The Ultimate Guide to Key Performance Indicators

[lwptoc] Before scaling, you need to ensure that the processes and procedures within your business are working optimally. If your startup is not operating like a well-oiled machine, it can cause havoc when you begin to scale.

The Ultimate Key Performance Indicator

Your north star metric is your company’s guiding light and is the Ultimate Key Performance Indicator. Your north star is a purpose-driven metric. What is the vision of your startup? Where do you want to be? Perhaps you want to be acquired by a major player in the market. Every decision made in your company should contemplate whether it will move you further toward your north star or further away. The north star metric is the most straightforward and essential metric your startup needs to monitor regularly. If you have not defined your North Star metric, do it as early as possible, share it with your team and customers, and incorporate it into your company’s policies and procedures.

Client Activity

You must ensure that you are across all your company metrics when you are preparing to scale and when in the process of scaling. Let us look at some of the most important metrics and how you can implement systems that will allow you to monitor and measure performance.

Conversion Rate

Conversion rates can apply to a variety of steps within the customer journey. During the Scale stage, you should optimise your KPIs’ conversion rates and understand what conversion rates you require to drive your company forward. For example, when someone registers to download your free report at the first step of the customer journey, it is a download conversion. If 100 people click on the ad and then download the report, it results in a 10% conversion rate. When a salesperson calls those ten people and sells one product, it results in a 10% sales conversion rate. One relates to marketing, and the other relates to sales. Once you know, these numbers are much easier to scale because they help you forecast and set goals.

Customer Retention Rate

While it is essential to gain new customers, keeping them is another story. The customer retention rate is the rate at which you can retain customers. Your retention rate will help you determine how valuable your product is to customers and whether it meets their wants and needs. If your customer retention is poor, it usually relates to poor product-market fit. Many would also argue that a poor customer retention rate could mean that clients do not understand how to use your solution or there is poor customer service. This could mean you must create better tutorials or update your user interface to make it more user-friendly. If you are experiencing low customer retention rates or want to boost them, you must ask your customers for feedback. Also, you should ask the customers who left why they did so. See their concerns and how your product can be improved to make it more useful.

Customer Acquisition Cost

Knowing the cost of getting a new client is critical in business – this is known as your customer acquisition cost (CAC). It would be best if you kept CAC as low as possible. Many founders are unable to provide you with this number. It is one of the first metrics your investors will ask you, as it closely affects your profit margin. CAC is calculated by taking the total company expenses over a given period and dividing the total number of customers over the same period. For example, last month, your total company expenses, including wages, advertising, and operating expenses, were $10,000. Over the period, you gained 20 clients. Your CAC would, therefore, be $500. Not bad if the product or service you are selling is $5,000. Not so good if it was $1,000 – unless you have a high Customer Lifetime Value.

Customer Lifetime Value

The customer lifetime value (CLV) is a metric that measures, on average, how much each client spends with your company over their life. Knowing your customer’s lifetime value can help you make intelligent company decisions. For example, if you achieve a CLV of $12,500, you will be better placed to establish an accurate marketing budget. Alternatively, you may increase CLV by improving customer service by adding new support staff.

Burn Rate

I have heard about fancy and overcomplicated explanations that describe burn rate. Burn rate is the rate at which your company is burning through money. Burn rate is the most straightforward metric to calculate. You choose a period. Let us say quarterly and take the starting balance at the start of the quarter and minus the balance at the end of the quarter and divide by the number of months, which is, in this case, 3. For example, your company’s balance sheet shows $100,000 at the start of the January quarter and $70,000 at the end. Therefore, there is a loss of $30,000. If you divide $30,000 by 3 (number of months in the quarter), the monthly burn rate is $10,000.

Churn Rate

Churn is the rate at which clients leave. Therefore, you need to ensure that your churn rate remains low. If your churn rate is high, something is likely wrong with your product or service that needs fixing. Churn rates can be calculated over various periods. The earlier your startup is, the shorter the period you should measure. As you know, everything must be measured closely when your startup finds its feet. Most startups calculate churn every month. Churn considers current clients, new clients and those that leave over the month – or another period you nominate. To calculate churn rate:

1. Current customers as at the start of the period + new customers at the end of the period = Total Clients
2. Total Clients – Clients that Left at the end of the period = Clients
3. Clients / Clients that Left = Churn Rate.

