Day: June 21, 2024

dashboards and KPIs

Optimizing Performance With Effective Dashboards & KPIs

Posted on | by Renatta Luna | Leave a Comment on Optimizing Performance With Effective Dashboards & KPIs
dashboards and KPIs

Operating a business demands precision, agility, and informed decision-making. Dashboards and KPIs (Key Performance Indicators) guide you to direct your organization toward your desired outcomes with clarity and efficiency.

The Purpose of Dashboard 

The true purpose of a dashboard lies in its capability to aggregate, visualize, and communicate data instantaneously. Like the dashboard of a car that shows speed and fuel level, your business dashboard should display important information that allows you to quickly make changes and improvements at the moment. 

Unlike a car’s dashboard which is only for a driver, the business dashboard is not just only for the CEO. Anyone in your organization can create it to measure and guide all kinds of performance and productivity metrics.

Dashboard

The dashboard represents the final, completed visualization.  We like dashboards to be 3 to 7 easy-to-visuals on a single sheet of paper (or screen), each focused on presenting one key performance indicator (KPI). 

More than 7 becomes unworkable. Each visual should focus on displaying 1 Key Performance Indicator (KPI), and clearly show the trend lines over the last 3 to 12 months.

Key Performance Indicators (KPIs)

The Key Performance Indicators (KPIs) are the data points, or metrics, that most matter to your business.  Best KPIs are ones that will help you to predict events in the future.  For instance, the number of website visitors might help you predict the number of new paid subscribers next month. 

A number of sales calls made by your sales team might help you predict the volume of new customers 3 months from now. 

Predictive KPIs are always best, but measuring actual financial performance is also important: at least 2 of your KPIs should be straight from your Income Statement, such as “Gross Margin Percentage” and “Net Profit”.

OKRs (Objectives and Key Results)

If you use OKRs (Objectives and Key Results), then your KPIs can measure the Key Results. OKR has become a popular and powerful way to define strategic initiatives, and a dashboard can help make sure that your OKRs are on track. 

If you don’t use the OKR methodology, that’s okay. KPIs will take you a long way if you choose them carefully.

Also, KPIs are not limited to financial measures.  Number of “days without an accident” is a popular KPI in a manufacturing environment, as are quality controls such as Reject Rate or Line Stoppages. 

Find KPIs that speak to your operations and improve the overall business health.  Good financial performance will follow. 

Finally, selecting KPIs that resonate with the organizational vision and mission reinforces the dashboard’s purpose and value. With the right KPIs, the dashboard will become an integral part of strategic reviews and planning. 

Designing Your Dashboard

The design phase of a dashboard is where the functionality and the visual come together. The objective is to construct an interface that is not only reflexive but also comprehensive, allowing users to get complex information quickly. 

Every employee should be able to see how close they are to reaching their KPIs each month or quarter. Some companies create multiple dashboards, so each department has one.

One key to simplicity is fun — incorporate colors and shapes in creative ways: For cumulative goals, use a “thermometer” graph.  For competitive goals, use a horse-race analogy and show the race to the finish line.

When the data is conveyed easily, it will allow your employees to gain insights and respond appropriately. 

Creating Effective Dashboards and KPIs

Timing and relevance of dashboards are big challenges when trying to use them. Dashboards must be close at hand, quick to update and read, and have up-to-date data.

As more people in your organization use them, a culture will form around data-driven decision-making. And as the boards become more useful, people will update them more regularly.  Good, real-time data is the benchmark for useful dashboards — don’t settle for anything less.

As your business evolves, you should have a business dashboard. Don’t be afraid to incorporate new KPIs and refine existing visual elements.

As your goals and plans change over time, don’t hesitate to update your dashboards and key performance indicators (KPIs) accordingly.

The best dashboards are iterative — changing as the needs of the business change. Keep your dashboard fresh and you’ll position yourself for sustainable success.

Begin Making Data-Driven Decisions

Are you looking to harness the full potential of your business data but unsure where to begin? Contact us for free business analysis. We will discuss dashboards and identify the KPIs to propel your business towards its strategic objectives.

