Key performance indicators, or KPIs, are metrics that tell us how well we’re progressing toward a goal. By setting, reviewing, reporting and periodically updating them, businesses can make smarter decisions. But which KPIs should you track? And how should you communicate them to your team? To investors? We asked our network for tips.
What KPIs should startups track?
“Every business and every team are different, so you’ll have to decide which KPIs are the most relevant to you. As a tech officer, I put a great deal of importance on process KPIs like on-time delivery, ticket resolution time and margins. I track, analyze and plan around these to build the best platform for our users and customers. Focus on important areas where you can make the biggest impact through decision-making.”
—Akram Assaf, co-founder and chief technology officer, Bayt.com
“KPIs are hard. Like any skill, [setting and using them] takes practice. There are two reasons: (1) KPIs force you to think precisely about the outcomes you want to create. (2) Measurement in general is intellectually difficult (though slightly easier with the right framework). KPIs are also a muscle that organizations develop over time. If the organization is new to the practice, or just not yet as disciplined as it could be, it should start with first principles and make sure everyone’s aligned on what good KPIs look like. I use these guidelines as a starting point.”
—Eli Holder, founder, principal, 3iap
“The best KPIs for tech entrepreneurs are activation rate, burn rate, cash runway and customer acquisition cost. Activation rate helps track the percentage of users who finish a definite milestone; it’s my best KPI-setting tip. Burn rate showcases how fast a startup is spending money and allows [you] to calculate cash runway and ascertain whether to cut budget or invest more in the business. Lastly, the CAC is the total amount you will spend to achieve one new customer.”
—Eden Cheng, founder, WeInvoice
“Gross margin, specifically for tech entrepreneurs, is a vital KPI. It examines the total cost you incur creating your product and the total revenue generated by its sale. Higher gross margins mean the production costs are relatively lower than the revenue generated.”
—William Cannon, CEO, Signaturely
“As a SaaS startup, we focus a lot on KPIs but we try to narrow them down to a few important ones rather than tracking everything. These are three we track:
- PQLs (product-qualified leads)—potential clients who have been close to purchasing and have a strong urge to try our product
- Organic traffic—this is one we work hard to increase each month
- Conversion rate on marketing materials—this tells us if our marketing strategy is working and whether people are converting from our calls-to-action. If our organic traffic is high (and increasing), are we getting more customers? If not, why?
“[These KPIs don’t] seem like much, but they tell me a lot about my company’s growth month over month and year over year.”
—Lindsey Allard, CEO and co-founder, PlaybookUX
“The list of KPIs a business should track depends on the operation and the end goals. Some of the more important indicators include conversion rate, gross margin ratio, customer acquisition costs, net profit, days sales outstanding and various levels of traffic, especially website traffic.”
—Karl Hughes, founder, Draft.dev
“The majority of KPI conversations begin with someone asking, ‘So, what might we measure?’ This is the wrong question. Hurrying to implement quick-fix KPIs leads us down a rabbit hole. We end up developing incorrect KPIs or we wind up with minor measurements that don’t help us make better judgments. Meaningful performance measurements begin with quantifiable objectives. Your objective must be stated clearly and precisely enough that you can see how you would recognize it when it becomes a reality. Determine if your present objectives are quantifiable, and then apply this formula to create measurable objectives.”
—Mike Chappell, founder, FormsPal
“The best marketing KPIs are based around demand generation instead of lead generation, because they allow you to better assess how well your marketing, content, website and social media are generating click-throughs and customers. The number of sales-qualified opportunities and their cost allow you to easily report (1) which prospective buyers have the highest chance of becoming new customers, (2) how much it costs to generate them. Those are two numbers any investor should be interested in.”
—Bryan Philips, head of marketing, In Motion Marketing
“We focus extensively on customer satisfaction, and hence we track KPIs regarding the same. Some we track are:
- Customer response times—the average time spent responding to a customer. This is particularly useful if you are segmenting customers according to value.
- New conversations—checking spikes in customer inquiries during specific times of day (especially over longer periods of time) helps you anticipate crunch times. This not only is helpful during the holiday rush, but also helps massively in planning vacations or working disruptions.
- Changes in ticket quantity. Just like for new conversations, the trends in ticket quantity can help anticipate and plan operations.
