KRA and KPI: Definition, Full Form, Examples and Differences Explained
KRAs and KPIs are metrics organisations use to measure achievements against targeted goals. They are used in various contexts. However, companies mostly use them to measure collective progress and individual progress.
KRA and KPI are important terms businesses use to manage their operations and implement strategies. It helps companies track where they are now and where they want to be in time to come.
Generally, Key decision makers, reporting managers, C-level employees, and people in the executive positions define KRAs and KPIs.
KRA and KPI full form
Both the terms are widely used in their abbreviated form, KPI more frequently than KRA. Those in hiring roles and executive positions are more familiar with the abbreviations than others. In HR, the expanded forms appropriately convey their meaning and usage.
KRA stands for “Key Result Areas.”
KPI stands for “Key Performance Indicators.”
What is KRA (Key Result Areas)?
Companies split their overall business objective into several small KRAs. They are quantifiable metrics used to measure the essential activities of the company over a period.
KRAs specify tasks employees (against whom they are defined) must undertake. Generally, companies define KRAs based on expectations and capabilities of the employees. Based on the same, KPIs are decided and mapped.
KRAs that matter to companies
Often, you will come across KRAs in job descriptions. Any position in an organisation will have few or many responsibilities and must focus on concerned areas to show results.
Let us look at KRAs for different profiles:
Sales
- Ability to communicate product value as per customer needs
- Implement plans for lead generation
- Ability to conduct market research, knows segmentation and can develop new channels
- Initiate and implement sales planning activities
Human Resource
- Ability to build staffing strategies
- Respond to and address employee concerns
- Identify talent development needs
- Conduct talent development activities
What is KPI (Key Performance Indicators)?
Usually, companies track their performance over time through their business growth which could mean increasing sales numbers, customer base and many others. They are quantified and measured with the help of KPIs.
Organisations define KPIs across job roles - sales manager, marketing manager, marketing executive, HR manager, recruiter, Customer support and others.
While for a sales representative, companies are more interested in keeping an eye on the sales number and overall profit. For a marketing person the KPI could vary. In addition to sales, other KPIs would include - Brand awareness and engagement. For a technical profile, KPIs would generally measure the completion of projects in the allotted time frame.
KPIs by department that matter to companies
Companies employ resources across departments expecting monetary and non-monetary growth. This growth is measured using plenty of different indicators.
Let us look at KPIs for different profiles:
Management KPI
1. Customer Acquisition Cost (CAC): Managers brainstorm to find new ways of marketing and operation to reduce net customer acquisition cost to the company.
2. Customer Lifetime Value (CLV): Managers calculate CLV by multiplying the predicted revenue by predicted gross margin and subtracting the expenses for their customer base. By tracking CLV, businesses identify the most valuable customers, so they can retain them instead of spending time and money in acquiring new customers.
3. Operating Margin: It is the percentage of revenue a company retains after paying variable costs like wages and other resource costs. Managers track this KPI to evaluate their ability to generate profits from operation. A higher operating margin indicates that a company is more profitable and efficient in managing its costs.
4. Gross Margin: It is the percentage of revenue a company retains as gross profit (the amount of money left over from revenue after the cost of goods sold (COGS) have been subtracted). Managers work hard to maintain a high gross margin. A higher gross margin indicates that a company is more profitable and efficient in managing its costs.
Marketing KPI
1. Organic Traffic: A higher organic traffic means a company’s marketing endeavours are in the right direction. It is the best KPI to measure sustainable growth. For instance, if you stop running ads today, the traffic, the leads, and the conversion numbers will fall drastically. However, with a sound content strategy across channels, marketers pull off significant organic traffic, more leads and conversions.
2. Marketing Qualified Leads (MQLs): MQL numbers matter to the marketing and sales team. These leads are potential customers who have demonstrated behaviour that indicates they are a good fit for the company's offerings and may be ready to move further down the sales funnel. They may have either filled out a form, downloaded a piece of content or other such actions.
3. Sales Qualified Leads (SQLs): SQLs are a step above MQLs in the qualification process. These leads have a higher likelihood of becoming paying customers. These leads are sales-ready and can hand it over to the sales team for a sales call or demo.
4. Cost per Lead: Usually, the marketing team runs campaigns to generate leads. So, for the number of leads they generate, money is spent. CPL, thus becomes the KPI that measures the cost associated with acquiring each lead. It is calculated by dividing the total cost of a marketing campaign.
5. Cost per Acquisition: CPA measures the cost of acquiring a new customer by spending marketing resources. It can be a conversion through advertising or other marketing efforts. A higher CPA will indicate a higher ROI and that you are using resources efficiently.
6. Conversion Rate: It measures visitors’ action, such as making a purchase or filling out a form. For example, if 100 visitors come to a website and 20 make a purchase, the conversion rate would be 20%. Companies use it to evaluate the effectiveness of marketing campaigns, website design, and other factors influencing visitor's behaviour.
Sales KPI
1. New Inbound Leads: These are the most recently generated leads, potential customers who have shown interest in the company’s offerings and are ready to be contacted by the sales team.
2. Lead Conversion Rate: This KPI measures how many out of total leads convert into paying customers. It is crucial for determining the effectiveness of lead gen campaigns and quality of leads. If the lead conversion rate is low, the sales and marketing team must compare the performance of different lead sources and optimise their future campaigns accordingly.
3. Average Sales Cycle Time: This KPI measures how fast a sales rep closes a lead, turning a potential customer into a paying customer.
KRA Vs KPI: Difference between kra and kpi
KRA and KPI differ in their approach and objectives.
KRA intends to identify areas critical to an organisation’s success, both in the short and long term, ranging from recruitment, employee satisfaction & retention, production, marketing, sales and customer support. KRAs are defined to check on these areas and track if they need improvement at any point in an organisation’s business journey.
On the other hand, KPIs are defined against KRAs to better the areas that matter to the company. In recruitment, for instance, KPIs that matter include employer branding, applications, time-to-hire, hiring cost and employee turnover rate. Other KPIs include metrics that measure revenue, profit, customer satisfaction, employee productivity and others.
Key Takeaways
KRA and KPI are two crucial terms for businesses. KRA identifies the critical areas that need improvement, and KPI measures the performance and progress of those areas. KRA and KPI provide a comprehensive view of an organisations' performance. They help organisations make data-driven decisions and never go wrong accomplishing strategies.
