If you have just a few minutes a day to track business performance, focus on these must-have performance indicators.
When your organization is in the calm waters, having a long list of performance indicators sounds like a good idea. You have time to analyze various metrics from the viewpoint of different perspectives and focus on even minor improvement possibilities.
What about tough days when resources are limited, management is busy with fire-fighting, and looking at the performance dashboards sounds like a waste of time? In that case, having hard data to support business decisions is even more important, but we don’t have the luxury to track 100+ metrics, so we must focus on the most important ones.
Key focus areas for the performance management
What are those most important metrics? For SMB I would suggest focusing on these key business areas:
- Getting new customers. Performance metrics for marketing and sales.
- Making customers happy. Key metrics for customer service and product quality.
- Keeping team busy and happy. Performance and engagement metrics for your team.
- Cash flow. Key financial indicators to ensure positive dynamic of the cash flow.
Below you will find examples of the performance metrics (KPIs if you want) together with some use instructions. Make sure you have those metrics on your dashboard, especially during crisis times.
Getting new customers
Prospective customers are the leading factor of your future cash flow. If things go wrong and there are no new signups for your Cloud app or people prefer a new supermarket next door instead of your small shop, then something needs to be changed immediately.
The metrics in this case will come from a marketing funnel. The most important are:
- Metric 1. Leads generated. What are the acquisition numbers? For example, website visitors, newsletter subscriptions, case study downloads, daily visitors to the shop, etc.
- Metric 2. Conversion rates. What are the conversion rates between different levels of your marketing funnel? For example, from the prospective customers who attended a live demo to the paying customers.
Depending on the variety of lead sources and the complexity of your marketing system, the number of metrics might grow significantly (in the previous articles we discussed separately marketing and sales KPIs), but the idea is always about these two numbers: how many leads you have (metric 1) and how good are you in converting those leads into paying customers (metric 2).
Have a bird’s eye view of your business to get these numbers. If the challenges are not visible from the first sight, then dig deeper into specific lead generation channels and lead conversion tools.
Making customers happy
Here we are talking about providing customers with what they expect – a high quality product and excellent customer service.
Let’s skip the obvious ideas that there should be customer service, and someone should respond to calls and emails. What is often missed is that a business needs to listen to the customers and learn from them.
If there is a problem with lead generation or product quality, an angry customer normally won’t call and won’t tell you why they prefer not to buy your product; on the contrary, your loyal customers might mention something. Make sure your team captures these less obvious feedbacks (here are some ideas about how to improve that skill).
A customer service scorecard might include various KPIs. Our goal is to pick 1 or 2 you need to focus on. The easy choice would be NPS (Net Promoter Score) metric, but for my opinion this metric is too general and can be easily biased. How about this one:
- Metric 3: Impressed customers, %. Track the percent of customers who were impressed by the high quality of the service provided. Was a client impressed by a super-fast and detailed response? Was the fix to the problem delivered unexpectedly fast?
Obviously, the quantification of this indicator is subjective, but with a good team (see what I mean below) you can manage this. Look back at the previously attended customer queries – could your team do better?
Besides having an excellent customer service, there is another pillar of keeping customers happy – providing them what was promised at the highest quality. I don’t know what is considered as a high-quality product in your case. It might be a combination of usability, availability, maintainability or other features. To define the concept of quality, analyze how your customers (not your team) perceive it. The next recommended metric is:
- Metric 4: Product/service quality (as perceived by your potential clients and paying customers).
In your case this metric might be as simple as “Onboarding time” or as detailed as “Product architecture complexity.” Find the one that corresponds to how your prospective customers and paying clients perceive quality.
Quality vs. Marketing
What metrics should have a higher priority on your scorecard: quality-related (metrics 3 and 4) or marketing-related (metrics 1 and 2)? It depends on where you are now. Generally speaking, burning marketing money on a mediocre product is not a good idea, but if you are in a new market, and already have some interesting features, then customers can forgive you for some quality issues (at least for some time).
Keeping team busy and happy
If marketing, sales, or customer service don’t work as expected, look back at your team and your management efforts. I believe that most individuals have or can develop a strong intrinsic motivation, so we are not talking here about money rewards and incentives schemes.
Employee challenge – starting point
In any organization there are three key areas we need to look at in the context of employee challenges.
- Employee performance. Make sure you have the right people working in your business. It’s not just about measuring the performance, it’s about tracking soft skills as well. Track the way people communicate to the clients, quantify how one member of your team influences his or her colleagues. A 360-degree analysis might be a good starting point for this kind of quantification.
- Quality of management. Give your people the necessary tools to do their job. I’m not talking here about providing a desk with a computer – think about all routine tasks that could be automated, think about outdated product architecture that affects morale of the engineers (yes, morale can be quantified as well), think about your management style (quantify it in the way discussed here).
- Strategy awareness, %. Make sure that your employees understand how they can contribute. Make sure they have clear goals and tangible steps towards them. If you need a quantitative indicator for strategy awareness, then ask members of your team to explain the strategy of the organization in simple words. Count the percent of the correct answers – you might be surprised by the results. A solution plan to this challenge might include an OKR framework that we have discussed recently.
Employee challenge – culture
When the basic issues were addressed, focus on improving specific behaviour patterns (=culture). For example, track:
- Quality assurance coverage, %. How does your team treat problems found in the product? Do they simply fix them, or are they doing a root-cause analysis and trying to come up with a prevention plan?
Someone might argue that this metric is hard to quantify, actually it is not. Here are the steps to convert this behaviour pattern into the numbers:
- Prepare a list of the biggest challenges you faced in the last 6 months,
- Mark those that were resolved, and
- Mark those that now have a prevention plan for similar challenges.
Some basic calculations will show how good your team is at quality assurance. Don´t like the numbers? Discuss with your team how things can be done better in the future!
Employee challenge – metrics
My suggestion for the employee metric would be to review the ideas discussed above and compile an index metric out of them. Call a new metric something like:
- Metric 5 (index): Team success index. Put inside metrics for the most emerging topics that you have discovered.
Alternatively, you can browse some HR related articles on our website, to pick the metrics that resonate the most with your current situation.
Ensuring positive cash flow
A big picture of successful financial situation can be described by a cash flow metric:
- Cash flow. Do you earn more money than you spend? Remember to look at cash flow in dynamic; ask a question: how does the cash flow change over time?
If we want to go more into the details, we can track:
- LTV/CAC ratio that tells us how efficient marketing is.
It is based on:
- Customer acquisition cost (CAC). The average price you need to pay to get a new customer.
- Customer lifetime value (LTV). Your expectation of the net profit related to a new customer.
Formally, the last 3 metrics belong to the financial domain, but as you can see, they have a direct relevance to other areas discussed above. You can focus on one of these metrics, or as we did before, build an index indicator for finance:
- Metric 6 (index): Financial health index. For example, it can include cash flow and LTV/CAC ratio metric.
How to build an index indicator
- Users of BSC Designer should skip this part as building an index in BSC Designer is as simple as drag-and-dropping indicators; normalization and weight calculation is also done automatically.
I mentioned several times that certain metrics can be packed into an index indicator. If you need to build an index manually, then here are the steps to follow:
- Have a list of several metrics you want to group into the index indicator
- Normalize the performance of each metric in the group. E.g. we need to use certain scale to convert $, m2, days, calls/hour into percentages to make metrics comparable.
- Assign weight to each metric. For example, the weight can be defined on a 0…1 scale.
- Calculate the performance of the index metric as a weighted average of normalized performance of each individual metric.
You can find more details about scorecard normalization, using weights, and calculations in this article.
Last but not least: performance measurement is important, but it should not take too much of your valuable time. Find an appropriate automation tool for your scorecard. You can start with a simple dashboard in MS Excel or choose a professional software. Before we discussed some advantages and disadvantages of each approach. Users of BSC Designer are welcome to start with a free scorecard template provided with this article.
What do you think about the discussed top 6 metrics? What metrics do you focus on in your organization?