You may have a gut instinct about how well your company is doing, but unless you have a firm grasp of your numbers, it’s impossible to come up with a solid plan for how to grow your company. That’s where tracking financial key performance indicators (KPIs) comes in.
Essentially, a KPI is a metric that is linked to specific business objective or goals — preferably ones that drive key business outcomes. A business may have KPIs set in all areas, from finances to human resources. KPIs should be SMART, in that they should be specific, measurable, attainable, relevant, and time-bound.
A good KPI should also be simple enough that any employee can tell at a glance if you’re hitting your goals. For example, “make X sales calls per day” or “bring in $X revenue each month.”
The exact KPIs you choose will differ according to your company and your goals. If you’re looking for big business growth, we recommend tracking the five KPIs below.
5 Financial KPIs to Track
Monthly Recurring Revenue (MRR): The rate of recurring revenue your business brings in, broken down by month. Whether your business operates on a retainer model or simply has repeat customers and regular projects, track the estimated amount you regularly bill each month. Increasing your MRR is key to providing a stable financial base for your business.
Average Revenue Per Customer (ARPC): The average amount you make from each customer, broken down annually and monthly. Knowing this number helps you meet financial goals by understanding how many new customers you need to bring in to grow your business. Or, you may decide to turn your focus to increasing your ARPC in order to get even more revenue out of your existing customers.
Average Project Value (APV): The total value of the projects you did throughout the year, divided by the number of total projects. Tracking this KPI helps you see how much time and effort you’re spending on administrative tasks like invoicing in support of each project. Your goal should be to increase both your APV and the number of projects your company takes on.
Customer Acquisition Cost (CAC): This is how much it costs you to acquire one new customer. To get this number, add together everything you’re spending on marketing and advertising, staff hours spent on sales calls, meetings, and proposals, and time spent onboarding new customers. Then divide that by the number of new customers you brought in during that same period of time. Using your CAC as a KPI can help you become more efficient in your sales process and find ways to increase conversions.
Churn Rate: The percentage of customers that leave your business over time. Keeping your churn rate low helps minimize your customer acquisition costs and increases the time you can spend serving current customers rather than chasing after new ones.
How Can You Use these Financial KPIs?
Start by tracking your current numbers in these areas, then analyzing the results in order to set SMART goals to help guide your business. For example, you may decide to increase your APV by 10% over the next year, or increase your MRR by $2,000 a month in order to stabilize your cash flow.
Rather than chasing a range of goals, choose one or two main KPIs to be primary drivers of business growth, and make sure all the stakeholders in your organization are on board.
Need help tracking these numbers? At MBS Accounting Technology & Advisory, we help businesses optimize performance by providing the tools and software required for maintaining financial records and reporting on your key financial metrics. We know that each business is different, which is why our accounting solutions are tailored to each individual company’s needs.
Get in touch with the experts at MBS ATA today to learn more about how our accounting and bookkeeping solutions can help you track the numbers you need to help your business grow.