• It is connected to your strategic or tactical goals
• It is unique (i.e. it is not strongly correlated or a subset of another KPI)
• It is diverse (think about a balanced scorecard of indicators)
• It can be calculated in a clear and consistent way (i.e. no debates about where the number comes from)
• Your team “buys-into” the number
• It has an owner who works toward improving it

For an a small team, I generally like no more than KPIs (ideally 1-2).  If you feel the need for tracking every possible operating number, then create a separate spreadsheet filled with metrics.  You can always graduate (or demote) metrics if you identify trends that are connected with your successes or failures.  For a company or larger operating group, I like to keep the KPIs to under 20.  More than that and they are a list of metrics rather than key performance indicators.  In the end I prefer to make the difficult decisions about what numbers are truly important and track those.  The rest are just numbers about your business.

So, how many KPIs are you using?