Business KPIs: How to define the right growth for your business

Business, in the simplest terms, is mathematics. Economics is what predominantly defines whether the business will succeed or not. While there are analytical tools to help you solve equations, you’ll be required to have a grip on a few essential business-critical calculations to serve your organization better. Popular as metrics or performance indicators, a knowledge of their basics will help you reflect on the progress of the company’s goals. To help you put your best foot forward, we have listed the necessary business KPIs you must be aware of. Have a look!

1. The Sales Revenue

Net Sales is what defines the revenue of the company. One of the primary business KPIs in our list, it is the blood of the firm and keeping a tab on it helps the company grow altogether. Usually monitored by the Sales team, revenue is what reflects your progress i.e., how much people are really interested in the products or services offered by the company. It also is a calculation of how well your efforts in marketing are paying off. Not entirely governed by one factor, there are multiple domains where the Sales team must tap into, like the previous campaigns, recent changes in the market, competitive actions required, etc.

How to calculate: Sum up the entire client based income and subtract the costs associated with undelivered or returned products.

2. Net Promoter Score

This is what sheds light on how much customers like your business. A one-question survey, the net promoter score gives you clarity on how consumers feel about the business. The one-liner question which defines the score and the likeability for you is: “How likely are you to recommend our business to your colleagues or friends, on a scale of 10, 10 being very likely?” It is essential to calculate this score for your firm to track your organization’s growth and the level of customer satisfaction. According to NPS, there are 3 levels:

Promoters: Lying in the range of 9-10, these are loyal customers who are enthusiastic. They will praise your firm and drive the sales of your company 

Passives: In the range of 7-8, these customers are satisfied but aren’t enthusiastic. They might leave when they find a better offer

Detractors: In the range of 0-6, these are disappointed customers. They will most likely spread negativity about your firm, thereby, damaging the brand image.

How to calculate: [[Detractors (score between 0 - 6) - Promoters (9 - 10)] / Total Number of Respondents] x 100.

3. The independent t-test

A bit more complicated than the others, this particular test has a wide range of real-world applications. One of the crucial business KPIs, the test is largely conducted to determine if the two sample means are statistically significant, or if the difference between the two means occurs merely because of a random error. The end result of the calculation provides a score which is called the “t-value”. This calculated value is compared with the critical t-value. If the results reveal that the t value is larger than critical, the difference in means is termed statistically significant.

Independent t-tests can be used when you are required to test two web pages to check which converts better. In this example, the independent variables will be the two page variants. The dependent variables, on the other hand, will be the conversion rates of the two pages.

4. Customer Acquisition Cost

Every drop counts when it comes to filling a pot of water. This reference is essentially made to reflect upon the fact that every small effort counts when a customer needs to be acquired. The calculations take into account all the expenses in regard to customer-facing roles which are required to win a new customer. The CAC is calculated by dividing the net cost spent on acquiring new customers by the total new customers acquired in a particular time frame.

How to calculate: The net CAC = (Total Sales Costs + Total Marketing Costs)/ Number of new customers acquired.

5. The Conversion Rate

Leads are when you attract users and customers to your business. All leads do not necessarily turn into clients. But if you have an active Sales team, who are willing to tap into potential clients, this wouldn’t be a problem. The leads-to-client conversion reflects the efficiency of the Sales team. It tells whether or not the leads are getting converted into clients. If they aren’t, you might have to check what’s lacking, with the Sales team. Also, evaluate your product’s performance in all. Your customers might not be impressed with what you’re offering.

How to calculate: The calculation of this KPI is simple. All you need to do is divide the number of monthly new leads with the monthly new customers.

Maths can be an uphill climb, difficult to comprehend and make use of. But the knowledge of a few basic formulae, the ones which define the essential business KPIs, can make calculations easier. The next time you find yourself in a fix, try resolving it with these handy formulae! With these by your side, you’ll not only have an upper hand at anticipating various aspects but will also be able to make better decisions. Good luck!