Driving Your Company Value

Driving Your Company Value

By: Tom Mann
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For example, the customer retention rate is a KPI for a business that relies primarily on recurring customer revenue (such as the provider of this blog tool or other subscription-based business models).

The reason for such is that the marketing and administrative costs to maintain an existing customer are typically significantly less than the marketing and administrative costs to obtain and setup a new customer. Therefore the higher the customer retention rate (or lower the customer attrition rate), the better operating margins are. All other things equal, that translates into higher value.

Now while a KPI is often measured in financial or other quantitative terms, it is generally driven by operational activity. Illustratively, restaurant owners measure seat turnover rates and average check as KPIs for their business, but what drives those rates? Customer satisfaction? Rate of menu changes? Reservation policies? Size of the wine list?

When owners make the connection between operational activity and KPIs they can then develop and implement strategies that enhance value, and measure their success to that end.

Performance indicators differ from business drivers & aims (or goals). A school might consider the failure rate of its students as a Key Performance Indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from return customers as a potential KPI.

But it is necessary for an organization to at least identify its KPIs. The key environments for identifying KPIs are:

Having a pre-defined business process (BP).
Requirements for the business processes.
Having a quantitative/qualitative measurement of the results and comparison with set goals.
Investigating variances and tweaking processes or resources to achieve short-term goals.

A KPI can follow the SMART criteria. This means the measure has a Specific purpose for the business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable, the KPI has to be Relevant to measure (and thereby to manage) and it must be Time phased, which means the value or

outcomes are shown for a predefined and relevant period.

Be SMART!, Specific, Measurable, Achievable, Relevant, Time phased