Many different factors contribute to the success of a business. Although some aspects are easier to measure than others, it is important for managers to track as many key performance indicators (KPIs) as possible in order to make informed decisions about how to develop their business. In this article, we present 22 strategic management KPIs that managers should know.
Further Read: Ultimate Guide on KPIs – Incl. List of 200 KPIs for Businesses
What are Strategic Management KPIs?
Strategic management KPIs (Key Performance Indicators) are important metrics that top management can use to track the success of their business. By understanding these KPIs and their impact on the business, executives can make data-driven decisions about where to allocate resources and how to improve operations.
While strategic management KPIs track the success of the entire organisation, departmental KPIs can provide a more detailed insight into the performance of a specific area of the business. For example, sales KPIs can measure the success of a company’s sales department, while production KPIs can show the output and efficiency of a company’s production process. By tracking strategic and departmental KPIs, managers can get a complete picture of their company’s performance.
Why is it essential to track Strategic Management KPIs?
Understanding the organisation’s KPIs and making data-driven decisions is essential to the success of any business. By understanding which KPIs to track and what they mean to the business, managers can better decide where to allocate resources and how to improve operations. In addition, tracking KPIs can help with strategic planning, as managers can use data from the past to make projections for future success.
While some aspects of a business are easier to measure than others, it’s important to track as many business-related metrics as possible to get a full picture of your company’s performance. By knowing which KPIs are most important, managers can focus on improving the areas that impact the company’s success.
Overview of the most critical Strategic Management KPIs
- Revenue
- Revenue per Employee / Revenue per FTE
- Total Costs
- Net Income
- Profit Margin
- Operating Margin
- Gross Margin
- Customer Acquisition Costs (CAC)
- Customer Lifetime Value
- Customer Satisfaction Score / Net Promoter Score
- Customer Churn Rate
- Sales by Product or Service
- Sales Target in % (Actual/Forecast)
- Operating Expenses Ratio
- Net Profit Margin Percentage
- Return on Assets (ROA)
- Return on Equity (ROE)
- P/E Ratio
- Current Ratio (Assets/Liabilities)
- Debt to Equity Ratio
- Working Capital
- Employee Satisfaction Rating
Explanation of 22 important Strategic Management KPIs
Revenues
Revenues are an important measure of a company’s overall performance. They indicate how much money the company makes from its operations. This allows managers to track how the company is performing and identify areas where they need to make changes to improve performance. Revenue is also important in assessing the value of a company and its attractiveness to potential investors.
Revenue per employee / revenue per FTE
To measure the success of a business, it’s important to look at more than just total revenue. It’s best if you also look at revenue per employee or revenue per FTE. The relative metric will give you a better indication of how efficiently the business is generating revenue and whether it is becoming more or less successful over time.
Total costs
Companies need to have an overview of their costs, preferably broken down by department and issue. This allows them to see where they are spending the most money and where they may be able to save. Costs can vary greatly from department to department, so it’s important to know what each dollar is being spent on.
Net Income
Net income is an important measure of a company’s overall performance. It indicates how much money the company makes after expenses are deducted. This allows managers to track the company’s performance and identify areas where they need to make changes to improve performance. Net profit is also an important factor in assessing a company’s value.
Profit Margin
Profit margin is another good indicator of overall performance. It indicates how much money the company makes from its operations after expenses. This can help managers track the company’s performance and identify areas where they need to make changes to improve performance. Net profit is also an important factor in assessing the value of a business.
Operating margin
Operating margin is an important performance indicator for strategic decision-making. It indicates how much money the company makes from its operations after expenses. This allows managers to track how the company is performing and determine where they need to make changes to improve performance. Net income is also a key factor in assessing the value of a company.
Gross margin
Gross margin is another important measure of a company’s overall performance. It indicates how much money the company makes after deducting the cost of goods sold. This allows managers to track the company’s performance and identify areas where they need to make changes to improve performance. Gross margin is also important in assessing the value of a business.
Customer Acquisition Cost (CAC)
Overall customer acquisition cost is also a strategically important KPI. This metric determines how much a company spends to acquire a new customer. To maintain profitability, it is important to keep this number as low as possible. Many companies use marketing and advertising campaigns to acquire new customers, and the cost of these campaigns must be closely monitored to stay within budget.
Customer Lifetime Value
Customer lifetime value (CLV) is an important key performance indicator (KPI) for companies that want to measure the success of their customer loyalty efforts. CLV takes into account the amount of money a customer spends throughout their relationship with a company. It can help determine how much effort a company should expend to retain a particular customer.
There are several ways to calculate CLV, but all attempt to capture the long-term value of a customer. One common method is to multiply the average purchase amount by the average number of purchases per year and then subtract the customer’s churn rate (the percentage of customers who end their relationship with a company in a given period of time).
A high CLV is desirable for companies because they benefit more from their existing customers. Measuring and tracking CLV can help companies focus on retaining high-value customers and increase profits.
Customer Satisfaction Score / Net Promoter Score
Customer satisfaction and Net Promoter Scores are two important indicators for management when it comes to measuring customer loyalty and satisfaction. A high Customer Satisfaction Score means that customers are generally satisfied with the product or service. In contrast, a high Net Promoter Score means that customers are likely to recommend the product or service to others. Based on these scores, management can determine what to focus on to satisfy customers and increase loyalty.
