For every company, key performance indicators and business reports are like GPS data for someone walking or driving around. With GPS data you know exactly where you are, just as key performance indicators show a company the state it’s in and where it’s located on its business path. Moreover, if you don’t have a map and a route planning device, GPS data won’t tell you where exactly you’re supposed to go, just as key performance indicators don’t tell a company what it has to do in the future. But if you know where you are and where you want to go, you’ll find the path much easier.
Companies have to monitor their business operations at two levels – at the level of the entire company and at the more detailed level of individual areas of the company’s business operations. While a company may entrust the preparing of business reports at the level of the entire company to services such as SASH reporting, it usually has to provide more thorough supervision of individual areas of its business operations by itself.
Key performance indicators (KPIs) at the level of the entire company include e.g. (source: SASH reporting – www.sash-reporting.com):
- Types of costs
- Changes in costs
- Margin and margin percentage
- Receivables turnover ratio
- Outstanding balance
- Quick liquidity ratio
- Cash flow
- Employee utilization
- Revenue per customer
- NPS (net promoter score)
At a more in-depth level of monitoring business operations, indicators of the sales or marketing sales funnel are among the key ones. These indicators enable a company to analyze its marketing and sales processes, thus considerably increasing its sales and, consequently, its performance. These indicators inform a company how it can conduct successful business in the future – mainly because good knowledge of the sales funnel means that a company knows what it can expect as the end result in the future, based on today’s input data and intermediate results.
The sales funnel is a sales process that consists of three parts:
- Visitors – first, a company tries to present its offer to the largest possible number of potential customers; in the case of a website, such customers are website visitors – and the company tries to bring as many real potential customers as possible to its website
- Leads – the visitors that actually show an interest in the company’s offer become leads; they may show their interest by inquiring about a specific offer, by giving their details to gain further information, etc. – each company is a bit specific and defines for itself when visitors become leads
- Customers – it makes sense that companies invest most of their sales efforts in leads, because they’ve already shown an interest in the company’s offer; that way the company will be able to achieve greater lead to customer conversion than by investing its sales efforts in visitors.
The sales process, described with the sales funnel, begins with the company investing in acquiring visitors, whom it then converts into leads. To do that, it must invest further in acquiring leads from visitors. Afterwards, through further investing in processes and resources, it converts the leads into customers.
The sales funnel-related KPIs, which companies should be monitoring, but mostly don’t (as yet), are:
- CPV – cost per visitor
- VTL – visitor to lead ratio
- CPL – cost per lead (includes both the cost of acquiring a visitor and of converting the visitor into a lead)
- LTS – lead to sale ratio
- COCA – cost of customer acquisition (includes the sum of visitor acquisition costs, of visitor to lead conversion, and of lead to customer conversion).
Besides the above-mentioned indicators, two other indicators are highly important for the sales and marketing process if we want to have the right information and if we want to make the right sales and business decisions. The two indicators are:
- CLV – customer lifetime value – denotes the total value of revenues generated with the customer throughout our (potentially long) relationship; the customer lifetime value is calculated using three items: average buyer lifetime (shows how long customers keep buying our services or our products after their first purchase), a customer’s average number of purchases in a given period, and the average purchase value
- Churn – cancellation rate – the proportion of customers who cancel a service or don’t make a repeat purchase in a given period.
CLV is important because it helps a company better assess how valuable a particular customer is to the company, and how much investing in the acquisition and retention of a particular customer really pays off. If a company doesn’t know its CLV, then it may often make decisions based on e.g. only the value of the customer’s first purchase, which reduces its chances of growing its business.
Churn, on the other hand, is important because it enables a company to focus on measures to reduce it, which is, consequently, reflected in a longer customer lifetime, which directly leads to the company’s additional or longer-term revenues – and, consequently, to the company’s better performance in the future.
Figure – sales funnel with key performance indicators
For an easier comparison and better insight into why and how you should monitor all of the above-mentioned KPIs, take a look at a practical demonstration of sales funnel indicators for 3 companies in the table below. The companies presented in the table are:
- mimovrste=) – mimovrste.com – the largest Slovenian online store that offers an extremely wide range of products
- Elektro energija – elektro-energija.si – the largest Slovenian electricity seller based on its number of end clients
- SASH reporting – sash-reporting.com – a service that provides professional business reports to companies of all sizes (small, medium and large), saving them the hard work and trouble of implementing and preparing data.
Table – a practical example of a sales funnel and the types of KPIs on the example of mimovrste=), Elektro energija and SASH reporting:
So, which is the best way for a company to monitor its business operations?
In order to run a company successfully, you must monitor the KPIs at the level of the entire company with the so-called top-level management reports. For a company to be better than its competition, it has to monitor individual areas of its business operations more closely – with detailed business reports, which are also enabled by the sales funnel KPIs.
Considering that companies usually have limited resources, I recommend that the company arranges external indicator monitoring or management reporting at the level of the entire company. That way, the company will be able to devote more attention to improving individual areas of its business operations and, consequently, facilitate the improvement of its performance. At the same time, the company and the management will still have access to clear and transparent information on the business operations of the entire company, which will enable successful management of the company.