Starting a business venture is always complicated. But getting the project to grow and become established is one of the most difficult phases, subject to great uncertainty. Decisions end up having significant implications in the project’s trajectory, and very often entrepreneurs will face tough situations where they will not get a second chance.
“Know thyself” was one of the inscriptions — probably the best known — that pilgrims read upon entering the Temple of Apollo at Delphi, home of the Oracle. This divine advice or recommendation was an invitation for visitors to reflect on their past actions and project their future behaviour (discovering one’s fate was the main attraction for visiting the Oracle, after all). The idea, in short, was improving by introspection.
Taking this into account, having adequate information — both about our market, environment and our organisation — is number one priority. KPIs (Key Performance Indicators) are a vital tool for following a philosophy that goes beyond the “Know thyself” aphorism. It helps in decision making and also determine their impact.
What KPIs should I measure in my company?
When preparing the dashboard for monitoring our company’s development, we come to the first and possibly most important question: what KPIs should I include?
Since the aim is tracking organisation’s performance, we will have to monitor our organisation from different vantage points, which may vary from one organisation to another. Here we propose four categories, with their respective indicators, based on common elements:
Sales: This is perhaps the most controlled aspect, so we should take great care in choosing what figures to track. Sometimes our obsession for increasing sales can lead to a data overload, which actually hinders our decision-making process. Having too many indicators can be just as bad as having none.
Conversion ratio: measures the percentage of orders received vs. budgets presented.
Monthly leads and Sales qualified leads: can give us information about how our lead generation is evolving and if we require a change of strategy or diversification. Quyalifying those leads, do they fit your potential customer?
Number of renewals: being able to boost customer loyalty is vital to ensure your business in the long term. This requires good customer care service.
Operations: from the operational point of view, organisations are very diverse in terms of sector, size and corporate culture. The KPIs we suggest are applicable virtually to any company.
Revenue loss: involves identifying the percentage of revenue we lose in a month and comparing the figure across the industry.
Customer churn: similar to the above, the percentage of customers lost in a month.
Gross margin: knowing both our overall margin and the margins at which our various teams are operating.
Compound revenue growth rate: the rate of revenue growth is basic information for any business, but it iseven more interesting to calculate the compound rate over several months (rather than month to month) since there may be high variability over such short periods and the usefulness of data is hampered. If in contrast, we calculate the monthly rate for a semi-annual or annual period, we get a more realistic overview of our trend.
Marketing: when it comes to evaluating the performance of our marketing efforts, we can make the same mistake as we mentioned for sales — an excess or poor selection of KPIs. It is therefore important to choose the right data so our marketing team can maximise its potential.
LTV (Lifetime Value of a Customer): this metric involves an approximation of the value of a customer to the company. Since a half-life is assigned to the customer relationship, the figure is inaccurate but interesting nonetheless because it lets us know the potential value of our client base. Similarly, by segmenting customers by marketing channels we obtain valuable information about how they operate. The way to calculate it would be: Revenues x Gross Margin x Purchases/orders average
CAC (Cost to Acquire a Typical Customer): similar to the previous indicator, but on the cost side. The calculation would involve dividing the total investment in Marketing by the number of customers obtained. As with the LTV, it is very interesting to apply to the company’s various marketing channels
Personnel: companies are ultimately made up of people, and their performance will determine the performance of the company itself. Quantifying how our employees and their teams are performing is very valuable information. For this parameter we propose a single KPI which is very easy to calculate and understand.
Do/Say ratio: involves comparing the number of things we do with the number of things we are committed to doing for the client. In this case the KPI is applicable to both teams and employees individually.
Company's dashboard, snapshot in motion
All these parameters will give us an overview of our company. The problem is that our organisation is in a state of constant change, so our indicators need to be revised in parallel.
This means that the “snapshot” we obtain with our KPIs should be repeated periodically in order to visualise the cinema-style movement, thus, monitoring the consequences of our decisions and checking if we are moving in the right direction or if a change of direction is needed.
The more we work with KPI´s the more we will get to assess the use of KPIs themselves, their fluctuations and whether to use them in our dashboard or replace them with others.
In short, KPIs are a company’s vital signs. Tracking them is of the utmost importance because future sucess hinges on past performance.
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