Basic KPIs for your business health(1)

  • Performance indicators are important, but do not be obsessed. These are the basic KPIs to guarantee the health of your business.

  • The ability to analyze what is happening is essential in any business you can think of. This fact has always been the case, but from the time companies adapted to the digital paradigm shift, everything can be measured more accurately and efficiently. 

    It is the golden age of web analytics for entrepreneurs and organizations of all sizes and conditions

    Well, that is precisely what we are going to talk about in this series of posts that we start right now. Relax and take notes to start applying it to your eCommerce
  • What are KPIs?

  • Although the context of the introduction helps to understand, we should explain what exactly those acronyms are

    KPIs are also known as Key Performance Indicators. They are those metrics that we define to control the evolution of the business. If they are blocked or do not reach the parameters that we mark as optimal, the health of the business is at risk

    These indicators must fulfill two premises: be objectively doable and measurable within a specific period. "Selling more" is not a KPI; however "selling 10% in the next quarter" would be. 

    It is not that you should be obsessed with KPIs: they are very significant, but neither to the point of conditioning yourself in everything you do. 

    Review your expectations and, based on them, design your strategy. Do not exceed the performance that you can achieve objectively, because you are going to be stressed out. This, in the long run, will generate a certain dissatisfaction as an entrepreneur
  • Which are the most important indicators?

  • Although this is something to be evaluated by each entrepreneur and each business, there are some that can be useful for you, once adapted to the reality of yours, apply them. 
  • #1 – Burn rate

  • It does not have to do with the burnout ratio or how burned out you are as an entrepreneur (I cannot think how that could be measured in terms of percentage).

    Burn rate could be translated as a negative inflow, that is, the speed at which you burn money, especially when it is higher than its inflow. 

    This KPI is very relevant in new companies and startups, especially in those that are still consolidating their level of income and have to use the contributions of the partners to keep working. When this ratio skyrockets, the company is shortening its life

    Want some advice? Well, value what you need to invest in and the repayment period of the investments you make. Keep your structure as light as possible: you will live much calmer if you are rational with the money you spend at the beginning. 
  • To calculate your burn rate you will have to divide the income by the company's operating expenses (wages, rentals, licenses ...). That is: if you earn € 1,000 a month and your expenses are € 1,500, in that same period your burn rate will be € 500, which is precisely the amount that it costs you to keep your business open
  • #2 - ROIv

  • ROI is undoubtedly one of the stars among the performance indicators. The acronym corresponds to Return On Investment. 

    Everything that is done within a company must have a strategic objective, but also an economic return. Typical is to use a simple formula in which the income obtained from a particular action is subtracted from the cost it has involved, and it is divided by what is invested. 

    It is a very simple calculation to perform. But, at the same time, it is very representative. A negative ROI is the most straightforward indicator of what actions need to be optimized or eventually stopped
  • To give an easy example: it turns out that you are getting 3,000 per month from a specific action or set of actions. These, in turn, require an investment of 1,000, which means that the ROI is 200% ((3,000-1,000) /1,000=2 multiplied by 100 to express it as a percentage). 
  • #3 – ROAS

  • This is a type of ROI but applied exclusively to advertising. In fact, the acronyms correspond to Return On Ad Spend
  • When we carry out acquisition campaigns, which is especially intensive at certain times, we need to assess how effective they are as they represent an essential budget item. 

    The formula is just as simple, since it is enough to divide the income generated through sales by the amount invested. .

    Imagine that you have a Google Ads campaign, for example, that is reporting € 1,000 per month in sales. To achieve that level of conversion, you are investing € 500, therefore the ROAS of that campaign is 2 (1,000 / 500). 
  • These 3 KPIs are essential to guarantee the health of your business, but there are many more. That is why we invite you to read the second part of this series that will be available very soon.

  • Images | Unsplash.

Laia Ordoñez

Laia Ordóñez is a copywriting & eCommerce content marketing expert. She is Content & Marketing Manager at DueHome, a copywriting & content independent advisor, and Oleoshop's blog's editor-in-chief.

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