KPIs measure a company’s performance to help you improve operations. Strategic planning relies on those key indicators. KPIs show your business’s financial health, growth potential, salability, investment value, and lender appeal—everything you need to execute strategic plans and reach your goals.
However, there are many departmental KPIs to track, including marketing, sales, operations, accounts payable, accounts receivable, production, customer service, financial management, etc. Which key indicators matter most for long-term strategic planning?
The first step is to address any KPI-identified issues in policies, systems, revenue channels, production and quality processes, service protocols, etc., that could jeopardize your strategic plans. Track and evaluate corrective actions before strategic planning to give adjustments time to improve KPIs before you plug them into your calculations.
These KPIs should also be tracked, analyzed, and used in strategic planning
Working capital
Accessible cash. Short-term investments, Cash on Hand, Receivables, Accounts Payable, loans, and expenses are included. This number shows your business’s ability to meet short-term financial obligations with operating funds.
Poor Working Capital can indicate problems in any of the above financial areas, such as over-leveraging, as shown by high loan payments.
Calculate by subtracting the business’s financial liabilities from its current assets.
Present Ratio
The Current Ratio is your company’s financial assets to liabilities. This KPI shows how well the company can meet its financial obligations on time and maintain the credit rating needed to fund strategic growth.
This KPI can help ensure growth strategy success by reducing financial liability to a ratio that lenders and investors will accept.
Divide the company’s assets by its liabilities.
Debt-to-Equity
This measures business profitability. This ratio shows your success in funding business growth with shareholders’ investments. The number shows your business debt. An excessive debt ratio indicates a reliance on debt for growth.
Financial accountability can align debt to equity with shareholder expectations and lenders’ criteria. You might temporarily freeze borrowing as a means of acquisition during subsequent financial accounting periods until the debt ratio is crossed.
Cash Flow
This number indicates your company’s ability to cover daily expenses like material and supply deliveries. It measures cash generation to cover business growth capital investments. Consider your operating cash percentage when investing in new capital as part of your growth strategy. That ratio gives you more financial insight into your business.
Budget changes and operating expense controls can improve Operating Cash Flow as an indicator of growth.
Calculate operating income, excluding depreciation, after taxes. Working capital changes affect OCF.
Customer Acquisition Cost/Lifetime Value
Acquisition costs include marketing and sales. Your sales and marketing KPI measures the efficiency. It evaluates your company’s commercial investment. The LTV is the average value your customers bring to your business over their entire relationship. Your business profits 100% on its sales and marketing investment with an LTV/CAC ratio 2. A 2 or 3 ratio indicates long-term profitability.
Pricing, customer service, quality processes, and other sales pipeline and operations management areas can improve this critical ratio.
To calculate, divide the accounting period’s sales and marketing cost by the number of customers acquired.
Stock Turnover
This KPI shows your business’s average inventory sales per accounting period. It measures inventory turnover from production and warehouses. This indicator measures your business’s success in selling orders that move inventory and production efficiency.
To improve strategic growth plans based on this KPI, examine sales order cancellation rates, order processing issues, production workflow bottlenecks, warehouse organizational systems, materials ordering processes, backlog management, and other processes.
Divide the accounting period’s total sales by its average inventory.
ROE
ROE compares the business’s wealth to the shareholder’s net income. The ROE shows if the business’s net income covers shareholders’ total investment.
Net income determines the business’s long-term value. The ROE ratio measures business efficiency and profitability. Increasing the ratio shows shareholders that management is maximizing returns.
Pricing changes, adding revenue channels, eliminating low-margin channels, cutting spending, increasing training, refinancing, and any other changes indicated by careful analyses across all KPIs can increase ROE.
Divide the company’s net income by shareholders’ equity.
Other KPIs
Some strategic planning KPIs are department-specific:
Recurring Revenue Metrics—This KPI measures income generators likely to repeat the next period without much cost.
Revenue Exit Rate—This KPI shows revenue expected to repeat over the next year (excluding new sales). This metric values businesses.
Customer Acquisition to Lifetime Value—Your business’s Customer Acquisition Cost to a customer’s lifetime value.
Accounts Receivable Turnover—This KPI measures customer payments. Sales divided by average accounts receivable equals it.
Customer satisfaction determines your business’s longevity. It predicts customer retention. NPS is often used to calculate this KPI.
