihood of success.
For example, team leaders can hold workshops or individual meetings to discuss goals, brainstorm indicators and review what has worked in the past. This helps select better KPIs and builds a stronger connection between individual effort and business strategy.
2. Link KPIs to strategic goals
Every KPI needs to support a broader organisational objective. If a metric cannot be tied to a strategic goal, it is worth questioning why it is being measured.
To make sure efforts support your broader business priorities, start by identifying your company’s top-level goals. These might include improving customer satisfaction, increasing profitability, expanding into new markets or reducing operational risk. Then, break down these priorities into specific departmental goals, team targets and individual KPIs.
Example:
Business objective: Improve customer loyalty
Department goal: Increase repeat purchases by 20%
Team KPI: Percentage of returning customers
Individual KPI: Follow-up emails sent within 24 hours after purchase
This cascading structure ensures that everyone’s work supports shared outcomes and contributes to the overall business goals.
3. Include both team and individual KPIs
While individual KPIs are important for assessing personal contribution, team KPIs promote collaboration and shared responsibility. Including both types can help build a performance culture that values both individual accountability and group success.
For instance, a marketing team might focus on improving overall campaign conversion rates, while individual team members concentrate on tasks like writing content or managing ad performance. This approach acknowledges that most roles are interconnected, and that success depends on working together toward common objectives.
4. Follow the SMART criteria
Effective KPIs should follow the SMART goals framework:
- Specific: Clearly define what is being measured
- Measurable: Use metrics that can be tracked reliably
- Achievable: Ensure the target is realistic and attainable
- Relevant: Ensure the KPI supports the organisation’s broader priorities
- Time-bound: Set a timeframe for reaching the goal
For example, instead of setting a KPI that says ‘Improve sales performance’, a SMART KPI would be: ‘Increase monthly sales revenue by 10% within six months.’ This structure helps clarify expectations and makes it easier to track progress and make data-driven decisions.
5. Use appropriate tools for measurement
Once KPIs have been set, they need to be tracked consistently. Employers can use dashboards, project management tools, customer relationship management (CRM) systems or spreadsheets to monitor performance.
Assign responsibility for monitoring each KPI, whether to an individual employee, a team leader or a department manager. What’s more, agree on a reporting schedule and ensure that data is collected and reviewed regularly.
The key is to keep performance data accessible, transparent and easy to interpret. This promotes accountability and enables timely intervention when targets are not being met.
6. Review KPIs regularly
KPI reviews need to be scheduled at regular intervals, such as monthly or quarterly. These reviews help businesses determine whether their set indicators are still relevant and whether targets should be adjusted.
For example, a KPI that made sense during a product launch may no longer apply once the business has shifted into a steady growth phase. External factors, such as economic conditions or supply chain disruptions, may also make adjustments necessary.
During review meetings, discuss:
- which KPIs are being met consistently
- which targets have turned out to be unrealistic
- whether the metrics still support the company’s goals
- any trends or insights that have emerged.
This iterative approach helps ensure that KPIs continue to serve as effective management tools rather than becoming outdated checklists.
Common mistakes to avoid when setting KPIs
Although KPIs are powerful tools, they can be counterproductive if used incorrectly. A common error is focusing too heavily on tracking activity rather than results. Measuring how many calls an employee makes does not necessarily reflect the quality or success of those interactions. Instead, it is often more meaningful to track the number of customer issues resolved or deals closed.
Another common mistake is setting too many KPIs. When employees are overloaded with metrics, their focus can become scattered. It is better to select a few relevant indicators that are closely linked to the most critical aspects of a role. Similarly, relying exclusively on lagging indicators, such as revenue or output volume, can make it difficult to anticipate future issues. On the other hand, including leading indicators, such as prospecting activity or customer feedback, can provide earlier insights and support more proactive management.
Generic or one-size-fits-all KPIs also risk being ineffective. After all, each role and department has unique priorities and workflows, and KPIs should reflect these differences. Finally, KPIs must be revisited regularly to ensure that they remain relevant. A stagnant metric that no longer reflects business priorities is unlikely to drive performance.
