KRA and KPI determine the effectiveness of organizational strategies. However, like any great duo, they each play different roles to help drive business growth.
KRA outlines the responsibilities and roles of employees at their workplace, while KPIs analyze business performance.
In this article, we’ll tell you everything you need to know about KRAs and KPIs, including examples, use cases, and differences.
What is KPI?
World-class influencer Brendar Marr defines KPI as:
“The most important performance information that enables organizations or their stakeholders to understand whether the organization is on track or not.”
Here’s our take on the definition:
Key performance indicators (KPIs) are quantifiable performance measurements for a specific objective. They allow companies to set targets, measure progress, and gain insight to help organizations make better decisions.
Here's why KPIs are important:
- Team Alignment: Selecting and tracking business KPIs helps your team make data-driven decisions and keep your organizational goals aligned
- Make Adjustments: Helps evaluate what strategies are working and which ones need optimization; you can then make informed decisions about how to improve team performance
- Holds Your Team Accountable: Use KPIs as a performance metric to ensure all employees perform at a certain standard
- Monitor Company Health: Gives you an accurate estimation of your company's financial health
- Analyze Patterns: When measuring KPIs over time, you'll begin to spot trends; for example, you may find that certain ads work better than others or that certain times of the year are more profitable than others
Read more: What is KPI?: Beginners Guide You Have Been Looking For
3 KPI Examples
There are many different KPIs to choose from. However, choosing the ones that best align with business objectives and goals is crucial.
Let’s examine a few examples of KPIs and how to calculate them:
Example #1. Profit Margin
Profit margin gives you the measure of the total sales revenue is profit, which is critical for the financial health of your business.
For example, calculating a profit margin of a product will tell you whether it’s worth selling or not.
Pro Tip: Businesses with a wide selection of products must closely monitor their profit margins to price their products correctly.
Generally speaking, there are two types of profit margins:
- Net Profit Margin: Money left after all expenses and income
- Gross Profit Margin: Profit left after accounting for the cost of goods sold (COGS)
The formulas for both these profit margins are as follows:
Net Profit Margin = (Net Income / Revenue) X 100
Gross Profit Margin = [(Total Revenue - COGS) / Total Revenue] X 100
Example #2. Employee Turnover Rate
Employee Turnover Rate gives you the percentage of employees who leave your company within a set period of time. The KPI encompasses both involuntary and voluntary separation.
Did You Know: Retaining your employees is cheaper than hiring new ones?
According to The HR Digest, to hire a fresh candidate, you’d end up spending money equivalent to one-third of their salary.
So if you're looking to hire a developer at a salary of $90,000 per year, you'd spend approximately $30,000 in just the hiring process.
The average employee turnover rate worldwide in 2021 was 47.2%.
If you’re getting employee retention rates < 45% for your company, this means your employees aren’t satisfied working with you (generally speaking).
Here’s the formula to calculate employee turnover rate:
Employee Turnover Rate = (Employees left in the company / Average number of employees) X 100
Example #3. Conversion Rate
Conversion rate is the percentage of times a prospect performs a desired action such as making a purchase, clicking on an ad, submitting their contact information, etc.
Analyzing conversions helps businesses to identify issues with their marketing or sales process.
Conversion Rate = (Number of conversion / Total visitors) X 100
Read more: KPI Examples: Here Are the Best 30 You Can Find in 2022
KPI Use Cases
From sales and marketing to finance, KPIs help every area of a business move forward. Here are the three use cases you might want to use KPIs for.
#1. Sales
Sales KPIs are metrics used to measure the effectiveness of your employees and sales department.
A sales executive might be evaluated based on their ability to generate a certain number of monthly sales bookings or opportunities.
A sales manager could be evaluated by the total sales volume produced by their team.
Essential sales KPIs to track:
- Sales Qualified Leads (SQLs)
- Number of monthly onboarding and demo calls booked
- Call volume per sales rep
- Sales per rep
- Average cost per lead
#2. Marketing
Marketing KPIs track your return on marketing investment (ROMI). You can track these KPIs to determine whether their marketing campaigns and activities are generating leads or customers.
For example, an ecommerce store needs to know its customer acquisition cost (CAC). This metric tells you how much it costs to acquire a new customer.
Therefore, the marketing team knows how much they can spend on advertising to acquire customers.
Essential marketing KPIs to track:
- Digital marketing ROI
- Lead-to-customer ratio
- Landing page conversion rate
- Organic traffic
- Return on Ad Spend (ROAS)
#3. Customer
Customer KPIs can tell you a great deal about your product and customer experience.
In today’s world, customer experience is everything. And why shouldn’t it be, as customers are the ones who’d pay to use your services or products.
Tracking customer KPIs helps you understand what type of customers are not satisfied with your product and why. The same if true for you employees, you can set up an employee feedback program to measure employee satisfaction.
As Jeff Bezos once said:
“We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”
Customer KPIs to track:
- Average response time
- Customer lifetime value (CLV)
- Net promoter score (NPS)
- Bounce rate
- Customer effort score
What is KRA?
A key responsibility area (KRA) is a structure that describes the role of a particular job profile.
KRAs summarize the optimum results expected from employees, teams, and the entire organization. They help employees understand their role and provide a sense of direction.
