key performance indicator

An Ultimate Guide to Set Key Performance Indicators for Employees

For your growing business to thrive, it is important that you continually monitor the productivity and performance of your most valuable asset: your employees. That’s where key performance indicators can help.


This guide will help you understand how you can set and measure employee key performance indicators to make sure you get the most out of your team.


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What is a Key Performance Indicator (KPI)?

Key Performance Indicators (KPIs) are like your company’s measurement tools. They’re specific, numbers-based markers that businesses keep an eye on. Their main job is to tell you if your company is getting closer to its big goals.


KPIs are flexible and can be used to measure how well different parts of your company are doing. You can check how individual employees, various job roles, or entire departments are performing. 


In other words, they cover everything in a business, from money matters like finances, to how your employees are doing (HR), how happy your customers are (customer service), and even how well you’re getting the word out about your products (marketing).


Using KPIs is similar to having a super effective way of giving your business a check-up. It helps you see how you’re growing and how healthy your company is. Furthermore, KPIs are excellent at pointing out new opportunities and ideas for boosting your business growth. 


Why Set Employee KPIs?

As a small or medium-sized business, your employees are your greatest asset, and their performance is crucial for your business success. 


Therefore, employee KPIs are essential. They align your employees’ performance with your organizational goals. Moreover, employee KPIs also play a crucial role in ensuring employee satisfaction and reducing employee turnover.


Moreover, KPIs evaluate the performance of an organization against its strategic objectives. KPIs for employees provide goals and targets for your team to work towards. They keep employees focused, motivated, and engaged while providing clear direction for their professional growth and development.


How to Set Employee KPIs

Step 1: Get Your Team Involved in the Process

Getting your employees involved from the very beginning will help generate buy-in and motivation to achieve the KPIs. 

It ensures that everyone is working together towards achieving the business goals. Bring your team together to discuss the team’s goals and which KPIs should be used to evaluate their performance.


Step 2: Set Targets Aligned with Your Goals

The purpose of KPIs is to turn your business goals into measurable targets for you and your employees to focus on achieving. So, your KPIs should be tailored to both your organizational and your team goals. 


For instance, if your business goal is to reduce the number of dissatisfied customers by 30 percent, your employee KPI could be the weekly difference, as a percentage, in complaints handled that resulted in satisfied customers compared to dissatisfied customers.


Step 3: Include a Mix of Team and Individual KPIs

Measuring both team and individual KPIs is essential. A team KPI could measure customer satisfaction or project completion rates, while individual KPIs should be aligned with the team’s overall strategy. For instance, if the team’s goal is to generate an extra RM30,000 in revenue, an individual KPI could be the number of phone calls made per week.


Step 4: Measure Your KPIs

Make sure you have a system set up to collect the data regularly and that someone is responsible for collecting and reporting on each KPI dataset. It’s a good idea to have all KPI datasets together in one reporting system.


Step 5: Review and Adjust Your KPIs

KPIs are only useful if they’re working for you. So, it’s important to review their effectiveness at regular intervals, such as monthly, quarterly, or annually, or when there are significant changes in the business or market conditions.


Employee KPI Examples

Here are seven common employee key performance indicators and the formulas to measure them:

Revenue per Employee

This indicates how much revenue each employee brings in. It’s calculated as Revenue/number of employees.

Utilization Rate

It measures how much directly profitable work each employee does. Formula: (Total weekly billable hours/total weekly hours logged) x 100.

Average Task Completion Rate

This KPI gives you a rough idea of your team’s overall efficiency. Formula: Total time to complete the same task (within a set time period)/number of times performed.

Overtime Rate

It shows the average amount of overtime that your employees do. Formula: Total hours of overtime/number of employees.

Employee Capacity

It helps distribute work evenly across your team. Formula: Weekly capacity – total hours logged.

Employee Retention

It indicates whether you’re retaining the best employees. Formula: (Number of employees retained/number of employees at the start of the year) x 100.

Employee Engagement

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.


All in All

Setting employee KPIs is an invaluable practice to enhance performance, align your team with business goals, and ensure sustained success. By carefully selecting, measuring, and reviewing KPIs, your business can thrive, and your employees can contribute to their maximum potential.

Remember that setting KPIs is not just about numbers; it’s about empowering individuals to reach their full potential and contribute to the broader success of the team.

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