Often attributed to Peter Drucker, this quote has elicited plenty of admiration. When measurements become an end in and of themselves, they consign themselves to irrelevance. Certainly, there’s plenty that can’t be measured well -- confidence, integrity, collaboration. Nonetheless, there’s more than enough that can, and should, be routinely tracked and monitored. And when it comes to customer growth, nothing holds a candle to the numbers themselves.
Track the right KPIs.
Choosing the right range of key performance indicators (KPIs) to regularly monitor to drive growth depends on the stage of your business model. The basics are self-explanatory: number of customers, cost of customer acquisition, etc. More detailed ones could include anything from capacity utilisation rates to email opt-out rates to shopping cart abandonment rates.
A good KPI is specific, measurable and impactful to overall business goals. This will naturally vary from business to business. A retail outlet may focus on total sales, number of customers and average cart size as its most basic KPIs. They are each specific, measurable and impactful to the store’s overall success. A mobile, subscription-based app, on the other hand, may focus on number of downloads, the rate of subscription cancellation (churn) and breakdown of basic versus premium use.
Break KPIs down to a smaller level.
Of course, the right KPIs tell a rich story. Companies that break down their KPIs into smaller numbers often discover insights that can better guide their behaviour. For example, working with a beauty clinic, we don’t simply measure the cost of acquiring a customer. We measure every step of the journey: the cost of acquiring a signup on our website, the conversion rate for each successive purchase and the value of those purchases. This enables us to better recognise the strengths and shore up those weaknesses.
An indicator likely needs to be broken down further if it begets more questions than it answers. Sales may be increasing, but from whom? Old customers or new? Are orders more frequent? Are the items being purchased shifting? KPIs are typically granular enough when they answer a specific question and help paint the overall picture. For instance, conversion from account creation to first purchase answers a particular question while addressing the overall goal of sales growth. The metric can be broken down further (e.g., conversion to purchase based on channel of acquisition), but nonetheless it helps explain the larger picture of customer growth by addressing a specific part of it.
Other companies have demonstrated the potential impact of monitoring KPIs at the right level. For instance, breaking down customers by acquisition channels can also yield actionable insights. Early on, Dropbox recognised that referrals led to a significant percentage of its new customers, so it refocused its acquisition efforts to maximise the effect of referrals. Referrals suddenly came bundled with added storage space, and it led to a tremendous boon in signups.
Shift KPIs as your business grows.
As a business grows, its KPIs typically shift as well. What was crucial to get a company off the ground may become irrelevant as needs and targets change. There are, in fact, dozens of reasons a key performance indicator might need to be adjusted or retired. Early-stage companies just beginning to earn revenue must entirely shift their benchmark metrics as focus changes from product development to customer growth. And growing companies that are just beginning to put corporate processes in place may find themselves focusing on difference aspects of the business in an effort to mature.
It usually becomes clear when the time has come to shift metrics. Investors, partners or even customers may begin to ask different questions. Instead of inquiring about the number of signups, they may begin to ask about the average sales volume or churn. And, of course, a shift in business strategy may be reflected in a switch in the most important KPIs. This evolution is expected as a business matures.
Key performance indicators are crucial for successfully growing a business. Identifying the right metrics, being able to break numbers down into smaller drivers and being willing to shift focus to new KPIs are all important elements in successfully scaling a company. Without careful performance metrics, zeroing in on the most effective business strategies becomes little more than a guessing game.
As part of our virtual CFO service we offer a company report which shows a dash board of key performance indicators bespoke to your business.
During our onboarding process we spend a lot of time designing the right interface to work with our clients. This can vary from weekly or monthly financial meetings and strategy planning sessions, where you have access to your own CFO which can work out extremely cost effective for small businesses.
Are you making the most of the data you have in your business to provide the insights that will give you a competitive advantage, increase net profitability and above all increase shareholder value?
