Key Performance Indicator (KPI) is a metric that demonstrates how effectively a company is achieving their key business objectives.
We use KPIs at multiple levels to determine how company efforts are performing against objectives. Some big-picture KPIs are best for leadership executives to track, while tracking more detailed KPIs is more effective for individual teams like Sales, Marketing, or Customer Service.
There is a staggering amount of KPIs you can track to guide your company’s growth. Paralysis by analysis? Absolutely. You can remain aware of peripheral metrics, but to make your life easier, select a core of key metrics that give a thorough overview of your company’s performance.
Critical KPIs to include in your core metrics
- MRR: Monthly Recurring Revenue
- ARR: Annual Run Rate
- Active Customers
- ARPU: Average Revenue Per User or customer
- CAC: Customer Acquisition Cost
- LTV: Lifetime Value for a customer
- LTV to CAC ratio
- Conversion Funnel: tracking how many people move through each funnel stage to become a customer.
- NPS: Your Net Promoter Score is a rating each customer gives you, and serves as a benchmark for customer loyalty.
Overall, KPIs serve to better inform your teams on their progress, and how you can make better decisions for your business.
Ok, so those are KPIs. How do I start measuring one?
Before selecting which KPIs to measure, let’s start with defining what outcomes we want to see, what deliverables will achieve those outcomes, and what activities will drive our deliverables.
Your outcomes = your overall performance.For a KPI to effectively evaluate performance, you want to map it to an ideal outcome your team can focus their efforts to achieve. This performance outcome should always come down to your customers, your guiding North Star, since they define what outcomes matter the most.
Your deliverables dictate your outcome.Your deliverables should align with your customer outcomes, simply put. Give the people what they want. Yes, but really: give the people what they can’t live without. The better aligned your deliverables and your desired outcomes are, the better those outcomes are achieved.
Your team activities define how well your deliverables are driving your outcome.Your team activities are what your company does every day: tracking personal progress against a deadline or team goal. Every team should understand how their activities contribute towards a deliverable, and how their deliverable contributes towards the company’s desired outcomes.
Set SMART objectives for your KPIs that are…
- Specific. Why is this objective important to your company? To your customers? To your stakeholders?
- Measurable. How are we going to measure growth towards our objective?
- Achievable. Can we achieve this much growth?
- Realistic. How much growth can we achieve in a set time frame?
- Time-specific. How quickly can we achieve this growth?
One example: we want to gain 100 new customers in the next 4 months by retargeting ads to customers who visited our landing page. We’ll measure this by tracking landing page visits and tracking our retargeting ad click through rate (CTR – there’s another metric). Doable! Now your turn.
Remember that no one KPI is a silver bullet, but together, they paint a whole picture you can use to analyze performance and measure your decisions. How is your business doing in revenue gained? Is the needle moving in right direction?
We’re pals with a great group of startups who transparently share their metrics. Check them out here, and let us know your own KPI objectives!
Set KPIs, execute, measure, optimize, set new KPIs
When you first start out as a founder, your main concern is: how do we get any customers? Once you have your first customers, your next question is: how do we reach 100 customers? 1000? Or, how do we reach $1000 in revenue? $10K?
At some point, you don’t measure how much revenue you’ve earned, or how many customers you have, you measure the rate of change in these KPIs. As you achieve each milestone, you should redefine it and move it farther out. Keep reaching for that new bar.