There’s an old saying: You can’t improve what you don’t measure.
It’s pretty simple: if you don’t keep an eye on something, you can’t be sure if it’s getting better or worse. If you’re uncertain as to where a product or service stands, how can you manage it? This is where the importance of metrics comes in.
As venture capital advisors who invest in expansion stage software companies, OpenView spends a tremendous amount of time working with founders, CEOs and their management teams on business growth strategies. One of the foundational strategies we employ with all companies is the need for business management to use the right metrics or key performance indicators (KPIs).
So what are these metrics and why should you care?
Establishing Your KPIs
Your KPIs are the metrics against which your organization’s performance will be measured and improved. In order to create these metrics, you first need a strategy map of your group, including your core values, managerial and operational strategies and your economic model for growing the business.
The reason you’ll want to create a strategy map is to ensure that during the process of creating and measuring KPIs, you target most important aspects of your economic and organizational model. To be effective you should make sure that all the key operational areas of the business are measured. This means not just sales and marketing but also development, product management, customer service, finance and consulting services if appropriate for your business model.
From there, you set SMART goals for each operational area. SMART stands for:
S – specific, significant, stretching
M – measurable, meaningful, motivational
A – agreed upon, attainable, achievable, acceptable, action-oriented
R – realistic, relevant, reasonable, rewarding, results-oriented
T – time-based, timely, tangible, trackable
As part of your annual planning process you should create a set of annual SMART goals for each operational area of the business. You should be careful not to have more than 2-3 SMART goals for each operational area and they should be prioritized in order of most important. Once you have set up your annual SMART goals at the beginning of each quarter you should set up the quarterly SMART goals for each operational area to focus on achieving during that specific quarter that help you make progress against your annual SMART goals. This will allow you to measure your progress each quarter and help the management team assess whether or not you are on target to make your annual goals as the year progresses. SMART Goals become your quantifiable objectives and leverage your KPI’s for measuring success and improvement.
KPIs will be different depending on your focus. For instance, if you’re dealing with lead generation services and your sales team, your KPIs may be based on calls, conversations, and generated opportunities. Notice how specific those goals are— They are structured so that success or failure is a binary. You either achieve them or you don’t. There are no grey areas.
Measuring Your KPIs
Measurement is as important as the KPIs themselves, as it will identify where you are underperforming and need improvement as well as where you may be over performing and allow you to raise the bar and incrementally invest more resources to scale your business more efficiently. You’ll be able to compare and contrast performance against other employees or services, and from those conclusions build a high water mark that all should strive for.
You should make sure you have the right processes in place to capture your KPI’s in as automated a fashion as possible, The more manual this process is the less accurate and more of a burden on the business it becomes.
Why Metrics Matter
Barry Trailer over at CSO Insights—a blog you should check out regularly—illustrates the importance and impact of measured metrics in a post about Sales Performance Optimization. In his writing, Trailer presents data to sales management about how having accurate and timely metrics can improve the workforce. The charts speak for themselves.
In the first graph, it’s evident how much management can benefit from accurate and timely metrics. In every single area—from sharing best practices, identifying reps who need further training, to creating accurate sales forecasts—managers who have relied on metrics have vastly exceeded expectations and propelled themselves forward.
Trailer then takes the data down one level in the chain of command and shows us how helping a manager helps the sales force as well—especially in the area of reps differentiating themselves from the competition. Again, the compiled data stands for itself.
A site about building operations management also draws a picture about how metrics make a difference. The manta “Measure, Improve, Repeat” rings true in the detailed and compelling examples provided.
But it’s not just about sales and management—metrics can make an impact in every area of your business, from finance to product development to customer care to marketing
Broadcasting Your Measurements
Now that you have your data, what are you going to do with it? Don’t keep it a secret—share it with the entire organization. Create a nifty chart in Excel or blast an e-mail to your team. Set an example of productivity, raise the standards, and show how rewarding it can be to exceed expectations.
Make sure your process and results are clearly explained to everyone you’re sharing with—you don’t want to lose people along the way. The more people understand how measuring metrics have improved your business and the work of others, the harder they’ll try to meet those new-found standards and surpass them.
For an in-depth look at KPIs related to SaaS, check out Konstantin Valchev’s series of blogs:
- Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – CHURN RATE
- Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – COMMITTED MONTHLY RECURRING REVENUE
- Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – CASH
- Key Performance Indicators (KPIs) for Software-as-a-Service (SaaS) Companies – Customer Acquisition Cost Ratio (CAC ratio)