Is Your Brand Measuring the Wrong KPIs?
So, you’re finally fed up with waiting until your books are closed by your accountant to “look at the numbers” from last month.
Why?
Because it simply takes too long. By the time your books are closed, your revenue, profit and cash flow numbers have already happened, and you have zero ability to affect them with management intervention. In other words, you’re too late to the game.
So, what do you do next?
You carefully craft a set of daily and weekly KPIs that you’re going to track. Congrats! Many DTC brand founders don’t ever take the time to do this.
But there’s a sneaky little trap that lies within tracking daily and weekly KPIs:
Most brands are measuring the wrong KPIs.
And because of this, they add little value and don’t help you make course corrections, before your monthly financial results are etched in stone forever.
Don’t worry though.
I’m here to help!
Here are a couple simple tips that will help you quickly improve your KPI tracking, which will make it a breeze to proactively course correct, mid-month, and create profit and cash flow figures that you can’t wait to see when your accountant is done closing the books.
Let’s dive in!
Tip #1 – Measure More Leading Indicators
Daily KPIs should not measure only LAGGING indicators.
They should measure a blend of LEADING and LAGGING indicators.
Let me illustrate this with a quick example. Every brand loves to track daily sales. The problem with this is that sales is a lagging indicator that has already happened.
And if it’s already happened, then you can’t affect it with management intervention.
On the other hand – daily ad spend, traffic, and conversion rates are leading indicators.
Building out a KPI scorecard with a balanced mix of leading and lagging indicators allows you to see what leading indicators your lagging indicators are being driven by, thus giving you valuable intel into where you need to focus corrective management efforts.
Let’s continue with our sales KPI example:
If all you're seeing is a decrease in day over day sales - what does this tell you?
NOTHING.
But if you also see that day over day sessions are flat but conversion is down - what does this tell you?
Sales are down because you have a conversion problem that needs to be fixed.
By tracking a blend of leading and lagging KPIs you now have visibility that can direct your corrective efforts on specifically improving conversion rate.
Tip #2 – Measure More Than Just Sales KPIs
As I mentioned in my first tip, brands love to measure sales KPIs.
Now, don’t get me wrong, sales are incredibly important. However, it’s not the only metric that gives you a true assessment of your company’s health.
So, my second tip is - don't just measure sales metrics, also include other metrics of financial and holistic business health.
What exactly does this mean?
In simple terms, I recommend you create a balanced set of KPIs that measure the health of your:
Sales
Margins and profitability
Cash flow
Customer relationships
Employee relationships
Vendor relationships
The trick here is to not measure too many KPIs.
As the founder, you can only digest so much data at once. My advice is to work with your key managers to develop a list of no more than 10 to 15 KPIs that measure the most important indicators across these 6 key areas of holistic business health.
If you want some examples of the KPIs that we track for our Fractional CFO clients, feel free to reach out, I’d be happy to share some ideas with you. KPI trackers are a critical tool that we use to help our clients proactively make decisions throughout the month that drive healthy profit, cash flow and confidence.
Summary
In conclusion, carefully structuring the right KPIs is a critical component of successfully scaling your DTC brand.
If you follow the simple tips laid out in this article, you will be able to course correct quickly throughout the month, and proactively drive profit and cash flow improvements.
And the improved profit and cash flow will help you reach the scale you’ve always dreamed of!
Until next time – scale on!
