All businesses want to be profitable, but it can be difficult to know where to start when trying to improve profit margins.
Knowing which Key Performance Indicators (KPIs) to track is a crucial first step. These are the business metrics that will give you the most insight into where your company is excelling and where there is room for improvement.
Crucial KPIs to Track
Metrics and KPIs (Key Performance Indicators) are used to assess how well a company is running. Tracking these lets business owners have a more accurate understanding of their company — this aids in making decisions that can optimize efficiency.
These KPIs can help you achieve your business goals, and identify the various areas that are exceeding, meeting, or not meeting expectations. This will allow you to continue various efforts that are generating positive results, while you can then identify the areas that aren’t working as expected so they can be improved or replaced.
The reality is, companies have the ability to track dozens of KPIs. However, it’s highly possible that your company tracks too many KPIs, some of which might not even be important.
So, which ones are the most crucial for a company? Each company might have its own set of crucial key performance indicators. To determine the crucial key performance indicators for your own company, you have to keep these considerations in mind:
- Can a particular KPI be directly measured?
- Is this particular KPI directly relevant to the company’s performance?
- Can this particular predict current or future company performance in a way that’s actually useful?
Important KPIs To Track
With these factors in mind, here are some KPIs that will be of importance to your business:
1. Quota Attainment
There are several indicators that can be used to measure sales goals, but quota attainment is perhaps the most important. This starts with setting a quota for the total amount of sales in a particular region or for a particular sales agent.
You calculate the quota attainment figure by taking the actual sales of the sales agent and dividing it by their projected sales figure. You then multiply this result by 100 to get a percentage value.
So, if the sales agent sells a grand total of $850,000 but they were meant to sell a sum of $1 million dollars, then the quota figure would be at 85%.
The data in this report can help you understand which agents aren’t meeting your expectations and where you might want to focus your sales Efforts.
2. Net Sales Revenue
Companies rely on sales and revenue to stay afloat in the long term. There are various types of KPIs related to sales revenue, but net sales revenue is by far the most important.
To calculate this, get your gross sales figures. Subtract the discounts, returns, and associated costs with said discounts and returns. This will give you your net sales revenue in dollars.
3. Growth Rate
Growth Rate is a KPI that can be used to measure the change in either revenue or sales from one period to another. This is useful for evaluating whether your company is expanding or contracting.
The Growth Rate can be applied to any business metric, not just sales and revenue. You simply take the difference in periods and divide it by the original value in the earlier period. For example, let’s say your company’s sales in 2015 were $1 million. In 2016, sales increased to $1.2 million. The Growth Rate would be 20% (($1.2 million – $1 million) / $1 million).
4. Churn Rate
The churn rate is the percentage of customers who cancel their subscriptions or don’t renew their contracts for your company’s products and services.
For instance, an internet service provider can keep a tally of customers who discontinue their subscriptions. This might suggest that the customer no longer necessitates the service or intends to sign up for another company’s internet package.
Churn rate is determined by taking the number of customers you lose during a certain time period and dividing it by the number of customers you originally had. For example, if at the beginning of quarter two (Q2) there were 10,000 customers and Q2 ended with only 8,500 customers – that business has a 15% churn rate.
This KPI can indicate whether your marketing efforts are doing well, and/or whether your sales agents are able to retain your customers.
5. Lead Response
This KPI measures how long it takes for a sales representative to contact a new lead. Why is this essential? A prompt response time raises the likelihood of making a sale. If, for example, a potential customer makes an inquiry and they receive a response the following day, then that potential customer is more likely to be engaged and therefore converts better than if there was no prompt response.
But if that response comes after a few months, then the potential customer is less likely to be interested. More than likely, they’ve engaged with your competitor which had a faster response time to their inquiry.
The lead response time is the total amount of time divided by the total number of leads. Let’s say your sales rep is given 10 leads. They respond to 6 of those leads within the day, so that’s 6/10=0.6. They respond to 3 leads in 2 days, so that’s 3/10=0.3. They respond to the last one within 3 days, and that’s 1/10=0.1. Add 0.6+0.3+0.1=1 and divide by the 10 leads, and you have an average response time of 1 day.
6. Cost Per Lead
If you want your business to succeed, you’ll have to put in some work constantly attracting customers and retaining them. Of course, this costs money that could be put towards other things, so it’s important to know exactly how much each lead will end up costing your company.
In order to best use your company budget, you should take into account the CPL of each channel. Even though a certain channel may have a higher CPL, that doesn’t mean you should get rid of it completely. The customers associated with that channel might still lead to more sales overall than what lower-CPL channels generate.
The CPL (cost-per-lead) formula is easy to follow. Simply take the total amount of marketing money spent and divide it by the number of new leads generated. For example, if $10,000 was spent on a particular marketing channel and that led to 2,000 new leads, then the CPL would be $5.
These are only a few examples of business metrics that can be useful for your company. No matter what industry you’re in, it’s always beneficial to track as many KPIs as possible. Doing so will help improve profits and make sure your company is on the right track.