Tracking the right KPIs for your business can be transformative, but it can also quickly become overwhelming.
With a sea of numbers to interpret, deciding what needs your attention first can often lead to decision paralysis.
This is why it’s far better to pick five top metrics at a time and focus on monitoring and improving them.
Today, I’m going to share the top five metrics we’re working on at Crisp Accountancy and explain why we chose these over others.
Firstly, some background. At Crisp, we are in a growth stage of our cycle. We regularly alternate between a growth stage, where we focus on scaling to the next level, and a profit stage, where we concentrate on maximising efficiencies, systems, service, and profit.
It’s not that we ignore profit during a growth cycle or ignore growth during a profit cycle, but the focus is different.
During a growth stage, our net profit will likely take a hit as we spend more and experiment with marketing. However, our gross profit is non-negotiable!
Your top 5 metrics should be based on the problem or goal you are working towards at that moment in time. As the focus of your business shifts, so will the metrics you focus on.
I will also caveat this post with a contradiction to my opening paragraph and be clear that I don’t ONLY look at these 5 metrics. I look at a whole raft of numbers and stats across different sections of the business. I deep dive into our profit every month, like you would expect. We have a marketing scorecard with a dozen or so KPIs that I review with my marketing team once a week. The point here, though, is that at the highest level, these are the 5 that matter most to me at this moment in time.
Our Top 5 KPIs
Net Promoter Score (NPS)
Have you ever noticed that a lot of companies you do business with ask the same question?
On a scale of 1 - 10, how likely are you to refer someone to us?
This is the NPS question. Anyone who scores a 9-10 is a promoter (will refer others). A 7-8 is a passive (fairly happy, probably won’t leave but won’t promote either). A 6 or lower is a detractor (someone who might leave and shout about your poor product/service).
You subtract the % of detractors from the % of promoters to get a score ranging from -100 to +100.
This is the best way to quantify the quality of your service. It is non-negotiable for any business, especially accountancy. We live and breathe by the ability to wow our clients.
It can be easy to let standards slip a little with existing clients while focusing on bringing in new clients, but this is non-negotiable for us. Tracking our NPS allows me to make sure this isn’t happening.
Gross Profit Margin (GP%)
Your gross profit is Revenue less DIRECT expenses.
To calculate your margin, divide your Gross Profit by Revenue.
For example:
Revenue £10,000
Direct Costs £2,000
Gross Profit = £8,000 (10,000 - 2,000)
GP% = 80% (8,000 / 10,000 *100)
Our GP% shows us how efficiently and profitably we are able to deliver the service. It ignores our overhead. During this growth phase, our overheads bloat as we spend more on marketing. Whilst we still need to make a net profit, I can accept a temporary hit on Net profit (as long as our marketing is effective; more on that below). We must make sure, though, that our pricing is still right and our efficiency does not drop.
Anyone can easily grow by offering discounts (something we do not do), but this would hit your GP%.
Client Acquistion Cost (CAC)
How much are you spending to acquire each new client? In its most simplistic form, take your marketing spend and divide it by the number of new clients.
What makes a good CAC? Well, that depends on the Life Time Value (LTV) of your clients.
Our pricing is consistent and works well for us. We also have a long client lifetime period, so our LTV is consistent, and I know what it is. Therefore, I know how much I am happy to spend to acquire each new client.
The most volatile metric we track in our business is the CAC. We are still experimenting with ways to attract more clients and grow quickly at a price we are happy with.
If our CAC starts to get too expensive, we need to take immediate action regarding our marketing activities. We should change things up, stop doing some activities, and try some others.
If we can’t get our CAC in line with where we want to be, we will start to ease off the growth focus until we can.
Number of New Enquiries
A very obvious but important number to track whilst focussing on growth.
This is how many QUALIFIED enquiries we generate. Of course, our marketing team look at this in far greater detail, looking at qualified vs not qualified, marketing source, enquiry method, conversion rates through the funnel, etc.
At the top level, though, I just want to see how many good enquiries we are generating.
This provides more instant feedback to me on our marketing success than CAC. Of course, we could be generating lots of great leads but spending a fortune to do so. In that case our CAC would warn us of this. That’s why looking at a single KPI in isolation can be very dangerous.
Operating Cashflow
Growth is expensive! It can swallow up cash upfront. You spend marketing in advance of the profit you hope to generate from that client. The quicker you grow, the bigger the strain on your cash flow.
Having a cash flow forecast is important at all times, but especially so during fast growth.
Aside from the forecast, though, tracking our operating cashflow and how that changes really helps us keep a pulse on our bank balances.
All the money coming in vs all the money going out from operations so ignoring things like investments, finance repayments, and dividends.
If we start to experience negative operating cashflow, then I have to be comfortable that this will change quickly enough, that we have sufficient reserves to carry us through this period, and/or that we have funding lined up to support us.
What works for you?
This is what works for Crisp Accountancy right now. As I mentioned earlier, that will change as the business's focus changes.
You need to be clear on your goals and the challenges you face in achieving them, and you should base your KPIs around that.
They will be a mix of positive and negative. For example, the number of enquiries is about moving positively towards the goal. Operating cashflow is more about protecting against running out of cash!
Whilst focusing on the right 5 KPIs is important, you can’t ignore the fundamentals of your business, too. Notice I didn’t mention Revenue or Net Profit above? Obviously, I track these, too!
About the author
Luke Desmond
Fractional CFO for Tech, eCommerce & SaaS. CEO @Crisp_Acc provides virtual finance functions. Co-Founder @getvaulta SaaS Startup for accountants.