The data collected by an organization in the form of performance indicators help to make informed decisions about the organization; however, this is not true for every measure of performance. Organizations collect an overabundance of data, often failing to identify key performance measures which are most likely to positively affect their bottom line, productivity, and/or customer retention. To effectively measure a company’s performance it is imperative to select performance measures that are closely aligned to the company’s strategic objectives. The alignment of performance measures to the strategic objectives of a company enables effective resource allocation and minimizes operational inefficiencies. In addition, performance measures that are focused on creating growth are typically based on quality, sustainability, and the ability to create positive measurable impacts on a company versus measures that are vanity-based.
Focus on the Quality of Your Revenue Rather Than Just the Quantity
While total revenue is a good indicator of the financial health of your business, revenue that is not sustainable or diversified may indicate poor financial health.
Some key revenue indicators include:
- Customer lifetime value (CLV)
- Ratio of recurring revenue to total revenue
- Risk of concentration of revenue
Quality of revenue is indicative of the long term financial stability of your business.
Track and Monitor Customer Retention and Satisfaction
Attracting new customers is expensive. A high level of customer retention is indicative of the relevancy of your products/services as well as the quality of service provided by your company.
Some useful retention indicators include:
- Churn rate
- Net Promoter Score (NPS)
- Frequency of repeat purchases from existing customers
The retention of customers will ultimately lead to increased profitability.
Monitor Operational Efficiency
Businesses that grow without increasing operational efficiency experience downward pressure on margins.
Some important operational indicators include:
- Cost Per Acquisition (CPA) of new customers
- Turnover of inventory
- Trend of operating margin
Operational efficiency will enable you to increase scalability.
Align KPIs with Strategic Objectives
KPIs (key performance indicators) should reflect the organization’s specific goals and objectives. If you are tracking KPIs that do not reflect your organization’s goals and objectives, it is possible that you may lose focus.
To ensure that your KPIs are aligned with your organization’s strategic objectives, ask yourself if your KPIs:
- Influence your decision making process?
- Reflect the organization’s current priorities?
- Create measurable outcomes?
Alignment of KPIs to strategic objectives will enhance performance discipline.
Conclusion
Selecting performance indicators that truly drive growth, requires the organization to prioritize the quality of revenue, the retention of customers, the operational efficiency of the organization, and alignment of KPIs to strategic objectives. Businesses that have a focus on actionable performance measures, will have greater clarity and improved capital allocation. Measurement and analysis of data to achieve sustainable expansion is a disciplined process.
