3 Crucial Marketing and Financial KPIs to Ensure Success
If you’re anything like most business leaders these days, you probably have to take a few deep breaths to steel yourself before looking at the numbers. As COVID-19 has spread across the globe, it’s become clear that companies face a challenging future.
In order to thrive, businesses must figure out how to do more with less. You’re going to need to call on your inner samurai and face the challenges with tenacity and grit—and if necessary, be willing to swing your sword at any underlying inefficiencies.
However, you can’t just make cuts. You need to make the right cuts. The “death by a thousand cuts” approach to restructuring sinks productivity and morale—which of course trickles down to customers.
If you want to be strategic about downsizing, you need to know exactly where inefficiencies are occurring and which areas are working. Essentially, you need to start measuring the right key performance indicators (KPIs)—ideally in a way that is precise and efficient.
As finances go, cash is always king, but in a recession, it is the emperor. Keeping cash on hand allows you to take the risks necessary to remain competitive in tight markets.
Simply tracking revenue is not enough, of course. A more impactful measurement comes when you evaluate the actual lifetime value and cost of your customer base—and the relationship between these two numbers. Customer lifetime value (LTV) is what it sounds like: the average value of a customer from the time they are acquired to the time they leave. To add context to this measurement, you should also calculate customer acquisition cost (CAC), which is what you spend on average to earn new customers.
Once you have these two numbers, you can assess the LTV to CAC ratio, which will give you a raw measure of profitability. In general, you should maintain an LTV/CAC ratio of at least two in order to ensure profitability. That way, you’re doubling every dollar you invest in marketing and sales.
This metric is no less important right now. But as your business moves into a recession mindset, assessing the actual value of individual marketing channels, products and services can make or break your cash flow, particularly as you consider which areas to continue to invest in and which to downsize. Uncertain markets can turn leads into a bit of a moving target. Being able to break down projects, services or tasks as a hard measurement of return on investment (ROI) lets you know where to throw your weight.
It takes more work to gain granular insights like these. But of course, if it’s too labor-intensive, it really defeats the purpose. This is where automated tracking of project time and expenses can be key. Richly-featured time tracking software helps businesses generate instant reports to use in performance and expense analysis.
Cost Control Metrics
In a promising economy, it’s easy to overlook extraneous expenses and waste. But when margins are narrower, controlling costs is key. It’s kind of like canceling subscription services when you’re looking to save money at home. That in-app subscription sounded good at the time, but now you realize you’re paying $3.99 a month for nothing.
Similarly, if team members are spending hours on work that doesn’t translate to revenue, it can add up over time. Being able to pinpoint precisely where labor time is going gives you a place to start as you work to streamline workflows and eliminate inefficiencies.
Breaking out departments, projects, and even employees by the revenue each generates can be a key indicator of the success of each. Time/activity-based cost accounting for these different categories produces a clearer picture of productivity and waste, to help optimize resource and personnel changes.
Lean business advocates like to use the 15-2-20 rule described in Stalk and Flout’s Competing Against Time: every 15 minutes per hour that you can shave off work processes effectively doubles productivity and reduces costs by 20 percent. However, to apply the rule, it’s essential to tie hours directly to various tasks and projects. Modern time tracking software allows you to do much more than simply log hours. In fact, the right software can help you take the labor out of extensive project management and resource allocation processes by tracking hours as they relate to different projects and steps in the workflow.
In times of economic instability, it’s good to have something you can count on. Recurring revenue—that is, subscription and recurring service fees, maintenance plans, renewals and so forth—is exceedingly valuable because it can be counted on in the next financial period with little or no additional cost to your company.
You could fill whole books (and many have done so) with what it takes to build a strong recurring revenue model. But here are a few basic metrics to get you started:
- Recurring revenue exit rate. This is the revenue that you know you’ll be able to get in the next month from the recurring service fees, etc. described above. This metric doesn’t include any added revenue from new sales, growth and so on, but it’s a crucial benchmark to use as you assess your company’s financial health.
- Recurring revenue proportion. To get some perspective on how recurring revenue factors into finances, you need to be able to express these earnings as a percentage of your total revenue. It’s easier than it sounds: you simply calculate what portion of your company’s revenue comes from recurring revenue models, whether from current customers or new sales. A bigger percentage usually means a healthier organization, although it can depend on what your company does.
- The growth rate of recurring revenue. You obviously don’t want recurring revenue to flatline, which is why you also need to be investing in — and measuring — revenue from new acquisitions. This metric helps you assess how much you are increasing recurring revenue year over year. It’s something investment bankers will weigh heavily when valuing your company.
Staying afloat in a recession takes resilience, but it can also be an opportunity in disguise: a chance to really hone in on where you’re spending your time and money.
If you are considering new tools to help you get an accurate picture of where your time and money is being spent, check out Journyx project time tracking software. Our richly-featured time tracking solution allows you to automate many burdensome time tracking processes and generate instant reports, offering crucial insights as you work toward a leaner, meaner, and more adaptive business model.