You should know what your company’s core business objectives are, and they should be laid out before you define your business’ key performance indicators (KPIs). Here are three essential KPIs that all companies should live by:
1. Revenue vs. Profit
2. Retention rate
3. Conversion rate
Revenue vs. Profit
Revenue is typically calculated by multiplying the selling price of each product or service by the total number of products or services sold. Profit is typically calculated by subtracting total costs from total revenues. By analyzing revenue vs. profit as a KPI, you can show your team the profit margins across their product and or services. A revenue vs. profit KPI can prove to be essential for all companies, but in particular, it can prove to be more valuable within companies that have a vast range of products or services, and companies that give their sales force leeway to the price to close the deal. Knowing and understanding where the profit is coming from, what deals are providing the best value, knowing how much it costs to deliver products and services are all critical in trying to boost your company’s profitability.
A Retention Rate KPI measures the company's ability to retain customers. You can figure out your retention rate by dividing the total number of customers retained, by your total number of customers, over a given time period (week, month, quarter or year). Your Retention Rate leads to your recurring revenue and can prove to be a crucial part of your business value. How many of your clients are returning to purchase additional products or renewing recurring contracted services? Retention should be measured every month so that the team can follow up with past or present clients. Knowing what revenue, you have coming in can be critical in predicting the revenue for the upcoming weeks, months, or year(s) to come. You should also keep an eye on your customer satisfaction levels. These levels can prove to be critical in account expansion and generating referrals. If you have happy and satisfied customers/ clients, your retention rate will continue to grow.
Sales Conversion Rates
Your Sales Conversion Rate is measuring the effectiveness of your sales team and their ability to convert the leads that you bring in, and converting them into new customers. If you are bringing in 200 leads, and you close 20 new customers you are at a 10% sales conversion rate. The sales conversion rate starts with lead generation. When you attract a potential user that is interested in your product or service, this lead is the start of the buyer’s journey. Lead generation is vital to your company’s success. There are many ways that you can generate a lead such as cold calling, advertising, referrals, etc. You can bring in a multitude of leads, but if they are not being converted to sales, those leads mean nothing. The conversion rate shows the effectiveness of your sales team, taking those leads and turning them into new clients/ customers. This KPI is an important measurement to show to your sales and marketing departments. It can be used to measure the quality of leads coming in. Once marketing brings in those leads, it’s the responsibility of your sales team to convert those leads into new paying customers.
A KPI is a measurable value that shows you how efficiently your company is achieving your key business objectives. Your company should use KPIs at all levels to evaluate your success and be sure you are reaching your set goals. These three KPIs should be used to help you focus on the overall performance of the business and your numbers with this you will have the foundation to continually increase your bottom line.