We know that good management is a determining factor for every company, but high performance is just as important. Building effective performance management to keep a company healthy is no easy task, is it? So, check out this content on KPIs to learn valuable tips on how you can implement these indicators.
Performance management is the methodology based on performance indicators, known as KPIs – Key Performance Indicators. Thus, by using it, one may measure the efficiency and effectiveness of all internal processes by being able to identify their failures, so you can thus assist with your strategic planning and also with immediate decisions, for example.
In other words, it enables the continuous improvement of results, which makes it easier to achieve established goals and objectives .
But before we actually know which KPIs are essential for every business, let’s understand the main difference between the types that exist.
Types of KPIs
The first difference you need to understand about KPIs is the difference between volume metrics and efficiency metrics. One of the biggest mistakes when analyzing KPIs is to only look at one metric or the other. In these cases, there is a high chance of interpreting data incorrectly. Understand this with the example below:
The increase in the number of visits to your website is a metric of volume, but this does not mean that the layout change made to your page is perfect or that you are following a minimum level of quality. Other variables may have influenced this type of event, such as another influential website mentioning you and, consequently, the number of visits increasing.
To test whether the layout change was successful, look at the efficiency metrics alongside this volume metric, and run an A/B test.
For example: The total volume, the absolute number of hits, will not provide this answer. However, if you compare the number of conversions, such as registrations on your email list, between the old version and the current site, it will indicate more precisely whether that change was positive or not.
Just as it is not enough to look at sales volume or revenue to know if a launch was successful. You also need to evaluate costs in order to calculate profit. Especially the cost per user, which is a very important KPI, especially for digital businesses, which establishes a target for the maximum cost of acquisition per customer. After all, there is no point in spending R$200 to acquire a customer who will generate R$100 in revenue, right?
Therefore, volume metrics are understood as absolute numbers, that is, those measured in quantities. The efficiency metric corresponds between the results obtained and the resources employed.
Now that we have made the difference between these two types of metrics clear, let’s look at the essential KPIs for evaluating your business.
Essential KPIs for every business
We know that good management is a determining factor for every company, but high performance is just as important. Building effective performance management to keep a company healthy is no easy task, is it? So, check out this content on KPIs to learn valuable tips on how you can implement these indicators.
Performance management is a methodology based on performance indicators, known as KPIs-Key Performance Indicators. Using this method, the efficiency and effectiveness of all internal processes can be measured, possible failures identified; therefore, possible assistance in strategic planning and real-time decision-making, for example.
In other words, it enables the continuous improvement of results, which makes it easier to achieve established goals and objectives .
But before we actually know which KPIs are essential for every business, let’s understand the main difference between the types that exist.
Types of KPIs
The first difference you need to understand about KPIs is the difference between volume metrics and efficiency metrics. One of the biggest mistakes when analyzing KPIs is to only look at one metric or the other. In these cases, there is a high chance of interpreting data incorrectly. Understand this with the example below:
The increase in the number of visits to your website is a metric of volume, but this does not mean that the layout change made to your page is perfect or that you are following a minimum level of quality. Other variables may have influenced this type of event, such as another influential website mentioning you and, consequently, the number of visits increasing.
To test whether the layout change was successful, look at the efficiency metrics alongside this volume metric, and run an A/B test.
For example: The total volume, the absolute number of hits, will not provide this answer. However, if you compare the number of conversions, such as registrations on your email list, between the old version and the current site, it will indicate more precisely whether that change was positive or not.
Just as it is not enough to look at sales volume or revenue to know if a launch was successful. You also need to evaluate costs in order to calculate profit. Especially the cost per user, which is a very important KPI, especially for digital businesses, which establishes a target for the maximum cost of acquisition per customer. After all, there is no point in spending R$200 to acquire a customer who will generate R$100 in revenue, right?
Therefore, volume metrics are understood as absolute numbers, that is, those measured in quantities. The efficiency metric corresponds between the results obtained and the resources employed.
Now that we have made the difference between these two types of metrics clear, let’s look at the essential KPIs for evaluating your business.
Essential KPIs for every business
Each type of business requires the analysis of specific KPIs, but at least four of them are important for all areas.
1. Revenue and Profitability
The first is revenue. This KPI is the most important of all, because it is the oxygen of your business. You need to know exactly how much revenue your business generates and, of course, how much profit it generates. And you must be wondering: “And how does this relate to the metric?” Let us explain!
Revenue is the sum of all amounts obtained from the sale of products and/or services, monthly or annually, in a given period. In other words, it is capable of evaluating sales performance and shows whether the company is able to generate enough cash to cover all expenses and make a profit. In addition, we need to pay close attention to two points when we talk about revenue:
1. Gross revenue: is the business’s turnover, that is, all profits from sales;
2. Net profit: is the turnover after deducting taxes, duties, fees, expenses and costs. In addition to returned products and canceled purchases.
Net profit = Total revenue – Total costs and expenses x 100
In this way, profitability indicates a company’s gain in relation to its activity, which makes it possible to verify the health of the business.
2. ARPU – Average Revenue Per User
ARPU stands for average revenue per unit. The term “unit” in the acronym also refers to “user”. In other words, it indicates the average revenue that a customer brings you through all their purchases in a given period. Therefore, you need to pay attention to the number of customers and how much revenue each customer generates.
The calculation is simple: Total monthly revenue/average of the total number of customers you have in a given month or period + the number of customers/number of months
It is worth noting that if your ARPU is higher than your acquisition costs, you may have problems. Customer acquisition costs should always be lower, as your company will not be making a profit on your revenue.
The main purpose of this KPI is to measure the company’s performance for each customer and as a thermometer to accurately identify positive and negative trends in its services or products.
3. ROI – Return on Investment
ROI, Return On Investment, is a metric that shows how much you are profiting or losing with each investment made.
The formula for this KPI reveals the gain or loss obtained to cover the costs involved in the application. The calculation is very simple. Check it out below:
ROI = (Gain Obtained – Investment Value) / Investment Value x 100
By performing this calculation, you can measure the return on the value invested in products, services, campaigns, training and any company activity.
With this in mind, ROI also serves as a parameter to compare your return with that of other companies in the same segment in the market. In other words, it is based on KPIs that we can check how your competitors are positioned in relation to capital.
4. Sales funnel conversion into KPIs
Keep an eye on this KPI, it is responsible for measuring the ability of a visitor to become a lead and of a lead to become your customer.
The conversion rate indicates how well the sales process is being controlled. It is through this that we can identify whether the operation is healthy or not, in addition to helping to discover specific problems that occur during the lead’s passage through the funnel. In other words, it indicates actions that should be taken to improve the business’s sales strategy.
The calculation is made based on opportunities and sales made, as follows:
Conversion Rate = Total Sales/Opportunities Generated
To get the value as a percentage, simply multiply the result of the calculation by 100.
The sales conversion rate is one of the essential KPIs for your business. Even if you have a physical business but a large online presence , you also need to pay attention to this data.