Person touching a KPI Dashboard

To run a business effectively, you must rise above the day-to-day and take a big picture view. You need to know what’s going well, what needs your attention, and how to prioritize. But that’s not easy to do when there are too many demands on your time and you’re feeling stressed. You need tools, like a KPI dashboard, to make it easier.

What is a KPI?

A KPI (Key Performance Indicator) is a high-level measure of the health of your business. It’s meant to give you a quick sense of whether your company is on track for meeting its goals. Technically, a KPI is a metric, yet not every metric is a KPI. Your organization uses a wide array of metrics to gauge the success of various initiatives and business processes. KPIs are the most critical ones – the metrics your team can use to measure your overall business performance and to inform decisions.

For example, one obvious KPI is revenue. If your company is at risk of missing its revenue goals, you must investigate the cause and find solutions. But, clearly, there are other high-level KPIs to consider. These include operational KPIs that measure your activity (like the number of customers you gain in a month) and financial KPIs that are metrics you can derive from your accounting system (like profit). So, the challenge with KPI tracking is that you must narrow your focus to the most meaningful metrics. Only then, can you create a KPI dashboard.

What is a KPI Dashboard?           

A KPI dashboard is simply a visualization of your KPIs, designed for easy consumption. When data is easily digestible, you feel less overwhelmed and can quickly get a good sense of the health of your company, spot problems, and deal with them before they get out of control.

One approach that many business leaders like is when you display KPIs plainly using a familiar color-coding system, like red, yellow, and green. Red indicates a problem area, yellow is a warning, and green means you’re doing great. The eye is naturally drawn to the numbers that matter so you can see at a glance how the business is doing. Below is an example of what this looks like.

Example KPI Dashboard for a CEO.

What is the Purpose of a KPI Dashboard?

A KPI dashboard provides you with an easy-to-use tool that will keep your finger on the pulse of your business at all times. It makes it obvious when your company is thriving and when it needs work.

Referring back to the example above, you’ll see we’ve narrowed the focus to only six KPIs, which is perfect. With our clients, we recommend limiting this report to just 3-6 key performance indicators to keep the information useful and consumable.

The first row (labeled “The Latest Month”) presents a snapshot of how the business is doing at a certain point in time. This is handy by itself, but the true value of the dashboard becomes evident as you add more data over time.

For each KPI, you’ll see that we compare it to the prior year and to the business’s growth plans. We also use the red, yellow, green approach to quickly show which KPIs are on track and which ones are worrisome. Then, below the first row, you’ll see similar data for different timeframes – the latest 3 months, then year-to-date. Finally, the last row displays projections for the year given your current trajectory. When you see all this data together you gain insight into how your KPIs change over time so you can spot and address any concerning trends.

Ideally, you will also use your KPI dashboard as a benchmark – comparing your company with others in your industry. If your numbers are notably higher or lower than your competition, that’s a red flag. It’s a sign that you should investigate why that’s the case and what (if anything) you should do about it.

Should You Have a KPI Dashboard for Every Department Leader?

We developed the executive dashboard above with the CEO in mind and if you’re running a small to medium-sized business this is probably all you need. As your company grows and becomes more complex, however, you might indeed create a KPI dashboard for each department leader.

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You could have an operational dashboard, a marketing dashboard, and others for customer service and human resources. Each department leader can identify their KPIs which will show how their group’s performance contributes to the goals of the company. They may even encourage various team members to create dashboards of their own. But, for now, let’s start with one.

It’s also worth noting that when your organization gets to a point where you need deeper insight, it may be time to invest in a business intelligence (BI) solution, like Tableau or Microsoft PowerBI. These data visualization tools pull all your information into one place. In addition to your KPIs, you gain access to the underlying numbers (potentially in real-time) and can view them in different ways. Such tools are expensive, however, so most growing companies start with a simple Excel spreadsheet.

How to Build a KPI Dashboard

So, how do you make a KPI dashboard? As you might imagine, there’s not just one way to go about it. The process will vary from company to company and will become more involved as your business grows. In general, however, these are the basic steps:

1. Build a Strong Financial and Operational Model

This model will contain the detailed (month-by-month) underlying data that will roll up into your KPI dashboard. Capture everything you know about your current and anticipated revenue and expenses, including things that will influence these numbers (like marketing and sales activity). With smaller companies, we typically do this in a spreadsheet. Then we project out (based on the historical results and trends) our financial results, including revenues and expenses, for the next twelve months.

2. Set Goals

Determine what targets you need to hit and when you need to hit them to keep your business on track. These are the numbers you will use to gauge your performance each month. So, although it’s great to be optimistic, it’s also important to be realistic and mindful of your capabilities.

3. Identify Potential KPIs

People discussing potential KPIs for a business.

Given the information you gathered in steps 1 and 2, determine which metrics are candidates for your KPI dashboard. Again, these are high-level metrics that demonstrate the health of your business and that will be useful to your management team in pursuing your goals. In other words, they should be actionable. You should have solutions prepared that will get you back on track should you notice that you’re going to miss the mark with one of your KPIs.

Many of our clients like to use the “SMART” goals framework to narrow the possibilities, whereby each potential KPI must be Specific, Measurable, Achievable, Realistic, and Timely. I encourage this as it lends focus. Then, once we have a list of potential KPIs, we discuss the candidates until we agree upon the 3-6 most important ones.  

