The Only 3 KPIs A Company Should Worry About
Bring up KPIs (Key Performance Indicators) in a management meeting, and you will likely hear multiple ideas on what makes a company successful and where to place your emphasis. Of course, each industry has specific KPIs relevant to their niche and organizational goals but in a broad sense, I believe there are a few key numbers that EVERY business owner should keep top of mind.
Below, I will touch upon three KPIs that Power Digital monitors closely to ensure the growth and success of our business.
Net Operating Income (NOI)
Let’s be honest, if you are a business and you are not measuring or watching your NOI then you have a BIG problem. The NOI is considered to be one of the best measures to analyze your company’s profitability, also known as the bottom line, or net income. Net Income equals all revenue minus all expenses. In other words, what you make at the very end of paying out everything!
Net Operating Income = Gross Profit – SG&A Expenses
This number (or KPI) should be utilized to provide information about a company’s overall health and to analyze your business operating performance.
Now I will say, in today’s heavy VC-backed world, net income is not always a key measurement. Some organizations look at user growth, subscribers, etc. rather than what they are making at the end of the day, but for us, and most businesses, this should be number one on your list!
So, now that you know if your business is succeeding or failing based on your bottom line, now it’s time to see how your business is running internally. For Power Digital, a service-based business, our people are our product! If we don’t keep our people happy, our product is ultimately going to suffer. That is why our second most important metric is measured through employee retention.
In the past decade, human resources and human capital have evolved greatly to become more of a strategic asset. Managers seem to recognize that now more than ever it is vital to have the right team executing company strategy. Well-known organizations and enterprises from all over the world regularly discuss how important it is to hire and retain the right talent, and this ability is often regarded as one of the greatest predictors of organizational success.
The interpretation of this key figure is ambiguous and depends on the economic situation of the company and High Performance versus Low Performance Employee turnover. On the one hand, in times of economic growth, a high employee turnover rate can be interpreted as an indicator of low employee satisfaction.
The reasons could be that employees are not satisfied (i.e. with their compensation, the working time, the overall working conditions, etc.) On the other hand, in times of economic decrease, a high employee turnover rate could be viewed as a result of the company's strategy to shrink the workforce and thus to reduce personnel costs.
We all agree that having “High-Performance Turnover” should be as low as possible, as we want to keep talented people. Before you can measure this indicator, you must identify several factors:
- Who are you looking for? Identify those metrics from which to evaluate performance and provide the new hire with a system to self-evaluate
- What are the factors of their loyalty (how to keep these people)?
Once you have your new hires, what influences them to stay? Start with the question: What motivates them? What drives them to love coming to work every single day? Is it monetary, is it praise, or is it something else?
Every person has their own rationale of why they enjoy or don’t enjoy a particular job. Thousands of articles are written about salaries and compensation, so let’s talk primarily about engagement.
Engagement is a feeling, but it can still be quantified and measured. Some companies send out Employee Satisfaction Survey (BORING) to understand how much effort is required to maintain and improve employee happiness.
At Power Digital, we feel we need to keep a finger on the pulse much more often then a quarterly survey. We conduct employee one on one’s every month to get their feedback in a close to real time as possible. We ask questions. We listen. And we adjust according to their feedback.
We also leverage 15Five to check in with each team member on a weekly basis and get a pulse for how they are feeling about their week. Stemming from the concept that you answer five questions in fifteen minutes. Meant to be a quick check in our team find 15Fives to be a fun way to reflect on the week. On the other side of the coin, it helps our managers stay on top of any small challenges and makes sure their teams are feeling supported.
Client & Customer Retention
Now that you know how your business is doing from a profitability standpoint, and you understand internally how you are performing, it’s time to look externally at Customer Retention. This is one of the most important KPIs (if not the most important KPI) because it impacts (1) revenue, (2) customer satisfaction levels (which impacts word of mouth marketing and even referrals) and (3) the overall growth of the business.
If you are a running a business, you know how important it is to retain customers. It is usually the case that it is cheaper to retain an existing customer then to acquire a new one.
When we look at client retention, we look at it from a couple different ways. First and foremost, you need to understand which customers did not renew their contract or upgrade versus the ones that did over any period of time. Conducting a post-mortem after a client leaves is key.
Sometimes you uncover there is nothing you could have done and it was out of your control (i.e., Going out of business, taking your service in house or many other reasons). Other times it is a key problem that needs to be fixed within your organization that you need to change so it does not happen again. Have this data allows you to truly classify lost clients and start to make changes based on that information
Another key aspect to look at when you are looking at customer retention is average life cycle of a client. Not all clients are “life long” clients. It is crucial to understand what the average length of time a client stays with you so you have a benchmark to work against. For us, we are not the norm; we hope our clients stay forever :)
There are a million different metrics and KPI’s a business can look at in their company. For Power Digital, if we are making money, keeping our team and clients happy, LIFE IS GOOD!