Calculating & Reducing Customer Acquisition Cost

Posted on | by Renatta Luna | Leave a Comment on Calculating & Reducing Customer Acquisition Cost
Customer Acquisition Cost

How much do you invest to bring on one new customer?  Knowing that number, and optimizing your spend on marketing and sales is an essential part of maintaining your company’s health and long-term viability. 

Knowing and tracking your Customer Acquisition Cost (CAC) is the first step to planning growth, maintaining profitability, and more.  Here are a few ways to understand your own CAC and use it in your business.

How to Calculate and Reduced Customer Acquisition Cost?

To calculate your own Customer Acquisition Cost (CAC), first consider every recurring expense that goes toward marketing, promotions, sales, and onboarding a new customer.  When you attend a trade show, include all the costs.

For a sales team of 5 people, include their salaries, commissions, bonuses, and benefits in your dashboard. Also, if you pay for Google ads, add that cost as a key metric to track. Make sure you find every expense that influences, leads to, or influences a new customer. 

Exclude one-time expenses like website development or trade show booth construction, as well as ongoing operational expenses that support clients after they have been on-boarded.

Got a number?  Great!  Now divide those (total) costs associated with customers from the last year by the number of customers your business acquired during that same period.  The result is the number of dollars you spend per new customer — or your Customer Acquisition Cost (CAC).

Why Use CAC to Drive Marketing Strategy?

Your CAC is the one metric you should consult when planning and evaluating marketing strategies. Other measurements, like cost-per-impression or cost-per-click, have no bearing on your company’s financial health.

Only CAC can tell you whether one marketing strategy is more effective than another. Use it as the touchstone to compare marketing efforts, and take every opportunity to lower the cost to bring on new customers.

Lifetime Value (LTV)

The flip side of how much you spend to get a customer is, of course, how much the customer spends with you!  This metric is called the customer’s “lifetime value”, or LTV.   It’s influenced not only by what you charge your customers but also by your average gross margin and how many times a customer re-orders from you.

To accurately measure LTV you need to know how much gross profit you made from them over their entire engagement with your company.  

(Fortunately, QuickBooks and other accounting software can give you a “Sales by Customer” report which makes calculating LTV pretty easy.  Remember to modify that account by multiplying revenue by your average Gross Margin percentage to calculate LTV.  Don’t just look at the top-line revenue from each account.)

CAC vs LTV

When you know both CAC and LTV, you’ll have the keys to understanding your long-term profitability.  So long as LTV is greater than CAC (meaning your customers will spend more with you than you spend to find them!) your business is positioned to turn a profit over the long term.

Of course, you can imagine scenarios where your LTV is greater than your CAC, but you are still running at a loss.  This can happen if your customers spend small amounts with you but continue to do so over a long period. 

For example, imagine getting just one customer from a $30,000 trade show exhibit.  If that customer only contributes $500 a month in gross margin, you may have a hard time paying for the trade show! 

At the same time, however, if your average customer stays with you for more than 60 months, you will eventually earn back your trade show investment and your Lifetime Value will be greater than your Customer Acquisition Cost!  This is a short-term gamble but could lead to long-term success.

Many fast-growing SaaS companies are built on the premise that short-term investment in sales and marketing (CAC) can produce long-term profits (LTV).  These companies often attract Venture Capital investors who are betting on rapid growth to lead to future cash flow and high enterprise value.

The Practical Side of CAC and LTV

You may never raise venture capital or even build a recurring revenue business; that’s okay. Knowing your CAC and LTV can still help you make everyday decisions like:

  • How much can you afford to pay a salesperson? 
  • What should our marketing budget be?  
  • How many clients do I need to get from a marketing campaign?  

Start with some simple calculations and let the ratio of CAC to LTV be your guide to keeping the sales and marketing expenses in check.

Understanding and optimizing CAC is crucial for any business aiming to grow efficiently and sustainably. If you want to examine your company’s financial health and strategy more deeply, we’re here to help.

Schedule your free business analysis with us to explore how you can enhance your company’s performance and profitability.