4. Review Your Historical Data for Those KPIs

Now you will need to look at the machinery you have in place for tracking your KPIs. Will you be able to see the trends? Or do you need to put some systems in place to get to this information?

5. Build the KPI Dashboard

In the same spreadsheet where you developed your financial and operational model, create a new sheet for your dashboard. Build it so that it pulls the necessary information from the underlying numbers, so it will update automatically each month when you add new data. And remember, this should be a one-page, easy-to-read spreadsheet that will allow you to quickly spot issues.

Once you’ve gone through this process you will update your numbers every month. Then the executive team will get into a monthly rhythm of reviewing the data, discussing what it means, and making key decisions.

Which KPIs Should You Track for Your Business?

Picking the right KPIs for your business can be tricky as it will very much depend on the industry you are in, your company’s maturity, and your business model. So, although it can be helpful to know what other companies use or what’s typical in your industry, you will need to create a customized KPI dashboard for your needs. For instance, most businesses track some variation of the following KPIs:

  • Revenue Growth
  • Gross Margins
  • Net Income

But the language and specific calculations each company uses will differ by industry and even further based on business model. Here are just a few examples:

KPIs for SaaS or Subscription-Based Industries

When you build on your relationships with customers and compound earnings year after year, you track things differently from industries where customers come and go based on one-time needs. Here are some common key performance indicators for these types of businesses.

  • Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR)
    SaaS companies are based on a recurring revenue model. Therefore, the management teams of these companies focus heavily on growing their monthly recurring revenues (MRR) or annual recurring revenues (ARR). Recurring revenues are much more valuable to a SaaS company than one-time revenues, so reporting on this KPI is critical. A variation on MRR is Contracted Monthly Recurring Revenues (CMRR) which takes into consideration pending new client revenues as well as terminations.
  • Lifetime Value of a Customer (LTV)
    The Lifetime Value of a Customer represents the total revenues a customer is expected to generate over the course of their total relationship with the company. For example, if a customer generates $5,000 per month, on average, and the average length of a customer contract is 3 years, then the average LTV is $180,000. There are two ways of increasing the LTV for your company: increase the amount of MRR you can charge for your solution or increase the length of time a customer will remain.
  • Customer Acquisition Costs (CAC)
    Customer Acquisition Cost is the total marketing expense required to source new customers. The easiest way to calculate CAC is to add up all your marketing expenses and divide that by the average number of new customers over that same timeframe.
  • Churn Rate
    This metric represents the percent of customers lost over a period of time. The calculation of Churn can get quite complex. However, at the simplest level, to arrive at your churn rate take the number of customers that you lost in the last period (quarter or year) and divide that number by the number you started with, i.e., at the beginning of the period.

You might also combine KPIs into a ratio to tell a bigger story. For instance, LTV:CAC (Lifetime Value divided by Customer Acquisition Costs) provides insight into how much you spend in comparison to what you earn. It’s an indication of your profitability and efficiency. Ideally, you want this ratio to be at least 4:1.

Ecommerce Business KPIs

Person placing items in boxes to represent an eCommerce business.

Businesses that sell relatively low-cost or commodity items online must rely on volume and a marketing machine that drives both new and repeat business. In this case, the management team might want a KPI dashboard with this information:

  • Average Order Value (AOV)
    Average dollar size of customer orders over a period of time. You can look at this in isolation to gauge your upselling capabilities or you can break it down into segments in search of patterns. First-time vs repeat customers, for instance.
  • Churn Rate
    In eCommerce, you want to nurture your existing customers as much as possible, so they remain customers. If you lose them, this will increase your “churn” rate.
  • Lifetime Value
    For customers that become repeat customers, how long do they stick around and how much do they spend on average during their entire customer journey with your company?
  • Gross Margin
    Gross Margin represents the amount of profit you generate from selling your goods or services. To calculate Gross Margin, you subtract the total Cost of Goods Sold from your Revenues. For commodity businesses, e.g., batteries, the Gross Margin on a single unit is typically very low. Less common items will have higher margins.
  • Return on Ad Spend (RoAS)
    Advertising is non-negotiable in eCommerce, so RoAS and related metrics like click-thru rates and conversion rates are critical. Many break this down by channel – paid search vs paid social media for example.

KPIs for Companies that Provide Business Services

When your revenue model relies on human capital your KPIs take an interesting turn. There are no “widgets” that have average order values. Instead, a services-based business will often rely upon people to generate revenues each and every day (or even hour). Here some KPIs that make sense for such businesses.

  • Billable Hours
    How much time do you spend on client work vs administration? You might track this for your organization as a whole or broken down into “Billings per Employee” or “Billings by Department.”
  • Gross Profit per Client
    When you subtract the cost of your human capital and overhead costs from the revenue you bring in for each client, what’s left?
  • Churn Rate
    Do clients stay on for years or for a finite amount of time? Is there anything you can do about it?
  • Capacity and Capacity Utilization
    There are only so many hours in the day. Are you making the most of them? Is there a way to be more efficient?

The Bottom Line

A KPI dashboard is a critical tool that empowers you to quickly assess the health of your business, spot trends, and take action. The process for building one involves a thorough assessment of your business and collaboration with your management team to ensure that the KPIs you choose to track are the right ones for you.

At The CEO’s Right Hand, we build customized KPI dashboards as part of our outsourced CFO services. We’d encourage you to reach out to learn more.