KPIs For Entrepreneurs: Measuring Progress and Driving Results
Every aspect of business generates data, but how can an entrepreneur know what’s valuable or meaningful for success? What if your marketing data shows growth in terms of brand awareness and reach, but your financial data shows you’re not breaking even? Key performance indicators (KPIs) are the tools that help you gain insights into business data. Let’s look at how KPIs add value to your business and the most critical metrics to track.
Understanding Key Performance Indicators (KPIs)
A key performance indicator is a quantifiable measure of how each business aspect makes progress toward achieving its goals. KPIs can apply to finance, operations, marketing, customer service, and other areas of a company. You can track KPIs using software to generate a KPI report for each business segment. You can also use KPIs to gauge your company’s overall health and efficiency, e.g., employee performance, digital marketing effectiveness, etc.
Setting Meaningful Goals and KPIs
KPIs must be relevant to your specific business context to yield useful insights. That’s why entrepreneurs need to set SMART goals (specific, measurable, achievable, relevant, and time-bound) before implementing KPIs. Start by understanding your objectives first, then identify the KPIs that track progress toward these objectives.
Essential KPIs For Entrepreneurs
If you look at any KPI dashboard on a tool like Power BI or Tableau, you’ll discover numerous metrics, from sales to HR to client services. Make sure you’re tracking the following critical KPIs regardless of your industry:
Customer Acquisition Cost (CAC)
CAC is a sales and marketing metric that shows you how much you’re spending to get each customer. Efficient businesses spend significantly less on acquiring customers and focus more on building loyalty and repeat sales. Find out your CAC by dividing your total sales and marketing expenses by the number of new customers you get in a given period, e.g., monthly or quarterly.
Revenue KPIs like revenue growth rate, revenue per user, and profit margin should be on every startup’s checklist. These KPIs assess your company’s financial health and sustainability. You can spot the trends that increase or decrease your revenue and determine your ideal price point and cost-saving strategies.
The conversion rate indicates how many prospects follow through with your desired action, e.g., making a purchase, signing up for a webinar, registering for a free trial, etc. A good conversion rate is 10% and above, but 2-5% is a reasonable target for startups. Different digital marketing channels can yield varying results. You may find higher conversions from your email campaign than from social media ads, for example. Focus your resources on the platforms that work best for your company.
Customer Retention Rate
Once your leads convert to paying customers, you want to know how many of those customers continue to do business with you. This is what the retention rate KPI measures over a given period. Aim for a 70-80% customer retention rate, but it can be higher or lower depending on your industry. For example, a restaurant may have a 55% retention rate, while insurance can reach up to 85%.
Employee Productivity KPIs
Metrics like sales per employee and profit per employee are productivity KPIs that show your team’s effectiveness. Employee metrics help you understand when to hire more people, how to allocate responsibilities and find opportunities for training. These metrics also give you concrete performance data to help you make difficult decisions, like layoffs.
Driving Results with KPIs
Measuring performance with a KPI report is a great first step for entrepreneurs. But KPIs are powerful tools if you know how to use them for business success. Here’s how to leverage KPIs to drive results:
Monitor Your KPIs Regularly
KPIs are not a set-and-forget strategy, so you need to track them continuously. This is the only way to reveal trends, find opportunities for improvement, and make data-driven decisions.
Tie Your KPIs To OKRs
Objectives and key results (OKRs) can unlock your business strategy when used alongside KPIs. When you break down each OKR into measurable KPIs, you get concrete, reliable data about your company’s performance across the board. Consider following an OKR startup strategy to drive your business forward.
Focus On 5-7 KPIs
Many entrepreneurs make the mistake of tracking as many KPIs as possible, usually because they want to make the most of their KPI software. Instead, select a maximum of the seven most relevant KPIs for your business. Otherwise, you end up with conflicting or overlapping KPIs that generate unnecessary data.
Allow KPIs To Evolve
Expect your KPIs to change as your business grows. If you’re currently in the initial startup phase, your KPIs will be about getting new customers, encouraging repeat customers, and gathering feedback about your business. As you scale, adjust your KPIs toward revenue and lifetime value.
KPIs are indispensable to business success if you know how to use them to your advantage. These tools encourage continuous improvement, giving you access to dynamic data that informs your decisions. Combine KPIs with an OKR strategy to unleash your company’s potential.