Financial Advisory Blog

Armanino’s Financial Advisory blog is your source for thought leadership around cloud ERP and accounting solutions and integrations. Supported by the Cloud Accounting Institute and numerous experts in cloud, finance, reporting, integration, compliance, and technology, Armanino’s Financial Advisory blog features must-read content on what’s happening in the finance industry, case studies, white papers, and much more.

January 16, 2018

Metrics That Matter: Finding the Right KPIs for Your Tech Company

Posted by Lindy Antonelli

Metrics That Matter - Finding the Right KPIsWhen you’re trying to grow your technology company, gut feelings just won’t cut it. To succeed, you have to know where you are going, where you’ve been, and how much gas is in the tank. Whether you are a startup looking for your series A, or an established company looking to expand, you need to track key performance indicators (KPIs) to guide your decision-making. The question is, which indicators?

Metrics vary from field to field, and from micro-vertical to micro-vertical for tech firms, so there’s no one list of KPIs that work for everyone. Each company needs to determine the metrics that matter most to them, and do so without going overboard. You could hire an army of people to track 30 KPIs across your business, but this will only add unnecessary costs to your overhead and up your burn rate.

Consult Your Stakeholders and Peers
Instead, start small. Go to your board and investors and ask them a simple question: What’s keeping you up at night? Identify the top five things your key stakeholders want to see from your company and solve for those first. If your board is focused on growth or cash flow, for example, you need to track KPIs that will help you achieve these, such as trends in growth, new customer acquisition, details on cash usage or trends in AR collections.

Then you can do something that is unthinkable in some sectors: Consult your peers. While industries such as consumer packaged goods guard their reporting zealously, this isn’t the case in the tech industry. Tech products are often built to integrate with or piggyback on other companies’ products, to create a suite of software services that clients can choose from to build their IT, HR and accounting frameworks. Because a tech firm’s product is likely to be new intellectual property, they don’t view too many other companies as direct competition.

Tech firms often have boards, advisors and investors with deep industry knowledge, and tapping into that vast network can be highly beneficial. In tech hubs like the Bay Area, Chicago, New York, Miami, Boston and Denver, tech-focused communities of investors and business leaders connect to share information and gauge their development against their peers. Those business leaders and investors have their own set of metrics that they want in a given company, and you can use their experience to help guide your growth.

Consider your growth stage
Your growth stage will also play a big role in the metrics you track. If you are bootstrapping, you are probably still growing slowly because you don’t have significant capital. If you are angel- or venture-backed, you have a bit more runway and should expect to put most of your seed money towards product development.

In either case, you likely don’t have revenue to track, so you’ll instead want to focus on things like measuring your daily and monthly active users (DAU & MAU) and your growth month-on-month (MoM). Additionally, you’ll want to closely monitor your burn rate, as it can make the difference between searching for an A round of funding and searching for a new job.

You should start seeing significant growth when you’ve reached the A or B round of funding. Investment will expand beyond product development as you start to build out your advertising, marketing and sales teams. With the growth of sales and marketing, investors will begin to expect to see performance trends that indicate growth or the possibility of growth, like increased monthly recurring revenue (MRR), annual recurring revenue (ARR) and annual contract value (ACV).

Manage Your Growth
Managing your growth to the level of investment is also extremely important. Your investors need to see a return on their investment, and they need to feel comfortable with your growth, which means you shouldn’t try to do too much, too fast.

While explosive growth can be exciting, it’s risky if you don’t have the assets in place to handle it, and it can lead to a higher-than-acceptable churn rate―another metric that is imperative to track.
For example, I recently saw a Chicago-based tech company that began growing faster than anticipated. They didn’t invest enough in technical development, so complaints of buggy software and requests for enhancements that would have benefited their entire customer base were ignored. As contracts expired, early customers chose not to renew, and new customers ran into the exact same problems. The company would have been better served, in the short and long term, by looking at two key metrics as they planned investment: lifetime value (LTV) of a client and customer acquisition cost (CAC).

Retaining existing customers costs far less than continually having to acquire new ones, and satisfied customers can help you grow your business through word of mouth. Unsatisfied customers, on the other hand, can sink it. In the case of the Chicago company, sales fell, bad press started to surface, and the resulting low ratings inflicted lasting damage on the business and its reputation.
Healthy growth is in line with investor expectations and your ability to handle increased demands in all departments. To define what a healthy level of growth is, consult stakeholders across the company to make sure everyone is on the same page. Then as you grow, continue to check in with your team and investors to make sure you maintain a healthy balance.

Have the Right Tools
As you add head count, you’ll eventually outgrow your physical space and the tools you use to quantify the success of your business. So as you move from your cramped office into something that allows your business to grow, so too should you move away from spreadsheets and homegrown databases that cramp your style. Investing in infrastructure will allow you to properly track KPIs for your company’s growth and solidify your business strategies for continued expansion.

Just Do It
If you haven’t started tracking metrics, there’s no better time to begin than today, even if you have to start slow. No matter where your company is in its life cycle, there will be KPIs to guide your continued growth and success. By talking to your stakeholders, identifying and tracking the right metrics, you’ll be well prepared for the future.

Learn more about transforming your business through cloud technologies and evolutionary thinking.

Lindy leads Armanino’s Cloud Accounting Solutions Practice. She is the Founder & Chair of the Cloud Accounting Institute and has over 25 years of experience in public accounting.

As the Founder and Chair of the Cloud Accounting Institute, a clearinghouse of information on software as a service (SaaS) and cloud computing, Lindy is at the forefront of the dynamic Cloud Technology landscape. She has published numerous blogs, whitepapers, and articles in this space.

LinkedIn 

COMMENTS

comments powered by Disqus
« | »