Importance of Business Metrics and KPIs

Missing Business Metrics

I've been very fortunate to have been able to consult for a variety of businesses.  One things that is often surprisingly missing are metrics (or the right metrics) .....

A quick business metrics analogy ... most of you know that I was an Air Force pilot earlier in my career.  Early in the years when people first started flying they only had a simple plane.  Wings and a stick.  There were not the specialized dials, switches, and automation that we have today.  Pilots would use the force of gravity (the push in the seat of their pants) to know that ground was where their seat was, and the opposite was the sky. 

This flying by the seat of your pants was challenged as pilots began flying at night and during foul weather when they couldn't see.  And the pull from gravity on their seat could play tricks often resulting in a less than successful landing.  Flying by the seat of your pants was then replaced with dials, gauges, and more automation to make the outcomes much better. 

Just like in flying, business metrics allow the business managers and leaders to understand the direction of the business -- both positive and negative.

Not surprisingly, for those companies that did not have the right business metrics / KPIs, they were often headed in the wrong path (and didn't realize it).

Too Many Business Metrics

Just as with having no business metrics, having too many metrics can have the same implications.  Years ago when I was an executive at a fortune 100 tech company we held a business review with the IT / development team.  We had 4 pages of metrics (doesn't sound too bad eh?) w with each page having about 30 metrics (all in font 4ish).  It was an uncomfortable eye chart.  You couldn't tell which business metrics were important or less important.  Or if I should even pay attention to any.

 

The Right Business Metrics

As a business leader, you know that operational effectiveness and growth is important to the success of your company.  Just as important as your business strategy is.

Good metrics are essential to understanding how your company is performing and whether or not you're on track to reach your objectives. Your key metrics should always be directly related to your financials -- revenue and profit.  

Most companies focus on their financials and how metrics support those. However, thekey point is to choose metrics that clearly indicate where you are now in relation to your goals.

When you are tracking business metrics must be reviewed based on trends not just a point in time.  Trend-based busines metrics help you understand directionally where you are going.  Its also helpful to look at some metrics from the previous year -- for example the revenue from October for this year compared to last year. 

Additionally business metrics must be actionable -- in other words, if the metric is headed in one direction you may specifically choose to keep doing what you are doing, versus if it is going in another direction you may need to do something, change something, or stop doing something.

Business Metrics Examples

There are a lot of different business metrics to consider, and it can be overwhelming trying to keep track of all of them. For simplification I've documented a few core metrics.  However, in my next post on business metrics, I'll share a method called business metric mapping that helps you really align your metrics to focus on the things that count.

1. Revenue and Cost Growth
   
   Revenue growth is one of the most important business metrics for any business. It's a key indicator of whether or not your company is growing and how quickly it's growing. Monitoring your revenue growth month-over-month or year-over-year will give you a good idea of whether or not you're on track to reach your growth goals.
   
   For cost growth .... you want to be sure that your costs are not growing at the same rate as revenue.  Or even worse, growing faster than revenue.
   
   
2. Customer Growth
   
   If your business is focused on acquiring and retaining users, then user growth is a key metric you should be tracking. This metric measures the number of new users you're acquiring and the number of existing users you're retaining. User growth can be monitored month-over-month or year-over-year.
   
   
3. Engagement
   
   Engagement is a measure of how actively users are using your product or service. If you have high engagement, it means users are coming back to your product or service frequently and using it regularly. Engagement can be measured in a number of ways, such as number of sessions per day, number of page views, or time spent on site.
   
   
4. Churn Rate
   
   Churn rate is the percentage of users who stop using your product or service over a period of time. A high churn rate indicates that users are not finding value in your product or service and are leaving. A low churn rate means users are sticking around and finding value in your offering.
   
   
5. Customer Acquisition Cost (CAC)
   
   Customer acquisition cost (CAC) is the amount of money you spend to acquire a new customer. This metric is important to track because it gives you an idea of how much it costs to acquire new customers and how efficient your acquisition efforts are.
   
   
6. Lifetime Value (LTV)
   
   Lifetime value (LTV) is the total value a customer brings to your business over the course of their relationship with you. This metric is important to track because it helps you understand how much revenue you can generate from a customer over the long term.
   
   
7. Net Promoter Score (NPS)
   
   Net promoter score (NPS) is a measure of customer satisfaction. It's calculated by asking customers how likely they are to recommend your product or service to a friend or colleague. NPS is a good metric to track because it gives you an idea of how satisfied your customers are and how likely they are to continue using your product or service.
   
   
8. Customer Satisfaction (CSAT)
   
   Customer satisfaction (CSAT) is a measure of how satisfied customers are with your product or service. It's calculated by asking customers to rate their level of satisfaction on a scale of 1-5. CSAT is a good metric to track because it gives you an idea of how well your product or service is meeting customer needs.
   
   
9. Employee Satisfaction
   
   Employee satisfaction is a measure of how satisfied your employees are with their jobs. It's important to track this metric because happy employees are more productive and more likely to stay with your company. Employee satisfaction can be measured in a number of ways, such as through employee surveys or engagement metrics.
   
   
10. Financial Metrics
    
    There are a number of financial metrics that are important to businesses, such as revenue, profit, cash flow, and burn rate. Financial metrics give you an idea of the health of your business and how well it is performing.
    
    

Monitoring the right business metrics is essential to understanding your company's performance and growth. By tracking the right metrics, you can make sure you're on track to reach your objectives and continue growing your business.

If you have questions on the metrics or want to dive deeper leave a comment or contact me.