business man looking at management KPIs on a tablet

KPIs that every manager should use

visual management KPI example of the customer acquisition costs

CUSTOMER ACQUISITION COST

How much does it cost you to sign up a customer?

The CAC or Customer Acquisition Cost is a crucial management KPI for your business, both for your company and for investors. It represents all the costs incurred to convince a prospect to buy a product or service, and thus turn him into a customer. These costs vary greatly according to your business industry and function – an online marketer will include all the campaigns costs, while a SaaS company will add up the staff wages, the sales and marketing costs. For subscription-based business models it is often recommended to cover back the CAC within one year of a customer acquisition, or it will burn all your capital before you can even depend on monthly recurring revenues.

Performance Indicators

Like in our visual management KPI example on the right you should track the development of your CAC over time. Set a concrete target and try to decrease your CAC steadily over time.

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chart showing one of the most important management metrics: the customer lifetime value (CLV)

Customer Lifetime Value (CLV)

How much money will you get from a customer over the course of your relationship?

The CLV is a prediction of all the value that will derive from doing business with a customer. The problem is we never know how long a relationship will be, so it is better to make a good estimate and state the CLV as a periodic value: this customer’s 6, 12 or 24 months CLV is of that amount. To calculate this sales related management metric, you need to distract the CAC of the total amount of revenue you expect from that customer over that period of time. The CLV also lets you know how much money you can allow for your CAC to still be profitable. This is a metric important to track: the longer you manage to keep customers paying, the more revenue you will make.

Performance Indicators

Increasing your CLV over time is critical for a successful business model. That’s why it is one of the most important management metrics to track.

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chart to track your sales targets in detail

Sales Target (Actual Revenue vs Forecasted Revenue)

Check if you are on track with your sales targets

One of the main priorities, after planning and forecasting, is to actually check where you are regarding these goals: did you exceed the sales targets, or on the contrary are you lagging behind? What are the reasons? Did you take all the different factors into account when forecasting these sales targets? Understanding all of this will help you know where you stand, what you can improve and identify outliers from trends. It also helps the management to forecast more accurately in the future. Thanks to that information, you are well prepared and you see if your team is doing what they should, if they need help or if you should squarely rethink the whole strategy.

Performance Indicators

Your goal is to naturally exceed your sales target, meaning you did even better than expected.

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chart showing the developement of the operating profit margin percentage over time

Operating Profit Margin Percentage

How effective are you at creating profit on each dollar of revenue generated?

Also know under the acronym of “EBIT” (Earnings Before Interest and Tax), this financial related management KPI represents the Operating Profit as a percentage of the total revenue. It says how profitable your business model is, and shows what’s left from your revenue after you pay all the operational costs (raw material, wages, etc) – but it does not include the revenue you can earn from the firm’s investments nor the effects of taxes. It also tells about the efficiency of controlling the costs and expenses associated with operations. The EBIT can be simply calculated by dividing the operating profit by the sales. It is expressed as a percentage of sales. Monitor your EBIT on a constant basis to react as soon as you see drop and investigate the reasons behind.

Performance Indicators

The higher your operating income, the more profitable you are – and the more reliable you become for investors.

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Gauge Chart showing one of the most important management KPIs: the net profit margin

NET PROFIT MARGIN

Track your net profit by analyzing your bottom line

The Net Profit Margin is a profitability ratio. It measures the percentage of profit you made after deducting all the expenses, interests, depreciation and taxes from the revenue. You can calculate it with this formula: Net Income x 100 / Total Revenue. This is one of the most closely tracked management KPI because it says how good your company is at converting revenue into profits. Shown as a percentage of sales, it can be sued to compare different companies so as to see which one is better at turning sales into profit. This is both a standard of efficiency and overall business health: companies generating more profit per dollar of sales are more efficient and more likely to survive troubles, a product launch failure, or a period of economic contraction.

Performance Indicators

The higher the net profit margin, the better. Monitor this financial metric to spot any moment of decline and understand what lies behind – a drop in sales, unsatisfied customers? – and fix it ASAP.

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chart showing the developement of the return on assets (roa) over the last 5 years

Return on Assets (ROA)

How efficiently do you use your company’s assets to generate profit?

The ROA or Return on Asset is a type of return on investment (ROI), that calculates the profitability of a company relatively to its total assets. This management KPI example shows how well a company is performing by comparing the profit it generates to the capital it invests in various assets. The assets of a company include both debt and equity, that you take into account when calculating the ROA by dividing the net income by the total assets. A good indication is an increasing ROA, meaning that the company is earning more money with the same account of assets, or that it generates equal profits but with less assets. ROA is a metric that investors like because it gives them an idea into how well your business uses its assets to generate net income.

Performance Indicators

The higher the ROA the better. You can perform a benchmark of other companies in your industry and compare yours against them.

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visual represantation of an important finacial management metric: the return on equity (roe)

Return on Equity (ROE)

Measure the profit you manage to produce with your shareholder’s investments

The ROE or Return on Equity evaluates the amount of profit your company can create for its shareholders. You can calculate it by dividing your net income (minus dividends to preferred stocks) by the shareholders’ equity, excluding the preferred shares. The shareholders equity is a product of accounting: it represents the difference between total assets and total liabilities. The ROE measures the profitability of your business by showing the profit you can produce with the money shareholders invest. It is usually used to compare companies within a same industry, by looking at the profitability of investing there.

Performance Indicators

A high ROE means that you are more likely to generate cash internally. So the higher, the better for your shareholders.

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chart showing the development of the P/E Ratio in comparison to the industry benchmark

P/E Ratio

Measure how your business is valued, in comparison to your competitors

The Price to Earnings ratio is a common management metric used to value a company, by calculating its current share price relative to its EPS or Earnings per Share. Put simply, this ratio indicates the amount an investor can expect to invest in a business, in order to receive one dollar of that business’ earnings. The P/E ratio is used to measure the valuation of a share and compare it to the industry average or to the shares from competitors. This comparison should however only be made on companies within the same industry, as business models vary significantly. You can calculate it as the market value per share, divided by earnings per share.

Performance Indicators

As stated earlier, it varies greatly between business models and industries. Try to stay better than your industry average.

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