You always need to know your numbers. Investor’s need to know the KPI’s to decide whether or not to invest, and entrepreneurs need to know them in order to run a successful startup and to pitch to investors.
What are KPI’s?
KPI’s are key performance indicators, which measure the progress towards a goal versus an objective, such as financials, customers, process, or marketing, to name a few.
In order to set out KPI’s, the goals should be SMART: Specific, Measurable, Achievable, Relevant and Time Bound.
Types of KPI’s
There are quantitative indicators, and qualitative indicators. Quantitative indicators is what comes to mind when the word “KPI” is discussed, they are objective and measured by a unit or value, and the results are reported in percentages, figures, ratio’s. However, qualitative indicators are far more subjective, but can give you a very different perspective, as they are coming from people’s experiences, such as customer satisfaction
Below are a list of frequently used KPI’s..
Financial KPI’s
- Revenue Growth (YoY, MoM)
- Net & Gross Profit Margin
- Product Turnover Ratio (how quickly inventory sells)
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
Customer KPI’s
- Customer Aqcuisition Cost (CAC)
- Churn Rate
- Average Cart/Sale Size
- Customer Satisfaction
- Website Traffic
Process KPI’s
- Percentage of Product Defects
- Customer Support Tickets
Marketing KPI’s
- ROI on Ads
- ROI on Influencer Campaigns
Why Are KPI’s So Important?
They show whether or not the company is on target to reach the goals set out, the financial health of the company, and it also reveals what is not working, so that the team can pivot and make strategic changes where necessary.
From an investor stand point, KPI’s are the main determining factor on whether or not to invest in a startup. If you are new to private equity, understanding them will help you to assess the health of a startup.
From a founder stand point, KPI’s help you to determine which strategies to pursue to ensure the objective of specific goals are being met. The metrics will reveal whether or not the company’s financials are in good health and where you may need to be more frugal.