Start-ups come with their own set of excitements and vexing issues. New ventures arise from innovative or passionate ideas but need diligence and dedication to transform them into a business to reckon about. Many such innovative start-ups have already set a mark on the global market.
Do you wonder what were the parameters through which they could keep track of their own rate of growth? As objectives can differ from business to business the indicators of performance levels also differ correspondingly.
Accounting is the backbone of any business and vital for any estimation, planning, implementation, or strategizing. But, this one word is not as easy as it sounds. Accounting always involves complex financial management of all the aspects of transactions incurred in a business setup.
But, thanks to the consultants and solution developers, accounting and reporting have become an easy experience even for startups, through cloud software like Sage X3.
A proper accounting system is required to analyze the bookkeeping records to generate the estimation reports on a monthly basis. Similarly, small businesses also rely on these estimations to review their curve of growth.
There are some metrics that are specific to particular types of businesses to estimate their performance ratings. But, let us discuss briefly, some of the metrics or the key performance indicators (KPI) which are common in the estimation process of any business to resolve your start-up blues.
Businesses run on the quality of services provided to the demands of customers. In other words, customer satisfaction is the foundation for any business to grow. So, increasing monthly recurring revenue is an indicator of retained customers who have the potential to become loyal customers or achieve their patronage.
The common objective of every enterprise, big or small is to retain customers and prevent loss of their orders or churn. So, an increase in repetitive revenue through particular customers instead of one-time sales is one of the common metrics of good performance.
It helps to plan on adding new employees to the team or encourage good performers with incentives.
KPI 1: Total Sales Revenue Generated
Monthly accounting of total revenue generated through sales of products through each customer is the critical metric to gauge the performance levels. The revenue generated has to be deducted by the number of orders returned or canceled.
The resultant indicates –
- quality of service on orders placed,
- performances of each employee,
- quality of a product which could retain customer satisfaction or lost orders etc
The objective is to assess the rate of growth in sales revenue or resolve the issues for any decrease in revenue generation.
KPI 2: Investment in Customer Procurement (CAC)
Every business thrives on a steady increase in the number of potentially loyal customers. The number of new customer acquisitions can grow through strategy tips of analyzing customer interests and promoting products accordingly through social media or other consultation sessions or cold emails etc.
The objective is to keep Customer Acquisition Cost or CAC minimum as much as possible through simple yet effective intelligent strategies while maintaining a steady growth in the procured customers.
KPI 3: Profit Margin
Revenue generated each month is not the metric of your Net profit. Total monthly revenue has to be deducted by all the debits like –
- Cost of delivery, transportation, packaging, etc of sold goods
- Cost of promoting products, CAC, etc
- Expenses of insurance, repayment of dues, wages, etc
The resultant figure gives the Net Income or Bottom line. The objective is to architect your business infrastructure such as to keep a steady rise in the graph of Net Profit while the total debits have to be kept stable.
The percentage of growth in the Net profit out of the revenue generated gives the Net Margin. It indicates the consistent stability and potential to grow or expand further. A low-Profit Margin demands change in the marketing strategy or overall assessment of quality services.
KPI 4: Gross Margin
Gross margin gives an estimate of the productivity of your business and is dependent on the gross profits. It also indicates the revenue generated through some products when compared to others which in turn indexes the quality of each.
Gross profits are the figures calculated after deducting only the cost of sold goods out of the sales revenue. The objective is to again keep the Gross margin on a steady rise.
While there are other KPIs that are specific to each type of business, the above metrics fairly measure the growth of your start-up. It helps in cost-effective strategizing and expansion or reassessment of employee performances or individual products.
On the other hand, integrating all the bookkeeping to accounting for the KPIs is quite time-consuming and may result in missed opportunities for productive implementation of all your planning. Time is of the essence in every business growth.
Keeping pace with the fast digital world is another key to the growth of any business. So, to reduce the time consumed in financials and be at par with digitalization, optimize your accounting through automated Enterprise Resource Planning software, like Sage X3. To know more get a consultation @IWI Group.