The 6 KPI You Should Already Be Tracking
If someone asked you how your business was doing, what would you say? Would you be able to cite data points? Would you be able to justify your ad spend with numbers? What about explaining your choice to hang on to a troublesome employee until you find someone ready to fill the position?
For business owners who answered “No,” it’s time to start tracking your key performance indicators, or KPI. These highly efficient ratios and calculations help you target key factors of your business that are helping or hurting your long-term revenue, work culture, or marketing goals.
While there are more indicators out there than you could imagine, it’s better to start small and work your way up. Here are six KPIs you should already be tracking:
If you want to truly track and affect the long-term success of your business, you need to start with your Net Promoter Score. It’s a way of taking the subjective concept of customer loyalty, assigning an objective number to it, then using it to track and project customer satisfaction.
It works to simplify traditional satisfaction surveys into one question: “How likely is it that you would recommend our company/brand/product/service to a friend or colleague? The customer then ranks their answer on a scale of 1-10, wherein loyal “Promoters” rank at a 9-10, satisfied but unenthusiastic “Passives” rank at 7-8, and unhappy “Detractors” rank at a 0-6.
Once you have your data, you can calculate your score: NPS= % of Promoters – % of Detractors.
While this KPI is pretty straightforward, it’s still one of the most fundamental indicators of business health. Focus on the three key areas of profit:
Gross profit margin, which is calculated as (revenue – costs of goods sold)/revenue. If your GPM is large enough to cover operating expenses and walk away with at least 10% in profits, your margins are in good shape.
Net profit, which you can calculate by subtracting your total expenses from your total revenue.
Net profit margin, which equals the amount of net profit as a percentage of your revenue.
How much is your company spending every week? Month? Year?
Figuring out your burn rate can help you determine if the costs of running your business are sustainable. If not, it’s time to sit down and reevaluate your budget.
If your business is still in the startup stage, it’s not uncommon to pour in a lot more money than you’re getting out. For well-established businesses with high burn rates, it could be a sign that you’re in financial distress. It’s absolutely imperative to bring your spending back under control.
Customer Lifetime Value
Figuring out how much a customer’s business is worth to your company over the lifetime of your relationship can help you focus your retention/attainment goals more accurately.
For example, if a business that sells medical equipment has a customer base with an average CLV of $24,000 and it costs only $10,00 to get a new customer, their efforts might shift to marketing and advertising.
If those numbers were flipped, the business would instead pour their resources into maintaining standing customer relationships.
Employee Turnover Rate
It costs a lot more money to train someone new than it does to retain current employees. According to the Society for Human Resource Management, it takes around $4,100 and 42 days to fill an empty position. Factor in the lost revenue while the job was unfilled, and you’ll start to understand why employee turnover rate is such a big deal.
To calculate your ETR, divide the number of employees who have left your business by the average number of employees at any given time. The higher the result, the more money you’re losing to turnover.
Employee satisfaction increases your business’ value, so it may be time to evaluate your pay structure, benefits, and workplace culture if this KPI is showing signs of trouble,
Your lead-to-customer ratio is also useful for shifting your marketing efforts, with a focus on finding the channels that generate the most cost-effective leads.
Let’s say that a well-established restaurant is kicking off a new marketing campaign by offering a free entree coupon if the customer provides their phone number to receive offers through text. They’re taking a two-prong approach by investing in both social media marketing and email marketing. After running the campaign for a month, they get these numbers back:
|Email Marketing||Social Media Marketing|
|56 new leads||124 new leads|
|42 coupons used||64 coupons used|
At that point, they would calculate their LCR using (total number of customers divided by number of leads) x 100:
Email: (42/56) x 100 = 75%
Social Media: (64/124) x 100 = 52%
While social media marketing did bring in more leads, the customer conversion rate for email was much higher. So, using this KPI, a business could make an informed decision to move their marketing budget to email.
Keeping Up with Your KPI
Tracking your performance indicators can seem tedious at first, but it’s also a great way to visualize your growth as a business. They will also come in handy as you prepare to transition out of your business in the future. There’s a lot of value in the ability to show strategies that have worked to increase success and those that haven’t.
Ready to get started? Break out your calculator, grab a pencil, and dig into the data. You’re now on the right track to helping your business make data-driven, research-based choices that are going to drive your success!
Leave a ReplyWant to join the discussion?
Feel free to contribute!