Employee KPI examples by function
The following examples show how KPIs can vary significantly across different roles and departments. Keep in mind that these are starting points only, and employers need to adapt them based on their individual business needs.
Sales: Tracking the number of qualified leads, the percentage of closed deals and total revenue per sales representative are common ways to measure performance in this function. These KPIs provide insights into how effectively employees are progressing through the sales funnel and contributing to the organisation’s growth.
Marketing: Website traffic, lead generation costs and engagement rates on digital campaigns are often used to track the effectiveness of marketing activities. Email open rates and conversion metrics can also offer valuable insights into audience behaviour and campaign success.
Customer service: Performance in this area is often tied to metrics such as first contact resolution rate, customer satisfaction and average response time. These KPIs reflect the quality of customer interactions and help companies identify opportunities for improving service delivery.
Operations: Indicators such as task completion time, on-time project delivery and product defect rates are useful for understanding efficiency and consistency. These KPIs are particularly helpful for tracking process optimisation and quality control.
Human resources: HR departments often monitor time to hire, employee retention and internal mobility rates. These metrics support workforce planning and make sure they are building a strong pool of capable employees.
Should well-being be included as a KPI?
Employee well-being is increasingly recognised as a key factor in workplace performance. Although well-being is not always easy to quantify, many organisations are beginning to track it alongside traditional performance indicators.
As well-being has several dimensions – physical, mental and emotional – measuring it can be challenging. Above all, the main goals and objectives of your organisation’s well-being strategy need to guide which metrics you choose to use. Employers might look at participation in well-being programs, employee sentiment survey results or patterns in absenteeism, for example. Uptake of flexible working arrangements or requests for support services can also offer useful insights. Importantly, these indicators should not be used to penalise staff, but rather to understand trends and shape supportive workplace policies.
Measuring soft skills and behavioural competencies
Technical output is typically easy to measure, but soft skills can be more difficult to quantify. Still, they are essential to team performance and workplace culture.
Employers can use structured approaches such as 360-degree reviews, peer evaluations or manager observations to assess communication, teamwork, adaptability and other interpersonal attributes. Though more qualitative in nature, these methods can help capture the broader contributions of employees beyond their direct outputs.
Employee engagement as a KPI
Employee engagement relates to employees’ levels of enthusiasm for and connection with an organisation. Measuring employee engagement tells you how motivated your employees are to put in extra effort for your business and how committed they are to staying with the business. It is no surprise that businesses with engaged employees are performing better and are more resilient. So, employee engagement is a key metric to keep track of.
Keep in mind, though, because employee engagement is about how people feel, measuring it can be challenging. But here are some effective ways to capture this KPI:
- An employee engagement survey. A great way to assess your employees’ level of engagement is by simply asking them about it. To be effective, surveys need to be completed frequently and focus on questions about the employee experience.
- Absenteeism and staff turnover rate. It may seem obvious, but employees who show up tend to be more engaged. While the average employee turnover rate in Australia is approximately 15%, the Australian HR Institute (AHRI) suggests that organisations in most sectors should aim to keep turnover between 5% and 10% to maintain workforce stability and reduce hiring costs.
- Employee net promoter score (NPS). This is easy to measure because it involves asking just one question: ‘How likely is it that you would recommend working at our company to a friend or colleague?’ Generally, the question is answered on a scale of 0 to 10. Responses from 0 to 6 = detractor, 7 to 8 = passive and 9 to 10 = promoter. To calculate your employee net promoter score, simply subtract your percentage of subtractors from your promoters.
Linking KPIs to development and recognition
When KPI data is used only for performance reviews, its value is limited. Integrating KPI outcomes into employee development plans can help identify strengths to build on and weaknesses to address. Providing access to targeted training, assigning mentors or adjusting roles in response to KPI data can support ongoing growth.
Likewise, recognising high performers through formal acknowledgment or rewards tied to KPI achievement helps reinforce positive behaviours and signals that contributions are valued. In this way, KPIs serve not just as accountability tools, but also as a framework for motivating and developing staff.
