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Metrics that matter

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Metrics (also called Key Performance Indicators) are what you use to measure the the performance of every functional area of your organization; the things you do every day to create leads, make sales, provide your products and services, keep your customers happy, grow cash and make profits. We call this stuff “Business As Usual”. Once you determine the Metrics for every functional area, you should be able to distill a smaller subset of Metrics that you deem to be “critical success factors” - the most important drivers of your current operating model.

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Metrics that matter

  1. 1. Metrics That Matter Best practices based on research, combined with direct observations of thousands of RESULTS.com client firms Presenter: Stephen Lynch Role: Head of Strategy & Consulting at RESULTS.com Email: Stephen.Lynch@RESULTS.com Slides: results.com/slides Software Demo: results.com/demo
  2. 2. “However beautiful the strategy, you should occasionally look at the results” “However beautiful the strategy, you should occasionally look at the results”
  3. 3. RED = Unacceptable performance standard YELLOW = Watch closely. Problem? GREEN = Target performance standard Questions / Answers: #realKPIs || @RESULTSdotcom Tracking Metrics (Key Performance Indicators)
  4. 4. In the past, we used Spreadsheets
  5. 5. Now we use software
  6. 6. 92% of companies don’t measure KPIs [3]92% of companies don’t measure KPIs
  7. 7. 92% of companies don’t measure KPIs [3]
  8. 8. 92% of companies don’t measure KPIs [3]
  9. 9. Questions to identify your Metrics (KPIs) 1. What are the functional areas of our operating model? 2. What result or outcome are we looking for in each area? 3. What “activities” or “actions” drive this outcome? 4. What “effectiveness” measures let us know how well these activities are being performed?
  10. 10. Create leads Convert leads into sales Provide product-service Delight customers Grow cash make profit
  11. 11. # phone calls # appointments booked # sales demonstrations % who attend appointment % who buy (conversion rate)
  12. 12. Aim for the stars, even if you miss… you’ll still reach the moon
  13. 13. Questions / Answers: #realKPIs || @RESULTSdotcom
  14. 14. Create leads Convert leads into sales Provide product-service Delight customers Grow cash make profit
  15. 15. Metrics Questions What result or outcome are you looking for? What “activities” or “actions” drive this outcome? What “effectiveness” measures let you know how well these activities are being performed?
  16. 16. Functional Area Metrics (example) Functional Area name = SALES Performance Thresholds Metric Description Person Accountable Time period RED GREEN $ Sales Revenue Jenny Weekly $45,000 - $55,000 # Appointments Booked Jenny Daily average 20 - 25 # Sales Presentations Jenny Weekly 55 - 75 % Conversion Rate Jenny Weekly 50% - 60%
  17. 17. Goal Hierarchies (roll ups) (example) Functional Area name = SALES Performance Thresholds “Parent” Goal Person Accountable Time period RED GREEN # Sales presentations – total team Jenny Weekly 55 75 “Child” Goals Person Accountable Time period # Sales presentations - Jeff Jeff Weekly 15 20 # Sales presentations - Marie Marie Weekly 15 20 # Sales presentations - Sergey Sergey Weekly 15 20 # Sales presentations - Arzu Arzu Weekly 10 15
  18. 18. Choosing your Metrics Less is more. 4 to 6 Metrics maximum per functional area Choose Metrics you actually have data available for now Data automatically reported from software > Manual No data without a meeting. No meeting without data
  19. 19. Functional Area Functional Area name = MARKETING (Create Leads) Performance Thresholds Metric Description Person Accountable Time period RED GREEN
