Statistics are hugely important to any business. Although you might have a good idea of how well your business is doing, it’s very useful to be able to show that in the form of numbers and graphs. This is why companies everywhere use KPIs, or key performance indicators.
This article will explain what a KPI is and why it’s important, as well as providing you with a few examples of how different industries use different KPIs. The topics we’ll cover include:
- Defining a KPI
- KPI examples for different businesses
- Using Countingup to work out KPIs
Defining a KPI
Key performance indicators are a tool for tracking the success of your business. By working out KPIs and then tracking how they increase and decrease, you can see how well your business is doing and how effective any of the changes you’ve recently made are.
Although KPIs are valuable, you need to establish a goal to get the most use out of them. For instance, it’s handy to know you have a 70% conversion rate — meaning 70% of your potential customers become actual customers.
You’ll be able to use that information more effectively, though, if you have a target conversion rate that you want your business to achieve. For instance, if you want to achieve an 80% conversion rate, you know you’ll need to make changes to close more sales, but if 70% was already the established goal, your task is to maintain the current process to stay at 70%.
The primary role of KPIs is to measure the success of a business. They provide a clear, usable statistic that you can put into business plans, sales forecasts, or annual budgets. You can also compare past KPIs to present ones in order to work out how your business is developing over time.
The variety of KPIs available to businesses means that you can work out a ton of very specific information by using different KPIs. For instance, KPIs are handy for measuring the success of your business as a whole, but you could use different KPIs to measure the success of individual projects or measure the success of particular marketing campaigns.
KPI examples for different businesses
KPI examples for ecommerce companies
If you run an ecommerce business, it’s likely that one of your key aims is to boost your sales. Once you’ve identified a sales target (such as ‘400 sales a month’ or ‘increase revenue by 10%’), you can use a few different KPIs to track your progress towards achieving that goal.
Two KPIs that are great for improving ecommerce sales are your listing conversion rate and your cart abandonment rate.
Listing conversion rate compares the number of visitors to a product page to the number of people who actually purchase the product. If you have a low listing conversion rate, consider changing your product pages to be more attractive to customers or reducing a particular product’s price to increase its sales.
Cart abandonment rate tracks the number of customers who add products to their virtual shopping cart and begin the checkout process, but don’t finish it. A high cart abandonment rate usually indicates that your checkout process is complicated. This means you need to streamline that process to reduce your cart abandonment rate.
Tracking these KPIs can show you where your ecommerce business is losing out on possible sales. By making the appropriate fixes in the problematic areas, you can considerably increase your sales.
KPI examples for client-based companies
A client-based company will have different revenue sources than a customer-focused business. Specifically, client-based companies will focus on making money from consistent returning clients, where customer-based businesses focus on attracting new customers. These differences mean that client-based companies will use different KPIs, such as ARPA.
ARPA stands for average revenue per account, and it refers to the average amount of money you make from all your clients over a particular period. For instance, say you’re trying to work out your ARPA for the last month. You’ll divide your monthly recurring income by the total number of client accounts you have, and the result is your ARPA.
This KPI is good for working out if you need to increase your prices. If your business is struggling, calculate your ARPA and how much you can increase it without upsetting your clients.
By segmenting client accounts into different groups (based on the size, location, or industry) you can calculate separate ARPAs and determine which type of clients spend more with you.
Using Countingup to work out KPIs
One of the most straightforward KPIs to use is your company’s gross profit margin. To calculate the gross profit margin, you need to deduct your cost of sales from your total revenue. The cost of sales is the amount you’ve spent to make or buy the products you sell, and deducting it from your total revenue provides you with your gross profits.
Then, divide your gross profit by your total sales revenue. Finally, multiply the result by 100 to get a percentage, giving you the gross profit margin.
Working out this number doesn’t require too much math, but you will need easy access to a good amount of your company’s financial data. A good way to ensure clear, accessible financial data for your business is to use financial management software, such as the Countingup app.
Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are.
You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!
Find out more here.