Business KPIs

By PROVOK & REVOKE

Measuring is caring. If you don’t measure progress, you don’t care.

You can measure the performance of just about anything and everything. If you search the Internet for performance indicators, hundreds of them exist.

Every article recommends different ones, but strangely enough, they never mention the important ones.

As a result, we have hundreds of tools at our disposal, but most people don’t know what they’re actually for.

Before choosing which KPIs to track, let’s ask ourselves the following question.

What do we need to measure?

Remember what we learned in the 4 business levers chapter.

We aim to ensure that your business delivers maximum value to its market for as long as possible.

To achieve this, we strive for the ideal:
Build a business that sells expensive, unique, and recurring products or services that cost little to produce while delivering a phenomenal amount of value to buyers.

So, to have a rolling business, we can move three sliders:

  1. Get more customers.
  2. Increase their average purchase.
  3. Get them to buy more often.

Our KPIs must enable us to measure the critical elements that make up the perfect business and allow us to get insights about how to move the three sliders mentioned above.

What we need to understand.

The KPIs presented below are the indicators investors look at when investing in your business. The reason they look at these figures is that taken together, they allow you to measure whether your business:

  • is unique
  • is expensive
  • sticks
  • and costs you little

These indicators show how close your company is to the ideal business criteria. In other words, how sustainable you are.

If your business is sustainable, you can deliver more value to the world for longer. And, if you provide more value for longer, you’re winning at the business game.

Understanding and calculating KPIs.

In the sections below, you’ll find detailed definitions, calculation formulas, and other explanations for the KPIs important to your business.

At the end of this chapter, you’ll also find the link to a magic database we made on Notion that automatically calculates for you all the KPIs we mention below.

The resulting KPIs will follow you throughout your business adventure, enabling you to create projections to improve your business.

These projections will make it easy for you to make the right choices for your business.

NB: The following KPIs are intricately linked to each other. Keep on reading even if you encounter one you don’t fully understand. The definition will follow.

Total Sales.

The money generated from all sales in a given period of time.

This figure enables you to calculate your business’s Gross Profit (and, by extension, its GPM and LTGP).

If you don’t accurately track your total sales, you won’t be able to visualize your Gross Profit Margin properly.

Total Sales Formula:
All the money generated by sales of goods/services.

Cost of Goods Sold.

(aka COGS)

The direct cost of producing the goods sold by a company.

This figure enables you to calculate your business’s Gross Profit (and, by extension, its GPM and LTGP).

If you don’t track this figure precisely, you won’t be able to visualize your Gross Profit Margin correctly.

Cost of Goods Sold Formula:
Opening Inventory Value + Purchases of Inventory - Closing Inventory Value

i.e.
Raw Materials + Salaries + Packaging Costs + Freight Costs…

i.e.
Sum(Products Direct Labour Costs) + Sum(Products Other Direct Costs)

Gross Profit.

(aka Gross Income)

The revenue minus the direct cost of servicing an additional customer.

This is the money the business makes, on average, on a sale.

This indicator is a pragmatic way of measuring the health of your business.

Companies with a low Gross Profit often cannot pay their employees properly or provide a quality customer experience.

Gross Profit Formula:
Total Sales - COGS

Gross Profit Margin.

(aka GPM, Gross Income Margin)

A profitability metric that indicates the amount of revenue left after subtracting the cost of goods sold, expressed as a percentage of total revenue.

This indicator is a direct derivative of your Gross Profit. It tells us the average margin a business makes on a sale in percentage form.

You’ll need to monitor the evolution of this margin to improve the customer experience you provide.

This indicator is the quality potential at your disposal to achieve your mission and bring value to your market.

In simpler terms, if I make 90 cents on a 1$ sale, my GPM is 90%.

Gross Profit Margin Formula:
(Total Sales - COGS) / Total Sales

i.e.
Gross Profit / Total Sales

Lifetime Gross Profit.

(aka LTGP)

The gross profit accrued over the entire lifetime of a customer.

Like the Gross Profit Margin (GPM), this number is a direct derivative of your Gross Profit.

Lifetime Gross Profit gives you an idea of how much you’ll earn from a single customer over one’s lifetime.

This indicator enables you to project yourself more easily into the future to better understand how to develop your GPM.

Lifetime Gross Profit (LTGP) Formula:
Gross Profit Margin x Average Purchase Value x # of Purchase x Customer Lifetime

i.e.
Gross Profit Margin x LTV

Customer Acquisition Cost.

(aka CAC, Cost of Acquisition)

The total expense incurred by a business in acquiring a new client.

This number lets you calculate your overall acquisition cost (CAC x # of customers.)

Your CAC is a good indicator of your sales and marketing performance. You know whether you’re spending a lot on each new customer and whether or not you can afford to lose any.

Moreover, we can calculate your Net Profit with your CAC and Overhead.

Customer Acquisition Cost (CAC) Formula:
(Marketing Expenses + Sales Expenses) / # of Customers Generated

Overhead.

(aka Operating expenses)

Ongoing business expenses that cannot be directly attributed to a specific activity. The cost of operating the structure.

These are the company’s overall expenses.

They should not be confused with the Cost of Goods Sold (COGS). Overhead represents all expenses remaining after COGS.

This figure is simply used to calculate the company’s Net Profit.

Overhead Formula:
Admin + Rent + Loan + Taxes + ...

Net Profit.

Remaining revenue after all the company’s expenses.

The total sales of a company minus expenses like cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, and taxes.

This is the money left over after everything has been paid for.

It’s literally the number that tells you how much time you have left.

Thanks to this final sum, you know what you can reinvest in the business or how much you can put into the pockets of the organization’s members.

Net Profit Formula:
Gross Profit - CAC x # of clients - Overhead

KPIs Auto-Calculator.

Now that you know what to track to monitor your business’s health status, you can draw your calculator AFAP or use the auto-calculator we made in the business playbook.

  1. Duplicate the entire playbook in your Notion workspace.
  2. Look for the calculator under:
    • #7 — Brand Strategy
      • Strategy — Define Success”

Enjoy!