  20. 20. Marketing Metrics (sample) Outcome # Marketing Qualified Leads MQL = Leads that meet the qualifying criteria as being an ideal target market customer for your offering # Sales Qualified Leads SQL = MQL that are interested in your offer, and potentially "ready to buy" within the desired timeframe Activity # New Leads Total number of new leads being created by your marketing endeavors over the period # Impressions Total number of times an ad is displayed, whether it is clicked or not. # Emails Opened The number of users who open an email # New Subscribers Number of new subscribers to defined media content. # Webpage Visits Total number of unique visits to a webpage / landing page Effectiveness $ Cost per MQL Cost per MQL is calculated by dividing total marketing spend by the number of new MQLs generated. $ Cost per SQL Cost per SQL is calculated by dividing total marketing spend by the number of new SQLs generated. % Email Click Through Rate Email CTR = Percentage of users that clicked on a specific link. . % Advertisement CTR Advertisement CTR = Percentage of ad impressions that are clicked on % Webpage conversion Measures the percentage of visitors to a webpage / landing page that respond to your Call To Action. $ Cost per conversion The number of leads created by a marketing asset divided by the cost to deliver that item % Visitor bounce rate The percentage of visitors who enter the site and "bounce" (leave the site) rather than visit other pages
  21. 21. Goal Hierarchies Team / Functional Area = Performance Thresholds “Parent” Goal Person Accountable Time period RED GREEN “Child” Goals Person Accountable Time period
  22. 22. Functional Area Functional Area name = SALES (Convert Leads to Clients) Performance Thresholds Metric Description Person Accountable Time period RED GREEN
  23. 23. Sales Metrics (sample) Outcome $ Sales or # Sales The $ value of sales made over the period being measured. Sometimes measured as # orders or # units # New Clients The number of new clients signed over the period % Revenue vs. Budget Sales revenue as a percentage of the budget / forecast target for the period % Growth Typically compares last year's sales to this current year's sales over the same weekly or monthly period Activity # Calls Made The number of (verifiable) calls made with Sales Qualified Leads (SQL) in the period # Appointments The number of appointments / presentations / demonstrations made with SQL in the period # Proposals The number of sales proposals sent to SQL in the period $ Value of Proposals The value of sales proposals that are awaiting acceptance within the period $ Sales Pipeline value The estimated $ value of Sales Qualified Leads in the pipeline that are expected to purchase within the desired timeframe - based on existing SQL conversion rates Effectiveness # Days to close The average number of days it takes for Sale Qualified Leads to close % Sales conversion The number of sales closed as “won” as a percentage of Sales Qualified Leads during the period $ Average Sale Value The average amount spent by customers $ Upsells The value of sales made to existing customers during the period $ Cost of Customer Acquisition Cost of Customer Acquisition (COCA) is the average cost to acquire a new customer. It takes into account both the marketing and sales costs, divided by the number of sales made in the period.
  24. 24. Goal Hierarchies Team / Functional Area = Performance Thresholds “Parent” Goal Person Accountable Time period RED GREEN “Child” Goals Person Accountable Time period
  25. 25. Questions / Answers: #realKPIs || @RESULTSdotcom Single Point Accountability
  26. 26. Functional Area Functional Area name = OPERATIONS (Provide Product / Service) Performance Thresholds Metric Description Person Accountable Time period RED GREEN
  27. 27. Operations Metrics (sample) Outcome % Net Promoter Score Measure of customer satisfaction: “On a scale from zero to ten, how likely are you to refer us to another customer?”. To calculate NPS, subtract % of Detractors (0-6 scores) from % of Promoters (9-10 scores) from all survey responses. e.g. if 50% are Promoters & 10% are Detractors, your Net Promoter Score = 40%. % Customer retention Percentage of customers who remain customers during a given time period. It can be based on the % of customer accounts retained, or % of "existing customer revenue" that is retained % Customer churn The percentage of customers lost during a given time period. It can be based on the % of customer accounts lost, or % of "existing customer revenue" that is lost. In the case of revenue churn it is possible to have "negative churn" if upsells to existing customers exceed lost revenue from customers who terminate Activity # Produced / Delivered The number of items produced / number of services delivered # Billable Hours The number of hours that were billed to customers Effectiveness % Labor Utilization Hours that were allocated to billable client work as a % of total number of production labor hours available % Labor Costs Labor costs as a percentage of revenue. It includes all expenses