Identifying What to Watch: 14 Key Performance Indicators That Matter

binocsI’ve blogged previously about metrics that you need to monitor and manage in your startup. Here’s another article on KPIs that is well worth reading.

It’s a very long list and I’m only going to comment on a few of the metrics, read the full article to get the quotes from CEOs of small businesses about each metric. I think this is a great way to build a list as you get a wide variety of perspectives, though it would have been even more helpful if there was a line or two about what each company did. But each of the fourteen entrepreneurs who belong to the Young Entrepreneur Council has a link to their bio and company. And check out the YEC, you might want to join.

1. Revenue per Employee

This can be a deceiving metric. I found this out years ago. I was just beginning to work with Apple on our joint venture Macintosh Across the Curriculum (MAC). Apple’s revenue per employee was far greater than any other company in Silicon Valley in the early ’90’s. Very impressive, I thought, until I learned that Apple used an army of contractors who did not count as employees, though they acted like ones, thus driving down the denominator and making their ratio of revenue per employee look much better than it really was.

4. Value

I like operational definitions. By that I mean that the term is measurable. And most of these metrics are. But value is in the eye of the beholder and there is no standard way to measure it. However it can be measured indirectly by some of these other metrics, like repeat business.

6. Client Satisfaction and 7. Employee Happiness.

Like value, these two items are not really metrics. Metric is defined as a system or standard of measurement. While you can attempt to measure satisfaction or happiness, this article doesn’t give you any help on how to do so. I would recommend first focusing on true metrics, like year-over-year performance of EBITDA. It’s not that client satisfaction and employee happiness are important, but each merits an article, if not book, of its own.

7. Cost per Acquisition

I totally agree with Duran Inci of Optimum 7 on the importance of measuring your cost to acquire a new client or customer. However, this list is missing the complementary metric, lifetime value of a customer. Subtracting the cost of customer acquisition from the lifetime value of the customer gives you the true value of a customer.

14. Pitch Win Rate

This is an excellent metric for B2B companies, as it’s a leading indicator of revenue generation.

My takeaway from this list is that it’s fine as far as it goes. However, I would encourage CEOs to ask each functional head: product development, finance, marketing, sales, HR, etc. to develop their own metrics in conjunction with their staff for review by you, the CEO and your team. I find there’s much more buy-in when metrics are organic as opposed as pushed down from the top. Also directors and staff are much closer to the business function being measured than occupants of the
C-suites.

If metrics aren’t organic and don’t help the company improve they will probably just wither on the vine. The CEO and his or her team should review all company metrics at least quarterly to see if these metrics are really helping to manage the company or are viewed as bureaucratic scope creep. If metrics and their measurement are easy to compute and are integral to the daily business of the company, such as pitch win rate, they will become key elements in each manager’s toolkit. If not they will either drop to the bottom of the toolkit or even get tossed out.

As Peter Drucker, management guru once said, If you can’t measure it you can’t manage it.

 

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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