We all want to have growth in the world of business. I am sure that most of you would agree that it is the ultimate goal. Unfortunately, not all dare to track progress.
So, is there a way to measure success? YES!
With KPIs (key performance indicators) in place, you can see the progress of a business over a set of targets. KPIs can vary depending on the nature of your business. There are a ton of different key performance indicator examples. It is not a requirement to measure all these KPIs, as tracking too many KPIs could cause you to lose focus.
You might ask: How will I know the right KPI (Key Performance Indicator) for my business? It really depends. Use these points as a guide.
Decide with yourself (or your business partner/s) to set a goal that you want to achieve for the business. It should not be as grand as you think, especially when starting.
Prepare a clear set of goals that falls under the business planning phase. These goals are time-bound and attainable to lead the company where it should go.
Have the right objective. Learn to celebrate small wins and set the timeframe. You can use the general rule that there should be no more than 3-5 company goals in 12 months.
Can You Measure the Goal?
You should be able to do so. Quantifying your current business performance gives you the upper hand to assess every aspect of it.
Determine your strong and weak points. Evaluation never stops when you reach something, there should be continuity to encourage business growth. Gather all the data and decide which ones to keep and which ones need to be changed.
Avoiding Vanity Metrics
What do we mean by that? These are the "feel-good" metrics, such as social media likes, retweets, and more.
Take this as an example: a business launched a new app. Of course, you will be overwhelmed with the number of downloads. But that might be because of an ongoing promotion, not because many use it.
Always check the facts and details.
Identify Metrics That Matter to Your Business
Always revert to the goals you have set for your business. Which ones are measurable and actionable? Is it aligned with what you want to achieve 12 months from now?
When choosing a metric, pick something that will show you how your business is doing. On top of it, will it give value to your business in the long run to spark better ideas to keep it going?
Leading and Lagging Indicators
These are the two categories of KPI. Leading indicators can help you foresee the future of your business. It gives way to business owners the opportunity to adjust their existing strategies.
On the other hand, lagging indicators consider past results. It measures the outcome of a completed action. We can take advantage of lagging indicators to evaluate the success of something and may highly impact future business decisions.
Over time, you will get the hang of what's going on with your business and the market trend. KPIs can help you keep up with your goals or when adjustments are necessary. Ask yourself: Is it time to upsell something?
Do not just go with the hype. It is best to put yourself in the customer's shoes and ask: What's in it for me? That is always the deciding factor.
Well, KPIs are most effective if they are in tune with your business goals. These must be quantifiable and doable for future growth. Now that you know what to consider when choosing KPIs, what are the common KPIs for business?
The list might be too long, but let me focus on these five:
Just like any business, you want to see how your product or service is doing in the marketplace. When you get to use your sales revenue as a KPI, you will measure the progress of your business in generating income.
How to do it? Multiply the number of products or services sold by the price per unit. Keep track of your sales month-by-month, quarter-by-quarter, even year-by-year.
Using these data points, you can determine which brings significant returns. As a result, you can see trends and projections that allow future growth.
Net Profit Margin
Measure the generated income as part of the revenue received. Subtract from the revenue your COGS (we will talk about this in a bit), the operating and other expenses, interest, and taxes divided by the income received, then multiply by 100. Or, in layman's terms, net income divided by revenue, times 100.
Think of it as the overall financial health of your business. The truth is, without profit—business means nothing. Most companies do this every quarter and annually. The goal here is to evaluate if the business is generating enough profit.
It might be overwhelming to see a growing revenue on paper. If your operating costs are above the income gained, your net profit margin is at risk. Ideally, if the records show expanding margins, it only means that your profit margin is growing.
It refers to the net sales less the cost of goods sold (COGS). Gross margin is the amount left after you incur the direct costs of manufacturing and distributing products or services.
Top management can use this key performance indicator to reflect the strategic priorities of the organization—delivering the best possible results.
What is the acceptable gross margin ratio? It should be at a 50 to 70% gross margin; you can say your business is in a healthy state. It is evident with the trade involving retail markets, manufacturers, and other production-related industries.
MRR (Monthly Recurring Revenue)
This amount is your predictable revenue. It is what you expect to receive from your business every month. With MRR, you can easily forecast your future cash flows and budget.
With the pandemic affecting the world, most businesses have relied on technology to deliver their products and services to consumers. Take a subscription business as an example; MRR can help oversee the movement for new and existing subscribers.
Understanding MRR will help you make informed decisions as to which leaps you can integrate into your business.
Net Promoter Score
It is all about your end-user, your customer. Customer experience plays a vital role in predicting business success. For the most part, marketing leaders use this to measure their progress against their set goals.
Net promoter score (NPS) can gauge customers to become loyal to your products or services. It is usually through their satisfaction ratings. Consumers can be any of the following: promoter, detractor, and passive.
How to calculate NPS? Subtract the percentage of detractors from the percentage of promoters. No industry has ever achieved a score of 100 NPS. A good NPS score stands at about 70 and above.
KPIs are business measures to track your overall performance. Depending on the industry, knowing the numbers for these KPIs will keep you moving in the direction you want for your business.
You will have a realistic view of the financial risks and indicators to sustain you in the marketplace. KPIs will help you see the highs and lows of your business. Use failures as your motivation to do better. If necessary, realign strategies.
The good news is that there is always room for improvement. If you learn how to choose and implement KPIs properly, you have the power to optimize the business for long-term success.