- Most-used workflow. Review workflows such as saved replies, SLA or automations to help eliminate trouble areas. When a certain command or task is used much more than others, it may be a bottleneck, an overused function or just a useful function that might open further opportunities.”
—Saurabh Jindal, CEO, Talk Travel
“Track your customer acquisition cost; it’s one of the most important metrics you should worry about. Make sure you also track the lifetime value of a customer, because it can help you decide how much you can spend on your sales and marketing efforts. Another great KPI to track is your net profit. It helps you figure out if your company is getting more or less profitable over the years.”
—Matt Barnett, founder and CEO, Bonjoro
“Business leaders should pay close attention to efficiency ratios, also known as cost-to-revenue ratios. There are a few different ratios out there; sales-to-inventory is perhaps the most basic. That’s a good place to start if you want a quick look into how your business is doing. Where you should look to forecast future growth is your sales-to-net-working-capital ratio. If you’re not increasing your sales while your cash and accounts increase or stay the same, you’re leaving money on the table and need to reallocate.”
—Nate Tsang, founder and CEO, Wall Street Zen
What are some KPI best practices?
“Pick one or two measurements that relate directly to each of your goals. While your company has numerous moving elements that are critical to its operations and profitability, keeping track of everything is impossible and inefficient. For one thing, not all metrics are worth keeping track of. Furthermore, measuring too many metrics produces extra effort that is ultimately ineffective.”
—Olivia Tan, co-founder, CocoFax
“Follow the SMART philosophy—KPIs should be specific, measurable, achievable, relevant and time-bound. Define trackable KPIs and focus only on them to avoid data overload.”
“Select KPIs carefully and avoid having an excessive number. What appears to work is the fewer the items, the better. I know people who operate businesses solely on the basis of two or three critical pieces of information.”
“Some best practices include making sure KPI goals are realistic; sharing KPIs with colleagues, peers and subordinates; incentivizing your team for hitting KPI milestones and achievements, and continually assessing KPIs and looking for improvements. Don’t forget to update and evolve KPIs with your business.”
“Assign accountability for each KPI. KPIs are a crucial tool for tracking success, but if someone is accountable for tracking and reporting on them, they are more likely to be implemented. An extra benefit is that the responsible party is more likely to want the action to succeed rather than tolerate poor results.”
“The best time to communicate your KPIs to your investors and your board is before you start tracking them. By doing it from the start, you ensure that everything is transparent, and you make it easier to see how you are progressing toward each of your goals.”
“Three tips: (1) Set up KPIs the team implementing and measuring them can easily understand. Difficult-to-measure KPIs or consistent modification of KPIs can cause frustration and lead to a lack of end results. (2) Set up a timeframe that is neither too small nor too large. If measured in smaller intervals, KPIs can lead to incomplete pictures, whereas too-long measurement intervals can lead to your missing out on trend changes. (3) Make it easy to understand the results through single dashboards, instead of moving between different screens. This makes it easy to consume and correlate the KPIs.”
“Involve your team, board and investors as early in the process as possible. KPIs are more effective when they’re co-created, [with] both top-down and bottom up [involvement]. Co-creation has two benefits: (a) more input leads to more robust, effective metrics, and (b) it’s much easier for your team, board and investors to buy in to KPIs when they helped define them.”
Which KPIs should you include in an investor pitch?
“Customer acquisition cost, customer lifetime value and profit.”
“Customer lifetime value is important to include. Highlighting how you’ll build loyalty to earn repeat business on the individual customer level helps show your business’s unique selling points. It can be difficult to establish this KPI early on, but the challenge is why it’s so essential. The more you strive to create a detailed CLV picture across buyer personas and the lifetime of your business, the more prepared you are to succeed.”
—Reuben Yonatan, founder and CEO, GetVoIP
“Customer acquisition cost, lifetime value, churn, annual recurring revenue, cost of goods sold, gross margin.”
“In an investor pitch you want to include KPIs that show the growth and potential of your company, and leave out any that are trailing, within reason. If you leave out something like your net profit, investors’ alarm bells will be going off. Customer acquisition costs, however, especially for an early-stage startup, might be inordinately high and worth leaving out of a pitch. You will get investors who want to dig deep and ask lots of questions, so if you omit something, you’d better be prepared with a response.”