associated with employees, including wages, insurance, taxes, and benefits # Project Schedule Variance PSV is a comparison of the budgeted # days to complete Work in Progress and the actual # days taken. If PSV is zero then the project was completed on time; if PSV is positive it shows an overrun (we took more days than budgeted). If the variance is negative it means we completed the projects ahead of schedule. % Return Rate Return Rate shows the rate at which products returned to due to damage or dissatisfaction # Rework Hours The number of hours fixing mistakes or redoing work that was rejected by customers. (And alternative measure is # Callbacks % Deliveries in Full on Time DIFOT is the percentage of deliveries that were received in full and on time over the period (this could also be applied to projects) $ Cost of Inventory on Hand Cost of Inventory on Hand shows the current cost of the inventory owned by the company in its various stages. The inventory stages are Raw Materials, Work-In-Process, Finished Goods, and In Transit. # Inventory Turnover Inventory Turnover shows the number of times inventory is sold or used each month during the period. Inventory turnover is also known as inventory turns, stock turn, stock turns, turns, and stock turnover.
  28. 28. Functional Area Functional Area name = CUSTOMER SERVICE Performance Thresholds Metric Description Person Accountable Time period RED GREEN
  29. 29. Customer Service Metrics (sample) Outcome # Customer Effort Score The Customer Effort Score (CES) is typically structured using a Likert Scale as follows: To what extent do you agree or disagree with the following statement: “(Your company name) made it easy for me to solve my issue” 1.Strongly disagree 2. Disagree 3. Somewhat Disagree 4. Neither Agree nor Disagree 5. Somewhat Agree 6. Agree 7. Strongly Agree. From there you can take an average of all the CES scores obtained over the period Activity # Support Tickets created The number of customer complaints / requests for support in the period # Support Tickets resolved The number of customer support tickets closed as “resolved” in the period # Average Response Time How quickly on average you responded to customer support requests in the period # Lost Customers The number of customers lost due to other competition, dissatisfied customers, or any other reason. Effectiveness # Average Time to Resolution How long, on average, customers have to wait from the time of their initial phone call (or support ticket) to when their issue is marked as “resolved” in the period % First Contact Resolution FCR is calculated as the number of customer issues solved in the first contact, divided by the total number of customer contacts in the period, expressed as a percentage. # Customer Callbacks Number of repeat phone calls / support tickets from customers within the (typically seven day) period.
  30. 30. What behavior will this Metric drive? Is there a darkside it were taken to an extreme?
  31. 31. Functional Area Functional Area name = FINANCE (Grow Cash + Profits) Performance Thresholds Metric Description Person Accountable Time period RED GREEN
  32. 32. Finance Metrics (sample) Outcome $ Cash Balance The amount of cash contained in company bank accounts $ Current Assets The value of all assets that can reasonably expect to be converted into cash within one year. $ Recurring Revenue Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) measures the predictable and recurring revenue components of your subscription business. Typically excludes one-time and variable fees. $ Customer Lifetime Value Customer Lifetime Value (LTV) assesses the average financial value of a customer. The present value of the future cash flows attributed to a customer during their relationship with the company # Average Subscription Days Average number of days customers have been subscribing to the product / service Activity # Days to close financials Number of "working" days to deliver the financial statements from the previous month Effectiveness $ AR Owed > 30Days The amount of Accounts Receivable $ owing that is 30 days past the payment due date % Gross Profit Margin Gross Margin measures difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments. % Net Profit Margin Net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes have been deducted from a company's total revenue. $ Cash Burn rate The additional capital that needs to be injected per month to finance operations. $ Cash Runway Amount of