5 Basic KPI Quantification Formulae

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Stacey Barr

By far the most common quantification formulae used for

performance measures are counts and percentages. Theyre easy.
But theyre not always appropriate.

A good performance
measure is defined as objective evidence of the degree to which a
performance result is occuring over time. So you need to be sure
that the way youre calculating the values of your performance
measures really is providing the right evidence and to the right
degree.
Use the following tips to help you decide what the best
quantification method is for each of your performance measures.
Counts
Counting is by far the easiest way to put a quantity to something
youre observing:
Number of customer who are satisfied

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Number of workplace accidents

Number of sales
Counts work very well when the arena or scope or population
within which you are observing a performance result stays pretty
much the same size over time.
But when your population changes over time, counts are
misleading. A percentage will tell you with more accuracy the
degree to which your performance result is happening.
Percentages
Percentages are counts of the number of things or people in a
population that exhibit a particular feature, divided by the total
population size and multiplied by 100:
Percentage of customers who are satisfied
Percentage of employees that were injured at work
Percentage of sales calls that resulted in a sale
Percentages are great when you are interested in how much of a
target population matches your performance result.
But percentages assume your result is black or white. Either
customers are satisfied, or they arent. Employees either had an
accident at work or they didnt. They dont tell you the degree or
extent, though, like how satisfied, or how injured.
Sums or totals
Where counts are usually considered discrete measures because
their values can be only integers, sums or totals are generally
considered to be continous measures, because their values can just
about anything, including decimals:

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Total time spent making sales calls

Total sales revenue invoiced
Similar to counts, sums and totals can be misleading if the size of
the scope or opportunity varies over time. If the total time spent
making sales calls in both May and June is 45.25 hours, but the
total number of sales calls in May is twice that of June, youd
probably assess performance differently.
Averages
An average is usually a sum or total divided by a count of things or
people upon which the sum was based:
Average customer satisfaction rating
Average days lost due to injuries per employee
Average sales revenue per sales call
When youre interested in understanding the overall level of the
degree or extent to which a particular result is happening, and not
just whether or not its happening, then averages are great.
The three main limitations of using averages however, are small
populations, outliers and asymmetrical distributions. Small
populations make your average very volatile over time, and make it
appear more accurate than it really is. Averages based on 2 or 3
values are next to useless.
Outliers can greatly skew the results, like one or two employees
having hundreds of days off work due to very serious but very rare
injuries. Usually its well accepted to leave outliers out of the
average calculation, and just make a note of them in a footnote.
Asymmetrical distributions can also skew your average, like when
most sales are between $100 and $1000, but there are still quite a

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few that go as high as $10,000. In this case, a median might be a

better indicator of the centre of the distribution.
Ratios
A ratio divides one sum (numerator) or total by another sum or
total (denominator). Its different to an average, because the
denominator isnt a count of the population; its usually another
measure of the same population:
Total sales revenue received divided by total sales revenue
invoiced
Total sales revenue divided by total hours spent on sales calls
that generated that revenue
Ratios are a great way to measure productivity. The numberator is
your output and the denominator is your input.
Keep in mind, though, that its very easy to make your KPIs or
measures unnecessarily complex when you use ratios. When you
take ratios, make sure that they tell you something sensible.
TAKE ACTION:
Take a closer look at your performance measures or KPIs that are
simple counts. Is that the most appropriate way to quantify the
performance results youre trying to evidence?

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