Good to Great: How to Scale With an Outsourced CFO

Whether your business is large, small or in between - KPIs offer metrics that you, your investors, and shareholders can use to determine how well your company is performing. More importantly, KPIs give you a snapshot on where you need to improve and where to spend your efforts.

Companies that neglect the following 5 KPIs miss out on opportunities to improve their businesses and reach their goals.

 

1. Customer Lifetime Value (CLV)

If your company is involved in B2B transactions, then CLV is an essential KPI for you. Here's how Customer Lifetime Value is calculated:

CLV = (Average sale per customer) x (Average number of customer's purchases per year) x (Average retention time for your typical customer)

Retention is key when it comes to B2B customers. Your goal should be to nurture long-term relationships with customers who will buy from you month after month, year after year. The value of CLV is that it lets you know how much you can spend to retain certain customers. Through the metric gained with this KPI, you'll know how valuable each customer is on an ongoing basis, and you'll be in a better position to make marketing decisions.

 

2. Net Profit Margin

Net profit margin is a fairly common KPI, but it's an essential metric for determining how successful your company is at generating profit. Calculate Net Profit Margin like this:

Net Profit Margin = (Net Income/Total Sales) x 100

This KPI is useful for internal comparisons, but it can also help you to know how your business is stacking up to the competition. Additionally, Net Profit Margin can be instrumental in setting future prices for your products and services.

 

3. Return on Equity (ROE)

Your ROE is another metric you can use to compare your organisation to other businesses in the industry. A higher ROE tells investors and potential investors that your company has the ability to generate growth from your existing investments. ROE is simply a ratio:

ROE = (Net Income) / (Equity)

A low Return on Equity ratio should prompt you to make some changes. A low ROE can reduce investors' faith in your organisation, so monitor your ROE closely and address low metrics quickly.

 

4. Customer Acquisition Cost (CAC)

Customer Acquisition Cost is the average marketing cost for acquiring each customer, and it's calculated as follows:

CAC = (Marketing Campaign Cost) / (Number of Customers Acquired from Said Campaign)

When you use CAC to track the effectiveness of your marketing campaigns, you can stop guessing which marketing methods are most effective for your products and services. You can also use CAC to target certain customers. You may find that certain campaigns are more effective with certain targets than others. It's a simple KPI, use it regularly.

 

5. Current Ratio

Current Ratio is one of the most important KPIs for your company to track because it tells you about your organisation's ability to pay your debts over the coming 12 months.

Current Ratio = (Current Assets) / (Current Liabilities)

By tracking your current ratio, you can see the financial health of your organisation. It's preferable to have a ratio higher than 1. Banks and lenders look to your Current Ratio as a measure of your solvency.

By tracking these KPIs, you can track your organisation's financial well-being and make adjustments as necessary. Metrics such as these can give you an edge over your competition and help you to reach your goals.

For insight into the current state of your business' health, try our Healthy Business Survey by clicking below: