Are you using KPIs?
Even before we became an electronic data-driven world, knowing your business’s numbers was essential. We recently wrote about setting a budget and tracking your burn rate and cash runway. You may even go as far as to set goals regarding these. For example, “Our goal is to reduce our burn rate by 5% this quarter.” Reducing burn rate isn’t exactly a single action you can take. What are the necessary steps to achieve your goal? How will you know if you’re moving in the right direction?
KPIs – key performance indicators – help you determine your course of action, track your progress, and change course when necessary. As the name suggests, a KPI is not a business metric like total revenue or customer acquisition rate. A KPI is a preliminary measure that indicates whether you’re moving towards your goal. Another definition we like from KlipFolio:
“A KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives.”
As you can imagine, athletes are known for using KPIs. If a wrestler needs to cut weight before a fight, they are going to calculate how much weight they should be losing each week until weigh-in. But, that’s not the KPI. They need to identify which actions (or performances) they need to take. Examples could include drinking X ounces of water daily, eating Y grams of fiber daily, completing Z number of cardio sessions each week, etc.
A KPI can also look like a milestone when you’re planning. For example, if ABC Marketing wants to launch a website 90 days from now, they will have certain milestones throughout that 90 days. These can be checkpoints for individuals or a team. These could be number of customer interviews completed, person-hours of coding or designing, number of review meetings with the client, etc.
Collectively, KPIs act like a compass, telling you which direction you’re headed. So, if your goal is to head north, these metrics will tell you which way you’re headed. Going east instead of north will require different tactics to get back on track than if you’re going west, and way different than if you’re heading south. Tracking your KPIs helps you see red flags sooner and choose more strategic solutions to get back on track.
Types of KPIs
Most companies set KPIs for their sales and marketing departments, but there are many areas of business – and even your personal life – that you can set KPIs for. We recently attended a conference that had a session called, “KPIs for Emotional Wellness.” Pretty much any goal you set can have KPIs assigned to it. Some of the most common we see:
- Sales KPIs – meetings held, emails sent, customer referrals, events attended
- Marketing KPIs – blogs posted, social media connections, online contests held
- Customer Retention KPIs – follow up messages, customer interviews, reviews
- Employee Satisfactions KPIs – trainings offered, social activities, team building sessions
In their own way, each of these KPIs can map to a goal that will help grow your business. It’s up to you track patterns and test different measurements. Check out this post, which outlines the difference between leading indicators and lagging indicators and how to bridge them together.
Like all startup challenges, not having a historical record of your business can make it difficult to figure out which KPIs you need and the thresholds you should be setting for them. Trial and error will take you a long way and you can look for industry standards and case studies to get you started. Once you’ve been operating for a bit you can reverse engineer your KPIs based on your performance.
Think about your sales funnel. If you plan to pull through $1M in a month, how would you determine a discovery call KPI?
- What’s your average customer order size for a month?
- So, how many customers/orders do you need to generate $1M?
- How many customers do you close out of those that make it to proposal stage?
- So, how many proposals do you need to submit to get that number closed?
- How many people do you get to the proposal stage out of how discovery calls held?
Again, lean on industry standards for open or click rates to get started. Then, track, track, and track! Once you figure out what your average close rate is, you can determine many of your sales and marketing KPIs. You may even find that your KPIs have micro-KPIs. The key is track, then adjust along the way.
Working KPIs into your strategy will help your company be more agile and adaptable, and you can truly say you make decisions based on data. Because, the numbers don’t lie!
Questions or Comments? Reach out to EGFS
Follow Us: @EarlyGrowthFS
The Biggest Mistake You Don’t Know You’re Making
Financial Planning: Essentials For Startups That Mean Business
Five Startup Killers And How to Avoid Them