Key Performance Indicators, or KPIs for short, are fundamental in guiding companies, measuring the progress of programs, and achieving business goals.
At different stages of startup growth and development, KPIs appropriate to each stage are of particular importance, and the definition of key performance indicators (KPIs) is one of the most critical and challenging issues that startup managers face.
In addition to helping managers monitor the success of their portfolio, KPIs also allow them to have more flexible agreements with the investor when raising capital and even use these metrics as a tool for determining capital injection shifts or financial and legal decisions use.
Criteria for selecting key performance indicators (KPIs)
Using the opinion of experts (unique and specific key indicators)
If a person has profound knowledge in a field of work, they can create new and effective performance indicators simultaneously.
Use of reference frameworks
Reference frameworks can provide a set of practices of key performance indicators (KPIs) in different industries. Specifically, it refers to the APQC Reference Framework, which provides key performance indicators (KPIs) in various areas (marketing, sales, human resources, production, operations, projects, finance, etc.). The main problem with such hands is that they analyze different industries in a global and uniform format. If, especially in Iran, the situation of an enterprise is different from the same industry in the United States or Western countries from earth to sky.
Use of business models
Businesses interact with the environment in different ways or make money through it. Therefore, key performance indicators (KPIs) vary depending on what your business model is. Here are the top 5 business models for businesses:
Generate content and get ads
Types of online magazines that receive advertising and make money by producing free content and attracting a large audience are in this category.
Temporary and temporary provision of a service on the Internet (subscription fee)
Types of businesses that make money by providing timely service for a subscription fee fall into this category. Vods are the providers of site hosting services.
Two-way and intermediary platforms
These are the types of businesses that are mediated between a server and a client in the digital world. These include Internet taxis, Internet real estate search systems, or second-hand cars.
Stores that offer their goods on the site and sell them online fall into this category. Amazon is one of the most famous of these businesses.
Manufacturers of clues
These businesses use their site and digital gateways as public relations or content marketing tools to facilitate and increase offline sales.
But what do digital business models remind us of?
In fact, the business models determine a business’s strategy. Let’s consider these strategies to address several key long-term business goals. Business models tell us the key performance metrics (KPIs) that monitor our systems. Perhaps the following example makes the point a little clearer:
What are the strategies of a site with a business model of “content production”?
OK! Let’s see what the main goals of a content production business are and what is important to them.
They want to advertise. How can they get more expensive and more advertising? (Target)
Well, the answer is that the more visitors they can get, and the more time these visitors spend on the site and introduce the site to other visitors, the closer the site owners are to their goal,
Because the requirement to receive advertising is a high number of visitors and loyalty who spend a lot of time on the site.
You see, the business model, like a compass, shows the business goals, and the analysis of these goals shows what the key performance indicators (KPIs) are for these goals, and this is the role of the business revenue model in the key performance indicators (KPIs).
Key Features Key Performance Indicators (KPIs)
A key indicator of good performance is to measure the component that really matters to the business. These essential components vary from business to company, although there are pre-defined indicators for different industries.
The key performance indicator is inherently alarming. Therefore, changes in this index should reflect the improvement or decline of the business situation in a specific and vital dimension. At the same time, the key performance indicator should be clear, concise, and explicit to be easily understood and interpreted.
A key indicator of good performance ultimately yields a quantitative (numerical) output. This number is compared to the norm. This norm is defined as a “target” before measuring the index and from the time the index is set.
It soft is an ideal result, and a comparison of the index in the future with this norm will show how much better or worse the business has performed than expected.
Ultimately, the optimal use of a key performance indicator depends on its interpretation and conclusion, leading the business to a clear decision and practical action, especially if the key performance indicator indicates a red (dangerous) or yellow (cautious) situation.
Advantages of having key performance indicators (KPIs)
- Allows you to monitor business performance
- Allows you to control the execution of business plans
- Helps to reflect the interests of all business stakeholders in a measurable way
- These indicators play an essential role in the implementation of business strategy by focusing on the organization’s activities and separating the main activities from the marginal activities.
