When you work in software, one of the first things you start to realize is that there are a LOT of acronyms. SaaS, LTV, ACV, TCV, CAC, CPA, MRR, ARR, SLA… the list goes on and on.
Two of the most common acronyms that you will hear are OKRs and KPIs. Oftentimes, they may seem interchangeable, but in fact, there are a few key differences. This article will walk you through what OKR and KPI stands for, why they are important, and what makes them different.
What are OKRs?
OKR stands for Objective and Key Results. The Objective states the overall function or goal that is being set, while the Key Results are the specific indicators that will help you evaluate whether or not your team hit the Objective.
The OKR framework is applicable to any business model, but they are extremely popular among software startups. This is in large part because they allow for businesses to be incredibly nimble in the way they set and measure goals. Startups are used to frequently pivoting their focus, and OKRs help create an adaptable framework that communicates to employees what they should be working toward.
A fundamental part of the OKR process is setting aside a specific amount of time (normally a quarter), where you’re particularly focused on growing an area(s) of your business. In order to measure growth, you’ll typically set three to five indicators that demonstrate whether the OKR was a success or not.
OKR Example:
- Objective: Increase Brand Awareness in the Midwest
- Key Result 1: Sign 5 tier one accounts out of the top 20 identified in midwest territory
- Key Result 2: Launch virtual midwest road show tour in three cities by 6/20/2020
- Key Result 3: Be featured in three midwest media outlets
For more on OKRs, you can check out our blogs What is an OKR and 5 OKR Best Practices.
What are KPIs?
KPI stands for Key Performance Indicators. In practice, KPIs are measurable metrics that are usually tracked on a regular basis. Just as the name suggests, these metrics are indicators or signals that demonstrate whether or not you are on track toward hitting your goal.
While you may hear your sales leader frequently mentioning KPIs, the reality is that every area of the business will have a few metrics to help them understand performance. The KPI that you choose to monitor will likely depend on your organization’s size, maturity, and focus for the given time.
Businesses will often use a spreadsheet, dashboard, or combination of the two in order to monitor KPIs. Typically, this requires a form of manual data entry to ensure the results to up to date. If you’re curious about learning how to automate KPI tracking, check out our Operations Platform where our team does all the heavy lifting.
KPI Examples:
- Churn Rate (CR)
- Total Contract Value (TCV)
- Net Promoter Score (NPS)
- Annual Recurring Revenue (ARR)
- Time to Onboarding Employees
Putting the Two Together
At the end of the day, it should not be a question of whether or not to use OKRs vs. KPIs. In reality, the two should work in tandem together. OKRs are meant to provide purpose and meaning to important KPIs you’ve set as a company, department or team. They should serve as a vehicle to demonstrate to employees how the business is going to grow over time.
Still need help understanding the difference? Consider reaching out to our team here where we will be more than happy to guide you and your business on your growth path.
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