I’ve been reading a number of articles on key performance indicators recently and wow – talk about complex measurements!  There are numerous easy to measure key performance indicators that can be measured on a weekly or monthly basis that will tell you a lot about your organization.

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Why track Key Performance Indicators at all?  As you make changes in your business, or as the world changes around you, you have the opportunity to measure the effect of various influences on parts of your business and do something about it.  If you aren’t going to act on changes in KPIs – don’t bother tracking them.

So what KPIs do I recommend tracking?  I have about thirty I’d like to talk about so we’ll break this into a few different articles.

  1. Gross Profit Margin (%) – The difference between the dollar volume you sell vs. the cost to produce it.  This does NOT include your overhead expenses (payroll, commissions, rent, taxes, etc.).  You should compare this metric against others in your industry, and if you see it decreasing you either have an issue with how much you are selling, or the cost to produce your products.
  2. EBITDA (%) – This is “Earnings Before Interest, Taxes, Depreciation and Amortization”.  In plainer English – it’s your net profit before you do all of the adjustments for taxes and depreciation, etc.  Once again, compare this percentage against others in the industry.  If you start seeing decreases in this but your Gross Profit Margin is staying the same then you may need to look at your sales compensation plans, marketing expenses or other expenses that change from year to year.
  3. Current Ratio (#) – This is the ratio of your current assets (accounts receivable, cash in the bank, etc.) to current liabilities (accounts payable, customer deposits, etc.).  It will tell you the ability of your company to meet its financial obligations.  The higher the ratio is over “1”, the better off you are.  If the ratio is less than “1” it means you have more liabilities than assets – not a great place to be.
  4. Revenue per employee ($) – As you grow, this number is likely to change.  Your goal is to get it to have a continuous upward trend – not easy to do as you add on cost centers such as human resources and additional management.
  5. Gross Margin per employee ($) – Like revenue, this is a trend you need to keep a careful eye on.  Almost every hire should have a benefit to the company.  If you are hiring the right mix of people – some that drive sales, and some that increase efficiency, you should be able to keep this number strong.
  6. Net cash flow change ($ and %) – Months where you invest in the company will have bigger draws on cash, but other months should be comparable to each other.  You will hopefully see this indicator show a steady or positive trend.  If you have several negative months it should be readily apparent by tracking this number.
  7. Average revenue per invoice ($) – This is one where you probably want to throw out the top (highest $$$) and bottom (lowest $$$) few percent of invoices to account for one time deals.  Whether this number is high or low will depend upon what you sell and to whom, but the trend should tell you a lot about sales, promotions, new product intros, and other activities you’ve done to influence your overall revenue.
  8. Average gross margin per invoice (%) – I don’t throw out the top and bottom percent of invoices for this metric.  If you see a decline in this number then your sales reps are probably discounting your prices too much, your promotions are taking too much profit from you, competition is starting to squeeze you, or your products or services may be becoming commoditized.  Of course there are a number of other factors that can affect this number, but the point is – just like with all of the other KPIs – if you see the trend changing it’s time to investigate.
  9. Gross Margin Per Customer ($ and %) – As you mature and your processes evolve you should be able to increase your gross margin percentage.  Changes downward in this number need to be investigated.

As I mentioned in several of these, from a key performance indicators perspective the actual numbers themselves often matter less than monitoring for changes in trends.  I’m not saying that you shouldn’t focus on moving gross margin from, say, 50% to 55%, but as an “indicator” these numbers are tracked to help you look for potential trouble or success spots in your business.

Do you track any of these?  How do you use them in your organization?

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Chris is Managing Partner of Fair Winds Strategies. Prior to this he was the Chief Innovation Officer at Internet Marketing Ninjas where he managed M&A activity, legal work, and also focused on the use of technology and other solutions to lead innovation and growth. Before IMN, Chris led the sale of his $10mil information technology company, twice an Inc500 fastest growing company in the US, to an investment banking firm in NYC. He has a strong passion for sailing, and had the opportunity to spend two years travelling from Lake Champlain to the southern Bahamas and back with his family.
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