Your KPI starter kit: Choosing and measuring the metrics that matter

If a tree falls in a forest and there’s no one to hear it… well, it's very hard to use that tree in your corporate decision making. KPIs (key performance indicators) are the metrics that tell you how well you're performing against certain key strategic targets. Ongoing KPI reporting gives you a clear and consistent view into your company’s performance in the areas that matter most.

The exact metrics you track — and how you prioritize them — will depend on what you want to accomplish, but there are a few basics you should consider:

Financial performance

At the very least, every company should be tracking their financial performance metrics. These are likely too general to give you specific insights into how to improve the business, but they will give you a quick view of your overall health.

• Revenue: How much cash do you bring in through sales and subscriptions? It seems obvious, but you will want to make sure that revenue — including bookings — is part of your high-level financial reporting.

• Annual recurring revenue (ARR): How much predicable income can you expect from subscriptions or contracts? Particularly for SaaS companies, this is one of your most telling financial metrics. You can use it for budget forecasting, product planning, and more.

• Burn rate: How much money does the company spend? This includes headcount, office rent, utilities, insurance, transportation, and paperclips. Knowing your burn rate is critical for any meaningful financial forecasting.

• Cash runway: How many months could you keep operating as-is on your current cash reserves? Cash runway only looks at available, on-hand cash — not pending invoices, contracts, or bookings.

Sales and marketing metrics

After you’ve set up reporting for finance, the next step is to look at your sales and marketing metrics. Since sales and marketing drive the majority of the company’s revenue, this is the data you need to decide which levers to pull if you want to improve those high-level financial metrics.

• Customer lifetime value (LTV): How much is a new customer worth? LTV looks at the entire relationship with a customer, from the first purchase until they walk away forever, to estimate how much revenue you can expect to earn over the lifetime of the average customer relationship.

• Sales cycle: How long does it take to close a sale, from first touch to closed-won? As a general rule, more complicated and expensive technology products will require more hands-on selling time.

• Customer acquisition cost (CAC): How much do you spend to win a single new customer? This includes targeted marketing spend but also background expenses, including sales and marketing headcount and the marketing programs that touched that prospect.

Product metrics

Once you’ve dialed in the sales and marketing metrics, you’ll want to look at product metrics to understand how and why you keep — or lose — customers.

• Sign-ups: How many new users enter into the system? This will give you a good sense of how interested people are in your product. The higher the number of signups, the more interesting you are to users.

• Activation rate: Of the users who sign up, how many log into the product? A sign-up is often a pretty low-barrier entry to a product. By watching how many of those users actually activate the product post–sign-in, you’ll get a better sense of the degree of interest those users have. A low activation rate may also be an indicator of a broken or cumbersome user experience.

• Monthly active users (MAU) / daily active users (DAU): How many people are on your platform every month/day? This will give you an indication of the stickiness of your product over time. If people keep logging in beyond the initial signup phase, it’s a good indication that the product has become a part of their regular workflow.

Customer satisfaction

The product itself isn’t the only reason customers stick around. As you dig into customer satisfaction metrics, you start to get a complete picture of the long-term relationship between the user and company.

• Customer churn rate (“churn rate” or CCR): What percentage of customers are you losing over time? Most companies calculate churn monthly, although an annual churn rate might make more sense for products with longer contracts or subscription cycles. A low churn rate means you have happy customers who want to stick around. A high churn rate might be cause for concern.

• First response time: How long it does it take to answer a logged support ticket? If customers are left waiting for too long, they may because frustrated with your product and go looking for alternatives.

• Net promoter score (NPS): How likely your customers are to recommend you to others? NPS ranks the propensity to recommend on a scale from 1–10. If you send out regular customer satisfaction surveys or as a follow-up to customer service calls, you may want to include NPS.

• Customer satisfaction (CSAT): How happy are your customers with the service they received? Different companies can measure CSAT in different ways — on a numeric scale, as letter grades, even as stars or some other symbol.

Bring your KPIs home with a central dashboard

It won’t take long to get your executive leaders hooked on regular KPI reporting.  But if every team or department is pulling its own KPIs, it may be impossible for leadership to distinguish the signal from the noise. As with any other major undertaking, you’ll want to make sure your entire organization is working to accomplish the same goals. Communication is critical to ensure that everyone is working from a shared understanding of what matters, who is involved, and what you are trying to accomplish.

In many companies, critical data is trapped in specialized tools or platforms that only certain experts can access or use. Wherever possible, try to feed data from these siloed programs into a centralized data repository or reporting tool. If that’s not possible, establish a regular cadence and easily digestible format for reporting that data out to the people who need it.

Whenever possible, feed data into an easily accessible KPI dashboard that leaders can pull up whenever they need input on a strategic decision. With so much critical data at everyone’s fingertips, your business is sure to make better, more strategic decisions.

To learn even more about about how mastering your company's data can support effective, timely decisions and business objectives, visit our Knowledge Center on data health.