- Reporting
- Decision-makers, kpis
- 8 min reading time
Dr. Eric Trumm
(Performance) indicators or Key Performance Indexes or Indicators (KPIs) are a central element
business performance measurement: Based on the 13 most important KPIs it can be assessed whether
a company is optimally on course – or whether the respective decision-makers should intervene in a controlling manner.
This wiki provides an insight into the first ten KPIs. The white paper on this topic provides a deeper insight.
Table of contents
Introduction
Target group of the wiki:
Certain KPIs are undoubtedly more important for regional start-ups, for example, than for large international corporations. However, the
selection made here applies across all industries and regardless of the size of the company:
The KPIs listed have almost exclusively a general business background and therefore provide
with valuable, well-founded information for companies of all kinds. Nevertheless, we also list a few
KPIs that are particularly relevant for e-commerce.
In-depth questions about the customer relationship (B2B or B2C) would go beyond the scope of this wiki
and are therefore largely not addressed. As a general rule, anyone who wants to successfully shape their business
must be able to understand their customers.
As the title suggests, this white paper is aimed at all decision-makers - regardless of
department or position. It is therefore not only aimed at management: HR managers
, for example, will also find what they need to better monitor the processes in their departments. Only
KPIs with exclusive relevance for the IT department (e.g. the number of open service tickets) have been omitted.
Our criteria for KPI selection:
Two criteria determine our KPI selection: Objectivity and simplicity of data collection. We define key figures that are based purely on business figures as objective
- knowing full well that even such
KPIs can assume different "value ranges" within the framework of legal requirements.
In contrast, we define KPIs that are based on assessments as subjective. Example: In customer surveys
, two individual statements about the same product are in no way objectively comparable. In the
Customer Centricity section, we have therefore deliberately omitted certain popular KPIs. Nevertheless, the Net
Promoter Score (NPS) is listed, even though it is based on a subjective assessment. The reasons for this are the simplicity
of data collection and the high relevance for the business.
Management (C-Level)
Sales target (actual vs. forecast sales) in %
Are you on target?
This key figure shows you whether you are achieving your planned sales targets or deviating significantly from them - especially
in negative terms. If the latter is the case, it is important to determine the causes. One question would then be, for example, how
realistic the underlying assumptions were when preparing the sales targets. However, the forecasts
may also have to be adjusted due to a new and/or extraordinary market situation.
EBIT margin in %
How well are you doing compared to your competitors?
The EBIT margin measures the profitability of the operating business by showing earnings before interest and
taxes (EBIT) in relation to sales. Ignoring interest and taxes promotes
the comparability of companies. In most cases, the EBIT margin differs specifically from industry
to industry. An industry-wide EBIT comparison therefore reveals whether the profitability of your company can be increased further
if competitors are operating more profitably.
Return on assets in %
Do you use the available capital efficiently?
The return on assets is the ratio of net profit to the total capital employed (sum
of equity and debt capital). This key figure is important for investors: it indicates how well the available
capital is used by management to generate profit. The return on assets is
also dependent on the industry. This makes it another valuable basis for comparing companies and their
management within individual sectors of the economy.
Market growth rate in %
Do you continue to assess your market correctly?
The market growth rate refers to the total turnover of a market (i.e. the turnover across all market participants
). It describes the difference in sales over the past two years in relation to the sales
of the previous year.
A high (positive) growth rate means low saturation with high demand. A negative rate, on the other hand, is
an indicator that consumers are losing interest in certain products or services.
In the latter case, the corresponding business models or products are no longer sustainable in the long term:
It is then important to consider in good time which new markets should or must be developed. Taking a look at
this key figure is therefore an important building block when it comes to safeguarding the company.
Marketing and sales
Return On Marketing Investment (ROMI) in %
Are your marketing activities paying off?
As a sub-category of return on investment (ROI), ROMI measures the effectiveness of marketing campaigns:
This key figure determines the gross profit (gross profit) of a campaign in relation to the marketing costs incurred.
In this context, it is essential to specifically determine what proportion of the newly generated
sales can be attributed to the marketing campaign being evaluated.
Positive ROMI values mean that a marketing campaign is worthwhile - while negative figures suggest
that the campaign should be discontinued. In principle, values above 100 % are also possible. This key figure
is primarily used to compare the respective effectiveness of different marketing campaigns. This gives marketing
managers a good overview of the performance of their marketing instruments.
Fire Awarness
Do potential customers think directly of your product?
Brand awareness is about establishing yourself in the minds of potential customers:
Customers usually purchase products from one of the top 3 brands that they think of during the purchasing process
. Well-known brands suggest reliability to customers, as their success cannot be a coincidence.
For some products, the brands are practically interchangeable, as their images do not differ significantly
from one another. Above all, it is then important to gain a place in the top 3 - based on corresponding
investigations, which differentiate between "supported" and "unsupported":
- Supported brand awareness: Check by presenting a mnemonic device (e.g. "Which of the
detergent brands shown here do you know?"). - Unsupported brand awareness: testing active memory without any memory aid.
Supported brand awareness is generally higher than the unsupported variant. However, it is important to know which brand is mentioned first -
- because this brand generally wins when it comes to purchasing decisions.
How can brand awareness be increased - especially when establishing new brands/products?
Like other marketing campaigns, brand awareness campaigns always begin with the identification of the
target audience and the definition of the key performance indicators. This is a complex process.
Success then largely depends on how many people see the respective marketing tools or media at
. The number of "unique users" can generally
be easily analyzed using cookies, especially for online business campaigns.
Videos often take center stage as an advertising medium. Typical KPIs are then, for example, the rate of fully viewed clips or the average playback time. The frequency of user interaction (e.g.
via comments) is also relevant - as is how many users follow a link or advertising banner to the website of the respective
company (click rate) and how long they stay there (2 minutes is a good average value).
