10 KPIs for Better Insights into Value Acceleration

When determining what key performance indicators your business should track, start with this question: What do you want to change?  

These days, the ubiquity of data means that businesses can track just about any metric they choose. But key performance indicators (KPIs) are not any metric. They are used to gauge the success (or failure) of something you strategically want to change in your business. For instance, say you want to grow your sales. You and your team devise a strategy to accomplish this goal and then build your KPIs with the intention of measuring your progress over time.  

So, let’s say one of your strategic objectives is to accelerate the value of your business. What KPIs should you track?  

To answer this question, we spoke with Darren Cherry, an Area President with FocusCFO in Columbus, Ohio. Cherry is an industry-leading exit advisor, C-level executive, and entrepreneur with over 35 years of experience growing, scaling, buying, and selling businesses. In the past decade alone, Cherry has helped entrepreneurs put an additional $50 million in their pockets, so he knows a thing or two about value acceleration and exits. In our conversation, he identified 10 KPIs that offer better insights into your efforts to accelerate the value of your business.  

1. Employee Engagement Score 

Employee engagement is typically measured through surveys or feedback tools, with questions engineered to understand how far employees go beyond that which is considered their normal duty. “It really becomes this mathematical calculation to try to measure to what extent we are shifting the fundamental focus of our employees to think more like owners,” Cherry said.  

Why does employee engagement matter when it comes to value acceleration? Consider the impact of an engaged workforce on the health and sustainability of a business: According to Gallup, companies with high levels of employee engagement saw a 78% reduction in absenteeism, a 51% decrease in turnover for low-turnover organizations, a 63% decrease in safety incidents, an 18% increase in productivity, and a 23% increase in profitability – all of which have a direct correlation to the value of a business.  

2. Net Promoter Score 

Net promoter score is intended to measure the extent to which your customers are loyal to you. It, too, is assessed via surveys, and you tabulate the results by essentially subtracting your detractors from your business’ raving fans. The goal, Cherry said, is to move the pendulum so that a business’ fans far outnumber its detractors, as a loyal customer base and the referrals that come from them can play a significant role in driving the value of a business up.  

“One of the surprises for business owners comes when they think their customers are very satisfied, but then they calculate the net promoter score and they find something a bit different,” he said.  

The good news: The net promoter score assessment makes the process of taking action fairly straightforward. Typically, the survey includes a limited set of questions, including one about the likelihood of the customer making a referral and an open-ended question about the reason behind the score.  

“So, when you get those open-ended responses back, take aim at them,” Cherry said. “Those answers give you the information you need to assign the management team actions to move the pendulum in the right direction.”  

3. Marketing Qualified Leads (MQLs) 

Marketing qualified leads are a measure of the strength of your marketing efforts. When those efforts are strong and effective, it reduces the demands on your sales team, giving them a pool of potential clients to contact who have a demonstrated interest in your product or service, Cherry said. The higher the number of MQLs, the more streamlined a company’s sales process. And a quick, efficient sales process goes a long way toward increasing the value – both immediate and transferable – of the business.  

4. Customer Acquisition Cost (CAC) 

Customer acquisition cost is the measure of how much it costs for your business to acquire a new customer, and it varies in importance depending on industry. A general rule of thumb? When a company’s marketing spend constitutes more than 5% of sales, CAC may be a good KPI to track.  

“CAC is more of a compass,” Cherry said. “It tells you how much you are investing to get new customers, which is very helpful when you are looking to grow your customer base, as often happens when you’re looking to exit. Ideally, you’d like that number to go down, but even if it goes up, it will likely show you something else that you need to change.” 

5. Lead Conversion Rate 

Lead conversion rate indicates how often your marketing and sales teams are converting potential customers into paying customers – vital information if you’re looking to increase the value of your business.   

“This is your secret sauce,” Cherry said. “It helps you to better understand how effective you’re selling and how effective you are in identifying your ideal client profile.” 

6. Recurring Revenue Rate

Recurring revenue rate is a measure of what percentage of your sales you can count on month over month, and it has become much more important in the past decade.  

“Recurring revenue is a great indicator of customer loyalty, and these customers tend to be less price sensitive because they are paying for convenience,” Cherry said. “They’re also an ideal set of customers to experiment new products and services with.”  

And the higher your recurring revenue the better as it increases the value of the business and its attractiveness when it comes to a potential exit. “From a transferability perspective, high recurring revenue is an indicator that there is less that an owner is responsible for in a business,” Cherry said, “It shows that you have effectively delegated revenue generation.”  

7. New Customer Sales Rate

This KPI is helpful to track when one of two risks have occurred: Either there is significant customer concentration risk (the risk that a company's revenue is too dependent on a small number of customers), or a company’s sales reps have morphed into customer service, taking them away from the process of actively hunting for new deals, Cherry said. “When you start saying, ‘I want to double my value or 10x my value,’ you have to have hunters. This metric can be a great way to encourage and reward this behavior.”   

8. Capacity Utilization Rate 

Capacity utilization rate is a measure of how fully your resources are utilized and where you have idle capacity, which then allows you to strategize how to bring that utilization up. “Your goal is always to get more output for less input,” Cherry said. “It doesn’t matter if you have a production or a service business. The question is, how well are you utilizing what you have?”  

9. Risk Checklist Completion Rate

How are you doing when it comes to addressing and mitigating the risks your business is facing? That’s the question the risk checklist completion rate seeks to answer. “Every single exit planning client I work with has a risk assessment done, and then we prioritize what things are going to be addressed first,” Cherry said. “You want to be making traction because the risk is what lowers how attractive your company is to a prospective buyer.”  

This process isn’t always about how to add value by mitigating risk; sometimes, risk factors result in a “value haircut,” Cherry said. “You may be a five-multiple business, but very strong risk factors can lead a potential buyer to offer you significantly less.” By addressing those risks systematically over time, you can go a long way toward protecting the value of your business. 

10. Forecast Accuracy Rate

Forecast accuracy rate helps you understand what peaks and troughs there may be for your business as market conditions and other key factors shift. “Businesses will say, ‘We can’t project our profit or cash flow.’ But if you’ve been in business long enough, you should be able to understand what happens,” Cherry said.  

This KPI is important in growing the value of your business because it allows you to plan for the future and adjust your strategy accordingly. It also increases the value of your business in the mind of a potential buyer. “A buyer wants to buy a business that’s predictable,” Cherry said. “When you have a very high accuracy rate in your forecast, it shows you understand the dynamics of your market better, that you understand your business better, that your business has less surprises and unknowns. A lower rate suggests the exact opposite of that.”  

In the end, identifying your key performance indicators will help you improve two important aspects of your business: how attractive you are in the eyes of a buyer and how easy it is to transfer your business to a future owner, Cherry explained. It can seem overwhelming, but consider the old adage that comes to us courtesy of management expert Peter Drucker: “What gets measured gets managed.”  

 

97f61702-3348-401a-9f74-fb221f01e762-author_headshot-FocusCFO-CEPA-SpAs Strategic Partners of EPI, we would love the opportunity to connect with you and to learn more about how we can partner together to work together for the mutual benefit of our clients. 

FocusCFO specializes in providing fractional CFO services to small and midsized businesses across the U.S., whether they are looking to increase the value of their business now or in the lead up to an exit. If you’re interested in learning how we could support your business, schedule a consult today