While every business owner knows how important their P&L sheet is, few keep as close an eye on the less-visible metrics that can make or break their company, from average customer value to days sales outstanding (DSO).
Below, eight financial executives from Forbes Finance Council explain some of the top KPIs to watch and the potential impact of each on your company's health.
1. Average Customer Value
One KPI often overlooked is average customer value. We believe there are really only three ways to grow a business: acquire more customers, have the customers return more often, have the customers who return more often spend more. Oftentimes, getting the latter two is easier than the first. So many business owners fail to measure average customer value and don't put enough marketing resources into repeat business and higher transaction orders. - Nick Bentley, Ventury Capital
2. Your “X Factor”
I've discussed the concept of profit / X with my customers for many years, X being the factor that business owners can apply competitive advantage on. Traditional KPI calls for generic measurements like profit / full-time-equivalent or profit / revenue. It tells us nice information but most can't do much with it. I've seen companies really scale after they've figured out their own unique X factor that they can focus on. For many of them, the X factor was a metric outside of traditional accounting practice. - W. Michael Hsu, Deepsky
3. Converting Leads To Clients
Converting leads to clients is a lesser-emphasized KPI. While not overtly financial, it has implications in time and expense. Tracking this KPI impacts our budgeting, allows us to put better sales processes in place and provides more accurate training for the sales team. It also helps us to make staffing decisions. Overall, this KPI has decreased our sales time and improved customer satisfaction. - Marjorie Adams, Fourlane
4. Days Sales Outstanding (DSO)
The 'key' KPIs vary so widely by industry and I would argue are more operational than financial. However, for many of our clients, they remain very P&L focused in terms of their financial KPIs and as a result, many neglect their accounts receivable, a key driver of cash flow. So, keep an eye on Days Sales Outstanding (DSO) and you'll reduce bad debt issues and improve cash flow. - Chris Schwalbach, AVL Growth Partners
5. Valuation Growth And Financial KPIs
The technology startup community seemingly considers valuation growth the only KPI necessary. More traditional small businesses often overlook valuation entirely in favor of immediate KPIs such as monthly recurring revenue and burn rate. Placing a combined emphasis on those KPIs offers a more holistic understanding of the business for both present and future decision making. Lastly, one major challenge is monitoring non-numerical KPIs such as employee happiness or community impact. Employee surveys with 1 to 10 scores will provide business owners with quantifiable, actionable data at a low cost. - Evan Kirkpatrick, Wendell Charles Financial
6. Customer Acquisition Cost (CAC)
Knowing this allows you to understand your marketing efforts. It tells you how effective or ineffective your marketing is. Ideally, you should be tracking CAC in each individual marketing channel/campaign. That way, the ones that work can get more attention and you don't spend money on the ones that don't. - Louie Balasny, Botkeeper
7. CAC And Company Growth
Customer acquisition can be a double-edged sword. Entrepreneurs are often so concerned with making this KPI rise that they ignore the other side of the equation. When your customer acquisition rate suddenly skyrockets, you need to be prepared to handle that sudden influx. You can avoid "the reverse curse" by pairing this KPI with your own company growth. For instance, you should have a metric for growing your team based on how many customers you gain. - Elle Kaplan, LexION
8. Annual Interest Expense And Loan APR
In terms of KPI, business owners need to pay attention to their annual interest expense and APR of their loans. Many new lenders try to hide and disguise these numbers. You should do the math, and find out what you are really paying for your loans. - Ami Kassar, MultiFunding
