Thursday 10 June 2010


Key Performance Indicators are the primary abstraction for investors. The concept is simple. KPIs are basically performance measurements, ratios or can even be soft goals. They have two characteristic, both of them useful, but can be problematic as well:
- they are simplification of the situation
- they have a tendency to be superficially comparable

Simplification is actually a good thing since it makes life easy for everyone involved. In an interent business its easy to say "our conversion (eg. trial to payable users) ratio is 30%". And that's good.

The trick is that quite often people compare KPIs that have the same name, but actually mean different things. Let's take number of users. This is one of the most abused KPIs. First you start to ask:"in which period"?, unique?, if unique how do you measure unique - within an hour, day, week?... all sorts of problems arise from something that at the first glance look really straightforward. However every time you read news, they just say that a company has X million of user.

KPIs are a great tool for making and tracking company performance. You just need to understand what they mean.

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