- Key performance indicators (KPIs) allow you to update and change your organizational strategy.
- In business valuation discussions, these metrics provide valid metrics for validating the business situation by investors.
- Key performance indicators (KPIs) are essential in monitoring and evaluating employee performance in a systematic and non-functional manner and can be the basis for decision-making to determine wages, adjust or maintain or upgrade or compensate for services.
- Key performance indicators (KPIs) play an essential role in systematization and therefore increase the management performance of the organization. Using these metrics and monitoring their changes moment by moment, the business manager manages things in an agile, intelligent, and efficient way.
- Key performance indicators (KPIs) to justify individual and all forces and roadmap are an excellent medium for communication between managers and employees. Without any words or hadiths and the possibility of misunderstanding, these indicators determine what path human resources should take and what goal they should achieve to secure the interests of the business.
Categories of key performance indicators (KPIs)
- Key performance indicators (KPIs)
- Key customer indicators
- Key product indicators
The most important key indicators related to financial performance
This indicator shows how many audiences have become customers. In fact, it refers to the percentage of the audience that has generated revenue for the business.
Earnings or sales
This index is directly related to the conversion rate and is the product of the product rate multiplied by sales.
Gross profit is the difference between income and expenses, excluding taxes and other deductions.
Gross profit margin
This index is the percentage that determines what percentage of the price of each product’s unit is converted into profit.
Net profit is the final profit obtained after tax and other deductions.
Money fuel rates
This index determines the time remaining until the completion of the business capital and indicates how economic and efficient the business has been in incurring its expenses.
The most important indicators related to the customer
Customer lifetime value
This indicator shows how much revenue each customer generates for the company.
This index refers to the increase in customers compared to the same period. (For example, how much has the number of customers increased in May compared to April?) Seasonal businesses do not use this index.
Shows the percentage of customers who have a low lifetime value and have not generated revenue for the business despite the cost of attracting them.
The number of customers who are so-called props and loyal and buy from us again.
Cost of customer acquisition
The cost paid to attract each customer. It refers to the costs of marketing and advertising to attract customers. The cost incurred is divided by the number of customers attracted to obtain the cost of attracting each customer.
Number of installs and downloads
If your product is digital and an app, the number of installs and downloads of this app will be one of the key indicators of your performance.
The most crucial product indicators
This indicator indicates how popular this product has become in public. The pandemic rate is somewhat potential and implicitly determines market attraction to the product.
This indicator is vital in sales-oriented businesses, generating revenue through high sales.
A product’s low epidemic rate potentially indicates a niche market and shows unequal competition in the market or poor management. For example, products such as Snap, Bazaar Cafe, Snapfood have potentially high epidemic rates, and this rate has constantly been increasing.
However, products such as Chicory and Maxim didn’t experience such an epidemic. Because of competitors such as Snap and Snapfood.
How do you feel if you are told that the whole world is yours, but you are only yourself? The feeling of a Robinson Crusoe in exile and alone?
Similarly, if you are given the best messengers globally, but you are the only user of these messengers, how would you feel? Again, the same old feeling seems that the world and mafias and messengers are equally dependent on one factor: who else uses this product besides me? The more people use the product, the higher the quality and user experience, regardless of the product. Therefore, the more communication and social functions a product has (such as messengers and social networks), the more dependent it is on its users and the more network effect it has.
This work showed well about the cost of attracting WhatsApp on Facebook. WhatsApp, by all accounts, valued the money that Facebook did not pay ($20 billion) for, other than considering the number of users and persuading Facebook to buy it for that amount.
The extent of the conflict
Indicates the extent and intensity of the interaction and the fact that the product is addictive. This indicator also shows itself well in digital products such as applications, mobile games, social networks, and messengers.
This indicator shows when the previous product will be replaced with the new product. For example, low buying speeds in products that are not considered inherently durable (such as refrigerators and washing machines) indicate that the product was not good enough to be repurchased. Or the competing product replaced our product, or the pricing was not appropriate.