Is KPI tracking part of the day-to-day accountability in your startup? If not, you could be missing out on essential feedback to help you hit your targets.
Startups have a monumental task ahead of them. They not only have to make their product work, but they also need to grow as a business and, above all, become sustainable.
The startup team then comes across a situation where they have to deal with massive amounts of decisions that can be time-consuming. These decisions can take away their bandwidth from developing the product or procuring additional funding to finish creating the product.
This is where having a relevant set of KPIs to track and measure comes in handy. Key Performance Indicators (aka KPIs) are individual metrics that move your company toward main objectives.
- Example: Cash flow is a good KPI for financial health. If you’re trying to improve profitability or cash on hand, track cash flow every month to gauge if you’re on track.
aid decision making, for more streamlined and significantly less time consuming since you can use your KPIs as a framework to make decisions.
This article will give you an overview of how to start tracking KPI so that you can keep your startup on track to meet its goals.
Step One: Set Your Goals
Goal setting is the first step to making sure you start tracking the correct KPIs. It’s critical to make sure that you prioritize keeping track of the KPIs that actively help you reach your goals. That’s because many startups get caught up chasing so-called vanity metrics, that although nice to have, actually end up doing very little to move your business forward.
An example of vanity metrics are social media likes and follows. Even though they can be essential for some startups, likes and follows don’t translate to the vast majority’s actual revenue growth.
Here are a couple of frameworks that can help you determine critical KPIs.
- OKRs: OKR stands for Objectives and Key Results. This is a framework that businesses of all sizes have adopted to help them reach their goals. One of the most high-profile users of this framework is Google. The concept behind this framework is to allow you to be more dynamic in keeping track of the handful of Key Results that will take you closer to your goals. This focus in attention can help pinpoint which KPIs are the right ones for your startup.
- MBO: Management by Objective is a developed methodology from the 1950s but remains a valuable tool for many businesses. It’s a top-down way of setting goals for each department and functional unit within a company to stay on track with its growth targets.
Resource: Here is a more in-depth article on how your startup can implement OKRs.
Step Two: Determine Your KPIs
Now that you have clarity in what your goals are and how you’ll reach them, you can start tracking the KPIs that support said plans. Analysis paralysis or choosing too many KPIs to focus on can almost be as detrimental as not keeping track of them at all.
- Cost per acquisition: This metric helps you keep track of how much you need to invest in acquiring a new customer. This metric enables you to track your efficiency and project your growth based on your current financials.
- Churn rate: Churn is the rate at which you lose customers. Ideally, you can keep your customers for life; however, this is unlikely to happen. Churn lets you keep track of how quickly you’re losing customers and create an initiative to manage this KPI.
- Revenue per employee: This KPI helps you keep track of how much revenue, on average, each employee generates. It’s a great indicator to forecast how many employees you need as well as your profitability.
- Run rate: Run rate is a measure of how much time you have left to become sustainable with your current funding. It’s a great metric to keep track of when you’re in search of new investment rounds.
- Burn rate: Burn rate complements run rate by keeping track of how quickly you go through your funding.
Step Three: Pick a Reporting Solution to Keep Up with KPI Tracking
Long gone are the days when you would have to manually crunch numbers or spend countless hours staring at spreadsheets to get your KPIs. Today you have at your disposal an ever-growing amount of dashboard apps that integrate with your financial and production apps that make bringing your business’s intelligence fast and efficient. The best thing about today’s financial app landscape is that there are apps for every segment, including startups.
Here are a few that can help every startup track their KPIs much more efficiently:
- Chargebee: This app is excellent for SAAS startups. It makes keeping track of monthly subscriptions and recurring payments much more efficient.
- Divvy: It is a tool that integrates with your accounting software to keep track and manage all your business expenses.
- Float: This tool is a financial forecasting app that can provide you with real-time cash flow updates, scenario planning and affordable pricing.
- Quickbooks: Quickbooks is one of the most comprehensive accounting and financial management suites available today. It has different tiers that go from solopreneurs to enterprise-level, so you’ll indeed find a plan that makes sense for your startup. Additionally, it can integrate with just about every financial app there to build your KPI and reporting app ecosystem to fit your needs.
- Profitwell: The team at Profitwell understands subscription-based services, and how to improve revenue in that category. It’s a fantastic free tool, and their “Pricing Page Teardown” videos are a great resource.
Resource: Here’s another article that goes much more in-depth on the subject of building a financial tech stack.
In conclusion
KPIs have become a necessity for every business and startup because they help you get data-driven feedback on the decisions you make. This removes the guesswork and gives you confidence that you are steering your business in the right direction.
If you need help on setting up your financial KPIs or if you want support from an entire team of financial experts that have experience in helping startups, schedule a free call here.