The KPIs you choose for your company today are not necessarily the same you would choose in a few years. Your business is constantly changing, and hopefully growing, so the metrics that best represent the business and its core components will change as well.
Consider this abstracted view of the growth trajectory of a company:
During each 10x increase in the size of the business the KPIs will change to reflect the business. Let’s consider a software company starting from nothing (zero) through each of these stages and the most important KPI they would track:
|0-1x||Customer growth is the only thing that matters, because the business has no customers to start with and needs to grow fast enough to survive.|
|1x-10x||Customer retention becomes critical so that the company doesn’t lose customers faster than it adds new ones.|
|10x-100x||Margins become the critical factor as growth and retention are running well, and the question becomes how profitable each customer is for the business.|
|1000x+||Customer Growth once again becomes the most important metric, as the business has proven to be a strong profit engine and the biggest question is how big that engine can become.|
You see this progression every year with new companies that launch, grow and go public. To ensure that you are using the current KPI to measure your company you need to revisit them consistently. Here are some common times when it makes sense to re-evaluate your KPIs:
- Before your business planning process, either annually or quarterly.
- After launching new product lines or changing the pricing on your existing products.
- Whenever you enter a new market.
- Before raising new capital for your business.
There is a balance between evaluating your KPIs too often (distracting) and too little (misleading). You will need to find the right balance for your company.
In Review: Your KPIs are the most important metrics about your business, the ones you will check everyday. Choosing a small number of high quality metrics that capture the biggest drivers of your business is a critical decision. The best place to start is your vision, which will help you choose the best KPIs.
Quote of the Day: “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” — William Arthur Ward