Revenue Growth Rate

This metric is crucial. Revenue Growth Rate measures the monthly revenue growth rate and indicates whether or not your product or service is gaining traction in the market. It is also essential to know what period the RGR is calculated on. For example, is the RGR over a one-month or 12-month period?

Business Activity

Business Plan

Your business plan has likely changed from when you drafted your Lean Canvas. Many founders neglect to update their business plan, and it sits on a shelf in a back office. Remember, the Lean Canvas is a simple solution to get your startup to launch quickly. However, now you are at the scaling stage, you will need a complete business plan – especially if you intend to build a large organization. The CEO must create the company’s business plan in consultation with the board. Once completed, it is the responsibility of the CEO to ensure that the business executes the business plan. A business plan will also be required when applying for government grants, seeking finance or making significant hires – such as new board members.

Marketing Channels

You may recall at the start of the book that, I recommended starting with one channel in which to market before moving to the next. By the time you are ready to scale, you should plan to execute your marketing through one of two additional channels. For example, if you are like many startups, you may have initially relied on Facebook or Google as your marketing channel to promote your startup. You may choose your next marketing channel from guest post blogs, YouTube ads, Radio, TV interviews, content marketing, public relations, or corporate sponsorship. I recall Gary Vaynerchuk in a recent YouTube interview or presentation saying that every company can be a media company these days. Publishing on social media is free. I think we all forget that sometimes. Additionally, the low cost and availability of equipment to produce media content create a level playing field for businesses, large and small. If you agree with Mr Vee, your team may expand your company’s marketing channels by adding an industry podcast or YouTube channel.

Culture

There is a lot of talk about culture in startups. But there is more to culture than adding a ping pong table in your staff room. Your culture cannot be installed like a new hard drive, it must develop over time. Later, employees, customers and suppliers who align with your culture will seek you out rather than vice versa. A great culture is a powerful way to engage new employees, keep the current ones, and allow customers to connect with your brand. Culture is unique to each organization, and many find it difficult. A Deloitte study named “Culture and engagement, the naked organization” found that 87% of organizations globally said that culture and engagement were one of their “top challenges”. Further, 50% believed culture and engagement to be “critical”. Before discussing your culture, you must understand your company’s values and their meaning. You could say that your values relate to your company’s standards and stance on issues relevant to your industry and, more specifically, your customers. Culture evolves. Do not be in a rush. But make it a priority. You can do many things to develop a great company culture by engaging employees, customers and management.

Customers

Customers are king. When you identify your core clients and know what is important to them, you should apply this information to your values. For example, if you are creating software that teaches a language, you may find your communication matters to your customers because it helps develop meaningful relationships.

Employees

Your employees must also recognize what is essential to their clients. Ideally, it should also be necessary to them. Hiring employees who align with your customers’ values is always best practice. For example, a startup assisting young mothers with their health will benefit from having them as employees. If so, you can attract ideal employees by providing flexible working hours.

Management

Management needs to listen to what is essential to their customers and employees. If your team and customers are family-centric, management must recognize this and make allowances for that in the company’s culture. It is in management’s interest to have a happy and productive team because it assists with customer satisfaction and better employee retention. Once you have your values down, you will attract like-minded talent and, consequently, like-minded customers. Overall, team members want to have a sense of belonging. There is something inside of all humans that relishes a community connection. You only need to look to the startup community for evidence of that. You can experiment with other things to create a meaningful culture, such as a ‘culture team’. Perhaps this team arranges inspirational guest speakers from within your industry to give talks. You could also organize tours and events that include leaders from within your industry. A great way to spark culture is to give each member of your team a voice. Not everyone is outgoing and willing to share their opinions so readily. Perhaps you could have a simple suggestion box in your office where employees could anonymously add suggestions.

Be Loud and Proud with Culture

If you are serious about your startup’s culture, there is nothing quite like advertising it. That is what Hootsuite does. The social media management software company advertises their Hootsuite Manifesto online for all to see their core principles, values and even company vision. Not like the old days when companies would have their mission statement hidden somewhere on a laminated A4 page Blu-tacked to the back of the boss’s office door. https://www.slideshare.net/hootsuite/hootsuite-manifesto