What Is a KPI (Key Performance Indicator)?

A KPI (Key Performance Indicator) is a measurable value that shows how effectively a company, team, or individual is achieving a business objective. KPIs help you track progress, identify issues, and make strategic decisions based on results, not assumptions.

Used properly, KPIs offer a clear snapshot of what’s working—and what needs improvement—in operations, sales, marketing, customer service, or any other department.

Quick Answer

A Key Performance Indicator (KPI) is a measurable value used to track progress toward specific business goals. KPIs help teams evaluate success and make informed decisions using real data instead of guesses.

Breaking Down the Definition

A KPI includes:

• A specific objective (e.g., increase monthly revenue)
• A measurable metric (e.g., sales in dollars)
• A time frame (e.g., monthly, quarterly)

What it’s not: A vague goal. For example, “get better at sales” is not a KPI. “Close 15 new clients per month” is.

KPIs are used at all levels:

• Individual (e.g., a salesperson’s conversion rate)
• Team (e.g., average resolution time in support)
• Company-wide (e.g., customer churn rate)

Why KPIs Matter in Business

KPIs are critical because they:

• Help you track performance over time
• Turn strategy into actionable goals
• Drive accountability and focus
• Help spot problems early (e.g., if leads are down)
• Provide data for investor reports or board meetings

Examples by industry:

• SaaS: Monthly recurring revenue (MRR)
• Real Estate: Average time on market
• Consulting: Billable hours per client
• EV infrastructure: Uptime of charging stations

KPIs keep teams aligned and focused on what really matters.

Legal or Practical Implications

In Contracts

In service-level agreements (SLAs), KPIs are often written into the contract. For example:

• “The platform must maintain 99.9% uptime per calendar month.”
• “Customer support must respond within 24 hours 90% of the time.”

Failing to meet contractual KPIs can trigger:

• Penalties or credit refunds
• Termination clauses
• Dispute resolution processes

In Employment

Employers may tie bonuses or promotions to achieving KPIs. However:

• Targets must be realistic and agreed upon
• Vague KPIs can lead to HR disputes or unfair evaluations

Tip: Always document KPIs clearly in contracts and performance plans.

Example Use Case: KPI Clause in a Service Contract

Here’s a sample clause:

“The Provider shall maintain a system uptime of at least 99.5% each month, excluding scheduled maintenance. In case of failure to meet this KPI for two consecutive months, the Client may seek a 10% service credit or initiate contract review.”

Explanation:

• The KPI is measurable (99.5% uptime)
• The condition is clear (two months in a row)
• The consequence is defined (10% credit)

This keeps both sides aligned and reduces future conflict.

Call-to-Action

Want to add solid KPIs to your contracts, proposals, or employee reviews? Make them clear, measurable, and legally enforceable.

Download our KPI clause examples or book a review session to align your legal documents with your business goals.