business metrics

Key Performance Indicators for Your Business

Metrics. They are everywhere and they bombard us in email, dashboards, and presentations. It is easy to get enamored with reviewing metrics and thinking that you know your company.

But you must take a step back. You need to determine your story first. What do you want to know? The metrics you receive should be based on your objectives. They must to be tied to your overall strategy.

What do I mean? Let me give you an example. In Human Resources, one would think that high turnover metrics are bad. And they usually are. But on occasion, in the case of a company transformation or a culture do-over, high turnover may be exactly what is needed for the overall health of the organization.

I can recall many young marketing managers in our software company presenting me with pages of metrics. They were so very proud of this, knowing that I am a data-driven executive. At the end of the presentation, I asked what they learned from the metrics. This threw them off! They had just presented me loads of data, but I was asking for what information this provided us. It was an educational experience for a young manager, but one that I hope was a great learning experience that they use to this day.

Before you start consuming metrics, you must determine what you need to know. Where is your organization going? How quickly do you need to get there? How difficult will your strategy be to execute?

We have developed a list of key performance indicators example that cuts through the mountains of data to provide real information. We found these to be incredibly valuable in our 16 years of business. Of course, you will want additional ‘information’ (not data) from your team depending on your story, but these metrics will help any executive see clearly how the organization is doing.

Top 10 Key Performance Indicators Example

  • Cash. We had an angel investor who taught us that “cash flow is not a theory” and it stuck with us forever. You must always know and have at your fingertips your free cash flow. This is a health metric for how long your company can live if an unfortunate event occurs or how much you can invest into new products, marketing approaches or expansion.
  • Human Resources. This one is more difficult because it absolutely must be customized to your needs at that time. We found that our HR metrics changed drastically over time as we grew from recruitment funnel effectiveness to acceptance rate to cost per hire. However, the one metric that we always found valuable is Selection Ratio. This is a quality metric that evaluates the amount of pipeline candidates to the number that you actually hire. If you are desperately hiring anyone, the ratio will be low. You want the ratio to be a high number of pipeline candidates (shows that your job marketing is effective) but a low number of hires (shows that you are maintaining high quality standards).
  • Sales. I developed a small number of sales metrics over the years, whittled down from a very large number. I found that the most important sales metric is not your performance to your goal. Why? Because your goal could be wrong. You need to take your sales pipeline metrics and normalize it to 1 (divide each pipeline segment by the following segment until you reach a new sale). By doing so, you will always know how many prospects you need in the pipeline for 1 new client. Once you know this, you can extrapolate how many more you need for revenue attainment goals, etc.
  • Profitability. Of course, there are standard metrics for organizations of your type and industry, but it’s a good idea to spend time on detailed competitive analysis. You can obtain the profitability metrics of your publicly-traded competitors and analyze their ratio. By taking an average across them, you have your profitability.
  • Customer churn. This is essential to know because it tells you how hard your organization works to achieve growth in revenue. You want the lowest possible customer churn number so that your new sales are growth versus maintenance. It will also give you insight into potential issues with your products, services, and customer support. You should talk to every customer you lose to find out why they left you. Remember, bad news now can lead to more customers later.
  • What is your customer acquisition cost and time to attract one new client? This is essential for the CEO because marketing metrics are overwhelming. You can spend hours on conversion rates or get enamored with a well performing campaign with a high number of clicks. However, if they don’t convert to becoming a customer and you don’t know the cost and time to obtain a new client, those metrics are akin to shiny objects. This is like the Sales metric of normalizing your pipeline to 1. That same thought process should be applied to Marketing.
  • Quality. Your operations team should be able to produce a simple metric for you from your portfolio or project management system. The metric should provide insight into number of tasks/stories/projects you planned versus delivered and number of defects. You must work on delivering quickly (aka: profitability), but also delivering high quality because defects are very costly. Defects not only consume human resources to fix, but can also impact customer churn.
  • How fast are you delivering your products and/or services? In this economic environment, customers won’t pay for lengthy product implementations and most like firm fixed price options. You must tweak your processes to deliver fast (with high quality) to ensure profitability goals are attained. Each firm fixed price service should have a full analysis completed by your finance and project teams to ensure it is profitable. Through the project, you should measure performance to this goal.
  • Attainment of Goals. We once had a client that told us they were implementing our software to link strategy to execution. He explained: “we spend all kinds of time on Powerpoint presentations about strategy and goals, then we leave the meeting and never know what happened. Was it implemented? Did we meet the goals?”. It is critical to have a system for monitoring goal attainment. Especially if you are a progressive organization and utilize continuous coaching programs, you must assess how well your staff is doing meeting goals.
  • Sentiment Analysis. You can’t review every email that your staff sends or every survey that your customer completes or every social media post that your marketing team sends. But you can use artificial intelligence to provide you with sentiment analysis. This is going to provide you with attitude of the speaker or writer and emotional reaction to the document or communication. There are a number of tools in the market to address this key area of learning for many companies.

These key performance indicators example will provide you with the information you need to monitor performance. But the most important aspect of defining metrics is understanding the question first. Use metrics to create a new strategy or fix an issue within your organization. Don’t fall in love with data – fall in love with information!