In today’s dynamic business environment, small tech companies face unique challenges when it comes to scaling production and sales. One of key factors determining their success is the adoption of a measurable approach, as it helps to better manage activities and processes within the company. For the Board of Management this involves not only effective financial management but also focusing on key performance indicators (KPIs) in the commercial and operational realm.
Why Measurability is Crucial?
Measuring a company’s activities provides essential data for making informed decisions. Through measurability, areas with potential for improvement can be identified, leading to increased operational efficiency. Here is the list of some popular KPIs used in tech companies. Check it out and see which of them can be suitable to leverage your decisions.
KPIs in Sales
Conversion Rate: The percentage ratio of completed transactions to potential customers. This helps understand the effectiveness of the sales process.
Customer Acquisition Cost (CAC): The average cost to acquire one new customer. This helps understand the effectiveness of marketing and sales efforts.
Customer Retention Rate: The percentage ratio of customers who remained with the company during a specific period to the total number of customers. Long-term customers contribute to stability of each business.
Customer Lifetime Value (CLV): The average financial value of a customer to the company. This aids in evaluating customer profitability and efficiency of commercial strategy.
KPIs in Operations
Unit Production Cost: Determines the cost per unit of producing a single product. Cost control is a key element of sustainable growth.
Production Cycle Time: The time from order placement to product delivery. Shortening this time accelerates sales, increases competitive advantage, accelerates cash flow and increases customer satisfaction.
Production Error Rate: The percentage ratio of production errors to total production. This is crucial for maintaining high product quality and shortening the production cycle.
Resource Utilization Rate (RUR): The percentage of available resources (e.g., machinery, workforce, equipment) actively utilized during a specific time period. RUR provides insights into how effectively a company is utilizing its operational resources. It helps identify underutilized or overburdened resources, allowing for strategic adjustments to optimize workload and enhance overall efficiency. By regularly monitoring the Resource Utilization Rate, the operations team can ensure that resources are efficiently utilized, preventing bottlenecks, and maintaining a balanced workload. This KPI contributes to better resource management, improved productivity, and ultimately, enhanced operational efficiency.
KPIs in Finance
One of key challenges for small tech companies is runway management. Here are some KPIs which help to make more informed decisions in this area.
Net Profit Margin (NPR): The percentage ratio of net profit to revenue. Measures the company’s profitability after deducting all costs.
Financial Liquidity Ratio: Measures the company’s ability to meet current financial obligations. Focuses on the ratio of liquid assets to short-term liabilities.
Return on Equity (ROE): The percentage ratio of net profit to equity. Measures how efficiently the company utilizes its resources.
Regular Analysis and Corrective Actions
The Board of Management should regularly analyze these KPIs and adjust the company’s strategy based on the data obtained. Introducing measurability not only in finances and sales but also in operations is a key element for the company’s enduring success. Implementing a measurable approach to management becomes the foundation for sustained growth and competitiveness. Through KPIs, a company can consciously direct its resources, identify potential areas for improvement, and adapt to dynamic market changes.
About the author:
Agnieszka Węglarz is an independent consultant, business strategist and practitioner in B2B and B2C, as well as lecturer, speaker and blogger. She has over 25 years of professional experience working as manager in both large corporations and SMEs, where she was responsible for strategy, marketing and business development. She uses her long term executive experience and training expertise to assist companies and their managers in building and implementing their business strategies. She specializes in business modeling, segmentation, value proposition, sales and marketing strategies as well as consultative selling. She runs her own consultancy business, as well as cooperates with Google for Startups as the business modeling expert and mentor in the acceleration programs. Agnieszka is an author of many business publications. You can read her writing on her business blog on www.agnieszkaweglarz.com. You can contact her directly by sending a message via LinkedIN.