Note: Net Promoter Score is calculated by subtracting the percentage of customers who reject the product from those who recommend it.
Customer Churn Rate
Customer churn rate is a management key performance indicator (KPI) that measures how many customers a company loses in a given period of time. Companies need to track their churn rate to understand how well they are retaining customers and to identify areas for improvement. Low churn rates are usually indicative of a high-quality product or service, while high churn rates may mean that customers are dissatisfied with the offering.
Sales by product or service
A company needs to track the sales of its products and services in order to make informed management decisions. By analyzing sales data, a company can determine which products or services are selling well and which are not. Using this information, the company can decide which products or services to focus on and which to discontinue. In addition, tracking sales by product or service can provide a general overview of the company’s overall performance.
Sales target % (actual/forecast).
A sales goal % can be a helpful indicator for management because it shows how successful a company is in meeting sales goals. A high percentage of sales goals met means the company is doing well, while a low percentage of sales goals means it needs to work harder to improve its sales. Sales goals can also help motivate employees to sell more products and services by giving them short- to medium-term goals.
Operating expense ratio
The operating expense ratio can be used as a performance indicator to measure a company’s efficiency. It is calculated by dividing a company’s operating expenses by its revenues. Using this ratio, companies can determine if they are spending too much on operating expenses and need to find ways to reduce costs.
Net profit margin percentage
Net profit margin percentage (NPM) measures a company’s financial health. It is calculated by dividing a company’s net profit by total revenue. The higher the NPM, the more profitable a company is. This metric is important for small businesses because it can provide insight into whether or not they are on the path to becoming a sustainable business.
Return on assets (ROA)
An important performance indicator for management is return on assets (ROA). It measures how efficiently a company uses its assets to generate profits. It is calculated by dividing net income by average total assets. A high ROA means that the company is making good use of its assets and generating profits from them. ROA can be a good indicator of how well the company is doing. Management should track ROA over time to see if it is trending up or down and take corrective action as needed.
Return on Equity (ROE)
Return on equity (ROE) measures a company’s profitability by considering the amount of equity used to fund assets. It is calculated by dividing net income attributable to shareholders by average equity.
Return on equity is an important indicator because it measures how efficiently a company uses its money to generate profits for shareholders. A high return on equity indicates that the company is making more profit on its invested capital, while a low return on equity indicates that it could be using its money more effectively. Management and shareholders use return on equity as a performance measure to assess a company’s performance.
Price-earnings ratio
The price-to-earnings (P/E) ratio is an important performance measure that allows management to gauge how the market values a company’s stock. It is calculated by dividing the current share price by earnings per share (EPS). This measures how much investors are willing to pay for each dollar of earnings per share. A high P/E ratio means investors expect high future growth, and a low P/E ratio means investors expect low future growth. Management can use this information to decide how to grow the company and increase the stock value.
Current Ratio (Assets/Liabilities)
The current ratio is an important performance indicator for management because it measures a company’s ability to pay its short-term debt. A high current ratio indicates that a company has more assets than liabilities and is able to meet its short-term obligations. A low current ratio, on the other hand, could indicate that a company is struggling to meet its short-term liabilities.
Debt to equity ratio
The management team should constantly monitor the debt-to-equity ratio. A high debt-to-equity ratio may indicate that a company is in financial trouble and may not be able to repay its debt. A low debt-to-equity ratio may indicate that a company is financially sound and able to borrow money at low interest rates.
Working Capital
Working capital is an important metric for management decisions. It is the money available to a company to pay its short-term liabilities. The calculation includes current assets such as cash, receivables, and inventories less current liabilities.
A high working capital ratio means that a company has more money available than it needs to pay its bills in the near future. This means that the company can meet its obligations quickly and may have room to expand operations or make acquisitions. A low working capital ratio means that the company cannot cover its short-term liabilities without selling assets or borrowing money.
Assessing employee satisfaction
The employee satisfaction score should also be used by management to make decisions about the company. If the score is low, the company may need to make changes to improve employee satisfaction. This may include changes in management, compensation or benefits. If the score is high, the company can maintain its current measures and may even want to consider how it can further increase employee satisfaction.
Integrate management KPIs across departments
Breaking down KPIs into departmental metrics
For effective strategic management, it is important not only to focus on overarching corporate KPIs, but also to break them down into department-specific metrics. This ensures that each department aligns its goals and metrics with the overall strategic goals of the organisation. For example, while the sales department may focus on KPIs such as conversion rates and average deal size, the production team may track efficiency metrics and error rates. This breakdown allows department heads to identify areas for improvement and make decisions that positively impact the company’s overall goals.
However, it is important to maintain a balance. Overloading departments with too many KPIs can lead to confusion and a lack of focus. Selecting a handful of relevant, meaningful metrics for each department ensures clarity and alignment with the company’s strategic direction.
Promote a shared vision with common KPIs
In addition to department-specific KPIs, it is important to have common KPIs across all departments. These common metrics provide a unified vision and understanding of the overall health and performance of the organisation. Metrics such as overall customer satisfaction and net profit margin are relevant to everyone and give everyone a clear picture of the company’s success.
Shared KPIs foster a sense of collective ownership and collaboration. When departments understand how their specific roles contribute to these common goals, it promotes cohesion and synergy in achieving objectives. Regular cross-departmental meetings to discuss the common KPIs can reinforce this spirit of collaboration and ensure that everyone is on the same page and working towards the same goals.
