Business dreams and future strategic direction are exciting, motivating and even invigorating; however, they are of no value if you run out of cash before you reach the promised land. Executing on the basics of company health before pushing hard on priorities, rocks, or winning moves allows you the business oxygen needed to make it to your dream. Therefore, I coach executives and entrepreneurs to track key performance indicators (KPIs) to ensure that business is on a successful trajectory and that your strategic future looks achievable and bright. Here is my guide on CEO KPIs and how they can help you manage your business without getting bogged down with too many details.
Typically, executives ask me, "What metrics should I monitor?" If you’re familiar with Kaplan’s balanced scorecard, you’ll know that it’s easy to overcomplicate monitoring the business, and over monitoring typically results in one of two outcomes:
- Too many items are measured and therefore none are important. In fact, in companies with too many items to measure, I often see that they do not have time to discuss their entire dashboard on a weekly basis. This effectively is the same as not measuring something at all.
- The team feels meetings are inefficient, and they stop statusing or measuring the items. This has a negative effect on morale and on peace of mind from knowing the current business status.
As your executive coach, I must warn you: STOP MEASURING EVERYTHING. My team has seen thousands of strategic plans and dashboards, and there is no need to measure everything at the executive level. The lessons we’ve learned observing progress on these plans is that you should narrow your metric focus to four categories: Employees, Customers, Grow Revenue and Processes.
Check our other blogs on KPI metrics for each of these four categories, but for now, I’ll focus on one category: Grow Revenue and the four specific financial KPIs I coach every CEO to monitor.
- SALES. I often hear this referred to as "top line revenue," because it sits on the top of financial statements. At a minimum, you track this KPI monthly. Watch for trending upwards or downwards, verify sales pipeline and watch close ratios. It is often better to track the activities that lead to sales so that any adjustments made happen in advance of revenue dips so you’re not blindsided. It’s also good to break sales into categories (product/service line, region, salesperson, client) so you can identify vulnerabilities or weaknesses.
- RETURN. Return on Payroll/Return on Investment (ROP/ROI). Don’t look for your strategic future until you verify that you are earning a return on every dollar invested in equipment, service and payroll. Many executives are looking for the strategic future outside their current business and fail to make sure that their (usually) largest investment, payroll, is earning a positive return and growing.
- PROFIT. Is your company profitable? Executives utilize different measures to determine how they are doing. Some with Private Equity investments aren’t concerned about financial profit but are concerned about market share (or subscribers). It depends on your situation, but you must determine what your profit is and measure it. Gross Margin, Net Margin, EBIDTA, etc. could be your measure, and the measure is often compared to industry standards.
- CASH FLOW Runway. Track your cash on hand. Don’t count your line of credit, don’t count on borrowing against equipment or real estate, receivables may be suspect in times of emergency and do count cash. If you were to add no new sales and only serviced contracted business and collected fees while paying your obligations, how long would you survive before laying off staff or closing the business? I coach executives to build up a treasure chest of six months cash flow runway.
It’s the balance of executing on the basics of company health (the four specific KPIs above) that is necessary before you and your team begin pushing on other items. This will ensure that you have the needed business oxygen to make it to your dream, and that’s why I coach executives and entrepreneurs to track these KPIs while also planning for their strategic future. CEO KPIs are essential to see the full health of your company. You can find some CEO KPI Examples from some of our industry leading clients.
Here are more KPI examples and resources:
Photo Credit: iStock by Getty Images
Photo Credit: iStock by Getty Images