Here's why KRAs are vital to your business's success:
- Evaluate Employee Performance: Excellent performance management method to evaluate employee performance fairly. You can see whether they're performing their responsibilities and whether it's driving the desired result you're looking for.
- Ensures Time Efficiency: KRA uses the Pareto Principle, which states that 20% of activities drive 80% of results. By focusing on the key responsibilities that drive results, employees will use their time more wisely and become more productive.
- Helps with Resource Management: Organizations can better allocate resources once the roles are clearly defined. For example, after tracking KRAs, companies have a better idea of how many new hires are needed, what type of technology or software employees need, and potential training material to kick things off.
- Improves Employee Engagement: KRAs help employees see the bigger picture of how their role helps the entire organization. Also, KRAs can be personalized to each employee, which gives them a sense of autonomy on how they can personally achieve success within the company.
3 KRA Examples
Let's cover some KRA examples so that you can visually see how KRAs and KPIs complement one another:
Example #1: Sales Manager
Example #2: Human Resource Manager
Example #3: Marketing Manager
KRA Use Cases
Knowing about KRAs is one thing, but knowing how to implement them is also important.
Here are a few use cases for how to communicate your KRAs to your employees:
#1. Onboarding
Once an employee is hired for a role, their natural inclination is to learn what is expected and how they can succeed in their role.
Setting the right strategic objectives using KRAs helps your recruiter convey the required information to the candidate and makes the expectations clear.
#2. 1:1 Check-In or Team Meetings
1:1 check-ins and team meetings are the perfect time to provide feedback. Employees are 3.6 times more engaged than other employees when managers involve them in goal setting.
#3. Use Software
Software can easily store and maintain a record of each employee’s KRAs. You can personalize each team member’s performance management goals and accurately evaluate their performance over time.
The goal when creating KRAs is to determine the purpose of every position in each department. It’s also done to answer questions like - why are each position and staff member employed by the organization?
Using KRAs the Right Way: Figure out the key results every employee must achieve and then create a list of vital tasks they need to perform to achieve each result.
What’s the Difference Between KPI and KRA?
KPI and KRA are both vital to a company's overall success. They complement one another and help your team to accomplish their goals.
Let's break down the key differences between the two.
#1. Definition
KRAs describe the scope of the job role, which details the result that the position must provide. From there, key tasks can be assigned to achieve the goal.
Whereas KPIs measure the progress that an employee is making toward their KRA. It's important to note that KPIs are quantifiable measures, while KRAs are qualitative.
#2. Process
KPIs can't be set unless there's a clear objective in mind. That's where KRAs come in. KRAs are aligned to the organization's objective. Each job position plays an integral part in achieving the mission statement and vision of the company.
KPIs track the progress of an employee/customer towards a set KRA. Therefore, when setting business goals, KRA comes first.
#3. Measurability
KRAs aren't easily measurable, which is why KPIs a business needs KPIs.
For example, a sales manager with a KRA to develop an effective sales team can be quite subjective. The KPI that measures sales growth and total sales tells you whether the sales manager's team is improving or not.
However, KRAs are needed because assigning the wrong KPIs can lead to wrong outcomes. The key is to set realistic KPIs and only assign a select few. This helps keep employees focused on only the key metrics that drive results.
#4. Structure
Multiple KPIs can be assigned to a single KRA. But the opposite isn’t true.
A marketing manager with a KRA to achieve a successful marketing campaign can attribute multiple KPIs to measure success.
For example, they might track conversion rate, profit margin, cost per customer acquisition, number of new leads or customers, etc.
Sometimes, a single KPI can't tell the entire story. For example, a website might get a lot of traffic but very few conversions. This means there's something wrong with the conversion rate KPI.
Therefore, the marketing manager might adjust the copy, improve the offer or target a more refined audience to ensure better conversion. The higher conversion will ultimately lead to more sales.
#5. Timeline
KRAs are typically a standard that a job role strives to achieve. It's designed to be a long-term quarterly or yearly assessment. That's because the job scope rarely changes every month.
However, KPIs can be quickly adjusted from month to month based on the circ*mstances. In this aspect, KPIs are more fluid. For example, a minor budget cut will alter the available marketing spend, which changes all of the KPIs.
#6. Basis
KRAs are based on your organization's missions and aspirations. They are created based on the grand vision of the company. A company that values customer service will set KRAs related to ensuring customer satisfaction.
While KPIs align with the company's mission, they can often change based on past results. KPIs will frequently be adjusted based on factors such as the employee's past performance, quarterly goals, resource allocation, etc.
Lastly, KRAs describe more aggressive and bolder strategic goals, while KPIs act as benchmarks each employee should hit. KPIs ultimately lead to achieving the desired result.
Keep All Business KPIs in Your Pocket with Datapad
KRAs and KPIs make a dynamic duo and act as the drivers of success for any business. With a clear idea of the results needed from each position, you can create KPIs to measure progress towards those measurable goals.
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But just creating KPIs and KRAs isn’t enough. You need a proper tool to track them.
Datapad is a mobile-first KPI tracking app that lets you make a dashboard and track KPIs on the go.
You can fill out the form and get started with our beta test for free.
Note: We're currently doing 1-1 onboarding and setting everything up for you if you wish. If you want us to set up everything for you, just include "1-1 onboarding" in the sign-up form, and we will contact you.
