Key Performance Indicators – forecasting and reviewing the right numbers
“A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets.” There is virtually no limit to the number of good Key Performance Indicators you can find. It really all depends upon the nature of your business and the industry you work in.
KPIs can have a direct impact on the bottom line and indirect KPIs can lead to creating Direct KPIs an example is no 8 in the list below, Website Bounce Rate or no 20 in the list below which shows the number of customer vs periods of time.Some examples of good direct KPI’s
(Key Performance Indicators‘s must be hugely business bottom line impacting.)
1 Gross Profit
gross profit or sales profit is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments. Note that this is different from operating profit (earnings before interest and taxes)
Gross Profit = Sales £ minus any Direct Cost
A direct cost can be something like cost of manufacturing a product or provision of a service
2 Gross Profit Margin
It is used to determine the effectiveness of your business in keeping production cost in control. Higher the gross profit margin, more the money is left over for operating expenses and net profit. Gross margin is the difference between revenue and cost of goods sold, or COGS, divided by revenue, expressed as a percentage.
Gross Profit Margin = (Gross Profit Divided by Sales £) x 100 = %
3 Operating Profit
It is the profit before interest and taxes.
Operating Profit = Sales £ minus your Operating Cost
Operating cost is the ongoing cost of running a business, product or system. It can include both direct and indirect costs.
4 Operating profit margin
It is used to determine the effectiveness of your business in keeping operating cost in control. Higher the operating profit margin, more the money is left over for net profit, expressed as a percentage.
Operating Profit Margin = (Operating Profit divided by Sales £) multiplied by 100 = %
5 Net Profit
Also known as net income, net earnings, bottom line. It is the profit after interest and VAT.
Net Profit = Sales Revenue – Total cost (this includes any direct and indirect cost + interest + VAT)[/vc_column_text][mk_toggle title=”READ MORE”]6 Net Profit Margin
Also known as profit margin, net margin, net profit ratio. It is used to determine the effectiveness of your business in converting sales into a profit. Low-profit margin indicates a higher risk, that a decline in sales will erase the profit and result in net loss.
Net Profit Margin = (Net Profit divided by Sales £) multiplied by 100 = %
7 Revenue Growth Rate
Also known as sales growth rate. It is the measure of the percentage increase in sales between two time periods.
Revenue Growth Rate = (Current month’s Sales £ – Last month’s Sales £) / (Last month’s Sales £) multiplied by 100 =%
8 Website Bounce Rate
Bounce rate (sometimes confused with exit rate) is an Internet marketing term used in web traffic analysis. It represents the percentage of visitors who enter the site and then leave (“bounce”) rather than continuing on to view other pages within the same site.
Website Bounce Rate = Total amount of visitors to your website divided by the number of visitors that left without exploring your site multiplied by 100 = %
This KPI would be more of an indirect KPI that could lead to an activity of understanding why the bounce rate is worst than last month or last year, that in its self would lead to a business sales changing activity and KPI.
9 Return on Investment (ROI)
It is used to evaluate the efficiency of your investment or to compare the efficiency of different investments.
ROI= (Gain from investment minus the cost of investment) divided by the cost of the investment
10 Customer lifetime value
It is the projected sales £ (repeat business) a customer will generated during his lifetime. Different types of customers have different life time value (LTV). One of the best ways to boost LTV is by improving customer satisfaction and therefore encouraging retention, customer stay with you. Average customer life span means how long he/she remains your customer.
(Average order value) multiplied by (The number of repeat transactions) multiplied by (The average customer life span in months/years)
11 Customer retention rate
It is used to determine how good your company is in retaining customers.
Retention rate is the ratio of the number of retained customers to the number at risk
Customer Retention Rate = [1- (Customers lost in a given time period/total number of customers acquired in the same time period)] x 100
12 Customer profitability score
This score is used to separate profitable customers from unprofitable customers.
Customer profitability score = Sales £ earned through a customer minus cost associated with customer’ management/service/retention
13 Cost per lead
It is the average cost of generating a lead.
Cost per lead = The total cost divided by the total leads
14 Cost Per Acquisition
It is the average cost of acquiring a customer or generating a conversion
Cost Per Acquisition = The total Cost divided by the total acquisitions
15 Sales £ Per Acquisition
It is the average revenue earned through an acquisition
Sales Per Acquisition = The total Sales £ divided by the total acquisitions
16 Per Visit Value
It is the average value of a visit to your shop, your business or your online shop.
Per Visit Value = The total Sales £ divided by the total Visits
17 Conversion Rate
It is the percentage of visits which results in goal conversions or e-commerce transactions.
Conversion Rate = (The total Goal conversions divided by the total number of Sales £ transactions divided by total visits) multiplied by 100 = %
18 Average Transaction Value
It is the average value of an e-commerce transaction. Through this metric, you can measure how effective your upselling and cross-selling efforts are and whether you are helping people in finding the product they are looking for.
Average £ transaction value = Total Sales £ divided by total number of transactions
19 Website Task Completion Rate
It is the percentage of people who came to your website and answered ‘yes’ to this survey question: “Were you able to complete the task for which you came to the website?”
Task completion rate = (the number of people said ‘yes’ to the survey question divided by the total number of survey responses) multiplied by 100 = %
20 Customer Count Trends
This is the percentage of people who actually visited your business in shop or online or made an inquiry on the telephone etc.
Customer Count Trends = The number of customers this month/year minus the number of customers last month/year divided by 100 ”