time until cash runs out, assuming current income & expenses stay constant. Calculated by dividing current cash position by the current monthly cash burn rate. $ Revenue per employee Divides revenue by the number of employees. Measures how efficiently a company is utilizing its employees. # Accounts Receivable days Also known as Debtor Days or Days Sales Outstanding (DSO). The average number of days it takes to collect revenue after a sale has been made # Accounts Payable Days Also known as Creditor Days or Days Payable Outstanding (DPO). The average number of days that your company takes to pay its suppliers # Inventory Days Also known as Days Inventory Outstanding (DIO). The average number of days it takes to sell your inventory # Cash Conversion Cycle The number of days cash remains tied up in operations. CCC = DIO + DSO - DPO
  33. 33. Critical Success Factors of Operating Model (example) Functional Area name = LEADERSHIP TEAM Performance Thresholds KPI Description Person Accountable Time period RED GREEN # Customers Chloe Weekly 2700 3000 $ Average spend per customer Rajesh Weekly $35 $40 # Complaints Rajesh Weekly 10 5 $ Revenue per available seat hour (RevPASH) Mark Weekly $12 $15 Labor cost as % of revenue Mark Weekly 35% 30%
  34. 34. - You are the CEO, and you are on holiday on a remote tropical island…. - All you can receive is a once weekly email that contains a small handful of numbers (5 max) that tell you how well your organization is performing - If the Metrics are “green” you can go back to reading your book - If the Metrics are “yellow” you need to ring the office to see what is going on - If the Metrics are “red” you need to cut your holiday short and return home - What 5 Metrics are the “critical success factors” for your organization? Imagine this…
  35. 35. Critical Success Factors of Operating Model Functional Area name = LEADERSHIP TEAM Performance Thresholds KPI Description Person Accountable Time period RED GREEN
  36. 36. Questions / Answers: #realKPIs || @RESULTSdotcom
  37. 37. “Leaders owe it to the organization & their fellow workers not to tolerate non-performing people in important jobs”
  38. 38. Metric In “The Red”? What’s happening here? What 1 thing can we do this week to improve this? What support do you need?
  39. 39. Accountability is meaningless without consequences What positive consequences can a person expect if their KPI is consistently in the “GREEN”? What negative consequences can a person expect if their KPI is consistently in the “RED”... For 1 month? For 2 months in a row? For 3 months in a row?
  40. 40. Metrics & Accountability: Getting it Right Growthinhibited by: - Wrong person in the role - Wrong Metrics (KPIs) - Too many Goals - Unrealisticperformancethresholds - Not keeping Goals and Tasks current and visibleevery week - Not running weekly team and 1-on-1 meetings to discuss results - Not holding each person firmly accountable for performance - No consequences for poor performance - Waiting too long to address poor performance Organizationgrowth maximized by: - Right person in the role - Right Metrics (KPIs) - Realistic“green” performance thresholds,adjusted regularly - Goals and Tasks kept current and visibleevery week - Weekly team and 1-on-1 meetings to discuss results - Each person held firmly accountable for performance - Good performance and progress praised and recognized - Poor performance discussedevery week and addressed promptly
  41. 41. ★ Metrics drive “business as usual” (your current operating model) ★ Don’t just track outcomes or currency measures ★ Focus on activity & effectiveness measures that drive outcomes ★ Make performance visible on a dashboard ★ Weekly team and 1 on 1 meetings to discuss performance ★ Good performance praise and recognize ★ Poor performance discuss every week, “What’s happening here?” ★ Shame is not a motivator. Beware setting thresholds too high ★ Be conservative in beginning. Get everyone used to winning ★ Ratchet up performance threshold over time ★ Adjust thresholds every quarter to ensure relevance Metrics (KPIs) - best practices
  42. 42. Thank you for your time!
  43. 43. Metrics That Matter Best practices based on research, combined with direct observations of thousands of RESULTS.com client firms Presenter: Stephen Lynch Role: Head of Strategy & Consulting at RESULTS.com Email: Stephen.Lynch@RESULTS.com Slides: results.com/slides Software Demo: results.com/demo

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