Overall, the interaction of all these KPIs provides a meaningful impression of how well certain
brands or products are received by potential customers. A high affinity means that a place has been secured in the
consciousness of customers - for a positive impact on their next purchase decisions.
Turnover per sales employee
How is sales performance measured?
The main task of sales employees is to generate sales for the company. In this context,
the most important key figure is to evaluate each individual sales agent over a certain period of time
(e.g. per month or year). The aim is to learn from identified outperformers how they achieve their
exceptional results.
Acquiring new customers is vital for the survival of any company. This is why the individual
turnover of sales employees is often split between existing and new customers. Triggering new orders
with existing customers is generally easier, as existing relationships can be used and deepened.
Some sales employees, on the other hand, generate a high proportion of their sales with new customers, although
their total sales may not be the highest. This is also very valuable for companies: new customers from
today are existing customers of tomorrow and will continue to generate sales in the future - provided that the customer relationship
is maintained.
However, turnover per sales employee as a KPI must always be viewed from several perspectives: For example,
an employee can generate a lot of sales but have a negative contribution margin because they grant customers
too much of a discount. In addition, depending on customer characteristics, sales can be comparatively easier or
more difficult to achieve: Those who are assigned to (very) demanding customers often require much more effort in comparison,
in order to generate sales with them. This leaves less time for other customers, while
the total turnover lags behind that of other employees. The sales management can then assess in individual cases
whether a (very) demanding customer should possibly be assigned to another employee. However, as an
indispensable basis for decisions of this kind, all key sales figures of all employees involved
must be available in advance in a reliable quality.
Customer centricity / customer understanding
Net Promoter Score (NPS)
Is your company attractive?
The NPS is a popular indicator for online presences as it is very easy to determine: website visitors/
app users are asked how likely they are to recommend the company or product to friends
or colleagues. The answer is given on a selection scale from 0 to 10. The question must
be asked of a representative group of visitors/users. Users who answer 9 or 10 are referred to
as promoters. Detractors answer with 0 to 6. "Indifferent" are customers who answer with a 7
or 8.
Depending on the industry, the NPS can correlate with the company's success. In this case, decision-makers
must be very interested in the level of the NPS and its possible increase (including methods). However, there must always be a causal relationship in this regard
.
One disadvantage of the NPS as a key figure is the subjectivity with which the individual answers are given on a scale:
What one user rates as a 6, another might rate as an 8 - even though both are identically satisfied with the
product (which potentially becomes apparent when demand is lower). The cultural dependency of the NPS is also a disadvantage: it must be determined separately for each country and is not readily transferable.
In this context in particular, the indicator should therefore always be used with caution.
Customer retention rate (CRR) and churn rate (CR) in %
How long do customers remain loyal to your company?
The customer retention rate (CRR) is the proportion (in %) of customers who remain with a
company within a specified period of time. It is closely linked to the
churn rate (CR), as the latter represents the remaining difference to the full 100% (number
of total customers). Definition of the CRR:
N: Number of new customers acquired in the period
S: Number of customers at the beginning of the period
E: Number of customers at the end of the period
CRR and CR are the primary KPIs for evaluating customer loyalty. Their monitoring is crucial
for understanding customer lifetime value (CLV; see 3.3.3.). CRR and CR can also be used to quantify the effectiveness
of a marketing strategy - in order to create a sound basis for its possible realignment
.
Customer lifetime value (CLV)
Do you know your most valuable customers?
The customer lifetime value (CLV) is the contribution margin attributed to customers during their respective
customer lifetime. The CLV depends on the available customer information: In the case of
existing customers, it can usually be clearly determined from an available sales history. In the case of new customers, on the other hand, a number of assumptions must be made that make the CLV more uncertain .
The calculation of this key figure is influenced by several factors (e.g. the CRR or customer acquisition costs). The
result is shown in the respective national currency of the input parameters (e.g. expected sales in
USD for customers in the USA).
The CLV is primarily used by marketing and sales to ensure the profitability of customer acquisition
- as well as to focus specifically on existing customers who promise a high profit during their customer lifetime
.
Precise CLV monitoring helps decision-makers to increase the company's profitability and ensure the
sustainability of the operating business: On this basis, for example, comparatively more profitable
customers can be deliberately granted higher discounts.
If the CLV is negative, profitability can be ensured by reducing the costs to be incurred for a customer
. On the other hand, an increase in marketing costs can also be potentially expedient if
this promises a strong increase in sales for the respective customer.
The disadvantage of the CLV is its uncertain character - insufficiently precise values with little informative value
are directly opposed to optimal decisions. Modern methods based on artificial intelligence (AI) are therefore recommended
for a well-founded CLV determination: These increase the accuracy of the sales forecast
and reduce its uncertainty at the same time.
Conclusion
The world's most successful brands are among the international leaders not least because they rely
on data-driven decisions. You too can benefit from optimized measurement and control
of your company's success on a data-driven basis: the 13 most important KPIs in the white paper provide
you with a sound framework for this.
Which BI analytics solutions are ideal for data-driven decisions?
In principle, all 13 KPIs in this white paper can also be analyzed and prepared using Excel dashboards.
However, this is very time-consuming and means a considerable amount of additional work for all
reporting participants. For maximum precision and efficiency, we therefore recommend automated, state-of-the-art BI reporting
solutions - in particular the SAP Analytics Cloud (SAC) and
other state-of-the-art products from the global market leader SAP.
Download the complete whitepaper as PDF!
Know more?
Would you like to delve deeper into this topic? Then we would be happy to talk to you personally about the application of specific KPIs.
