Let’s drill into key performance indicators (KPIs) further. in order to understand the difference between KPI and other metrics. 

• Strategic goals: each KPI is the highest level performance measure for a business (or business unit). Furthermore, it must relate to the most important goals
• Single agreed definition: while businesses are free to define their own KPIs in their own way, they must be universally understood across the whole business, with a consistent definition
• Alignment: if measures and metrics do not create alignment, and inspire action towards the common goals, they are not a KPI
• Visible: visibility creates accountability. So, KPIs must be the most visible measures in an organization

Startup founders and executives often find the concept of KPIs exciting but fail to implement effective ones for the following reasons:

1. Using someone else’s KPIs – there are some popular KPIs in each industry and there’s nothing wrong with using them, but they aren’t written for your specific goals. Use or create KPIs only after considering your own business’s strategic objectives. To that end, there are no shortcuts here.
2. Definition struggles – a KPI concept might be easy to understand but when it comes down to the nitty gritty, it’s often difficult to decide ‘what to include’ and ‘from what time period’. Certainly, experience is imperative here.
3. Data problems – KPIs must stem from real data from financial systems, CRM, and other business applications. As a result, it’s common for startups to have poor data quality or lack the specific type of data they need.
4. Visibility and accountability – despite good intentions, KPIs are sometimes abandoned or reviewed infrequently because of the data analysis effort required to populate them on a regular basis. Worse still, leaders sometimes fail to adequately share the KPI and hold their teams accountable to progress on a regular basis.
5. Too many KPIs – humans can only focus on a few things at a time. If there are 20 KPIs, you can be sure that the most important ones will be lost.
6. Failure to refresh KPIs – as business conditions change, businesses should update their KPIs immediately following any strategic planning process. This is often forgotten.

The process of defining KPI always starts with the high-level business goals set by the executive team. For each business goal, the team should ask “how can we quantify this goal?” and “how will we measure progress towards this goal?”. The team should aim to define at most two KPI for each goal, and assign responsibility for each. Those responsible then examine data sources and propose (1) a definition, (2) additional data required, and (3) a procedure for data analysis and reporting. Once you agree on definitions and data, you can produce the first KPI reports and dashboards, and circulate them amongst the wider team for feedback. It is important to ensure the participation and buy-in from the stakeholders for each KPI.

For each KPI, one person should be accountable for performance. Then another person for measurement of performance. Often the CFO is in charge of measuring performance across all KPIs as CFO are highly trained in goal setting, data analysis and reporting. In companies without a CFO, a fractional CFO is usually hired to fulfill this function. Self-reporting should be discouraged. 

Financial KPIs: net profit margin, gross margin

Marketing: marketing campaign ROI, conversion rates

Customer service: average customer satisfaction score

HR: Employee satisfaction ratings

Operations: production efficiency, inventory turnover

The SaaS industry is one of the most standardized when it comes to KPIs. The most commonly used KPIs are as follows:

• CAC/LTV: the ratio of client acquisition cost to the lifetime value of a customer. This should be somewhere between 3 and 5. A lower number could indicate you’re not getting enough value out of each customer you sign up. A higher number could mean that you’re under investing in marketing and that more marketing spend could equate to higher growth.
• Signups or Logos: the number of users signed up or number of companies signed up
• User engagement: the extent to which users engage in using the product
• NPS or Virality: the extent to which users are willing to share their experience with the product

To adequately track progress, you should update your KPIs on a regular basis. Sometimes weekly but at least monthly. To the extent possible, use automations and integrations to gather the data required to track KPIs and measure progress. This reduces the workload involved in reporting and decreases the chance of error. Take care to validate the quality of the data on a regular basis as part of compiling the KPI reports. Cloud-based systems (e.g. Quickbooks Online, Hubspot) can commonly integrate with lightweight reporting packages to simplify report creation. Ask an expert for help with this.

To ensure visibility and good discussion around KPIs, it’s important to not bury analyses in spreadsheets. Dashboards are a great way to ensure visibility across the organization. Effective dashboard design means the viewer can easily see performance at a glance. As well as always being ‘live’. But dashboards don’t work if nobody looks at them. Ensure your dashboards are put on a TV screen in a common area or reviewed on every team meeting. KPI reports can also be useful, usually repeating the same information on the dashboard, but shared via email automatically. KPI reports often add a historical record of progress.

Entreflow provides consulting around Goal Setting, KPI definition, and regular KPI reporting and dashboards as part of our fractional CFO service. Please contact us to discuss your KPI ideas.