As a business owner, potential or current investor or anyone observing the business from the outside, the only way you can monitor the health of a business is by tracking the key metrics of that business.
Why?
+ It is the only quantifiable way to understand the progress of a business or the lack of it
+ Numbers do not lie and when the measure is standard it gives a clear picture rather than fooling yourself
+ If you want to understand where you stand amongst the competition, the easiest way to do it is by comparing key metrics
+ Overall business and functional reviews take lesser time so that you can focus on what’s essential and reviews are not held as a matter of checklist
+ Creates a unified language of communication within an organisation
+ Helps zero in on the problem area/ improvement opportunity in a business or a specific division
+ Businesses who are in their journey of raising capital can clearly highlight the strengths to their potential investors
+ Very critical for strategy decisions for the KMP of the company
What?
There are no obvious one size fits all answer for this. Metrics vary based on the sector, product, stage of your business and to whom the business is reporting the metrics, amongst others. There are probably 100+ metrics that exist in the world of business which is important to understand. Following are some examples but not an exhaustive list by any measure.
> E-Commerce: CLTV, CAC, Bounce Rates, CRR, GMV
> FMCG: BTL & ATL, AOV, Sales mix,
> Tech Services: Sales Cycle, Cash runway, Bench strength, Utilisation & Productivity
> Manufacturing: Payback period, IRR & XIRR, Gross Margin,
> Healthcare: Per X, Ratios of liquidity & Profitability
While the above are some examples for a business overall, metrics can further be split into the ones that matter to specific lines of business in an organisation, business functions and so on.
As a functional marketing leader, one could be tracking bounce rates & NPS while your peers leading the revenue function could be tracking metrics like AOV & Take rate/ Commission.
When?
Metrics for a business are important from the get-go. You are never too early or too late to monitor the important factors that quantify your business.
One of the common mistakes founding teams make is the dashboard to track metrics isn’t dynamic or is post-mortem in nature. From our experience metrics are never static. The importance of each metric changes over a period of time throughout the lifecycle of the business. It is important to have annual operating models that define this and break it down further into quarters to get a realistic number.
When you use a time period to define a metric, it has to be standard across communication to all stakeholders.
