Any investor worth their salt will want to see KPIs when considering a pitch from your company. But the role of the Key Performance Indicator goes well beyond successful fundraising. It’s also essential for you and your team in charting and assessing a pathway to growth.
Venture Capital hall-of-famer Josh Stein summed it up when he said: “Effective entrepreneurs understand what their top priorities are and manage their companies by focusing their teams around a handful of critical metrics that reflect these priorities.”
In this article, you’ll find practical tips on how to turn your business goals into KPIs.
What are Key Performance Indicators – and how can they help my business?
As per the name, KPIs are used to measure performance, and investors will expect to see them in your fundraising pitch. However, KPIs should lead your decision-making process as well.
By definition, they are:
Key – As Stein says, ‘a handful’ (meaning you don’t need more than 3-5).
Performance – They should answer the question ‘How’s the business doing?’
Indicator – They should give you a sense of direction and a clear message
TOP TIP: Things can change quickly in business, and your focus may change as well. You should review your KPIs every month. At the end of each quarter, re-assess whether these are still the key drivers of your business. If not, make adjustments accordingly.
Why do investors want to see KPIs?
Remember: investors are total newcomers to your business. They haven’t done market research, competitor analysis and all the other hard work you’ve put in to advise your company strategy. Investors want insights into your business plan, and a clear, easy-to-understand explanation as to why it’s realistic and achievable.
KPIs built on market information and trends will help put things in perspective for them. Using comparables such as competitor price points and valuations will show investors that you’ve done your homework and can slot into that way of working and being because it suits you (until you’re ready to differentiate your business elsewhere).
TOP TIP: If you’re a social impact business, it might be harder to source competitor data (especially if you’re the only mover in your space). But don’t worry – there are always other ways to get your point across. Read on to find out how.
Where to start with KPIs?
If you’re new to the business game, you might be unclear on where to begin with setting KPIs for your start-up. Use the SMART checklist as your North Star for quality KPIs.
As per the famous motivational quote, ‘Most people overestimate what they can achieve in a year, and underestimate what they can achieve in ten years’. If setting SMART goals means it will take longer to get your business where you want it, don’t despair. Very often, slow and steady is what wins the race.
What are some must-have KPIs?
The full answer to this question is really its own blog series. But briefly, here are three main points of focus that should show up in KPIs.
- Operational (focused on efficiency)
- Product/Service (specific metrics, Average Selling Price (ASP), Gross Margin % and Working Capital Days)
- Customer (sign-ups/Subscriptions, client/membership growth, retention, feedback)
- Web/App metrics (site traffic, social media engagement, unique weekly visitors or app users.
- Strategic (focused on progression)
- Growth (Monthly recurring revenue, Revenue growth % month-on-month and annualised revenues)
- Profitability (LifeTime Value = net profit from the entire future relationship, Gross Margin % and EBITDA %)
- Cash/Funding (Burn rate, cash runway and payback of investments)
- People (staff turnover)
- External (focused on investor returns)
- Business (Revenue growth MoM, Gross Margin EBITDA %, Burn rate/cash runway Customer retention or net churn)
- Returns (Current or potential dividend yields, valuation growth and impactful outcomes)
The above list is a basic outline of the most important topics to feature in your KPIs.
You’ll notice that ‘impactful outcomes’ appears as a point of interest to investors. If you want to showcase the positive results of your social mission, you need to link it to a KPI. Here are three effective ways to do that.
How to create impactful KPIs
- Make it relatable
If you want investors – and your team – to understand the impact your mission is having, you need to make it real.
- Quality over quantity
Strive for simplicity when it comes to your social outcomes. Focus on your core mission and pick 3-5 figures that demonstrate how well you’re achieving this.
- Define your calculations using credible sources
Use data from a respected source that underpins your metrics of reporting.
The above examples may not cover your exact mission or industry. However, they hopefully provide some insights into how other impact companies are reporting on impact by using KPIs.
Report Consistently, and keep your Reporting Consistent
Once you’ve established KPIs, and have processes in place to track them, you need to ensure you report on progress regularly. Here are some important do’s and dont’s to remember:
- Don’t change the basis or calculation (be consistent)
- Do compare your actual results to your plan (ideally, the plan that was invested in).
- Do provide an explanation if the company’s performance is different to the plan.
- Do show KPI trends.
It might be tempting to expand on a wide range of company data, or provide highly detailed explanations for each statistic. But an overload of information – especially if it’s irrelevant – can confuse or even agitate investors. Here are four key ways to stay on track:.
Useful Tools for Reporting
At Addition, we’ve tested a wide range of applications and software to refine our reporting process. Here are some suggested tools to help you, depending on what stage your business is currently at.
In Summary
Whatever your industry or company goals, creating and reporting on KPIs will help you win investors – as well as track your progress and build business growth.
Addition helps businesses of all sizes and industries to build strong pitch decks as part of our CFO product offering. Let’s chat about your future now.
