A successful company tracks far more than revenue. To enable them to grow sustainably, it requires a thorough analysis of the work to improve and optimise performance. While OKR helps us drive strategic outcomes, Health metrics help us maintain balance within the business as it shows you the "vital signs" of the organisation.
As an organisation, it's crucial to keep a close eye on these health metrics to determine if the company is healthy or sick, especially during this time of uncertainty and disruption.
How can you identify your Health Metrics?
Identify key long term outcomes by team (with exec)
Nominate a metric for each of those outcomes, targeting leading indicators where possible
Nominate a metric leader to maintain and update
Document health metric timings, requirements, and update frequency
Optional, but ideal: Embed into a single dash
Review on a regular cadence, generally weekly
These metrics help us ensure operations run smoothly, our customers are happy and we’re avoiding key risks.
But how do we measure your organisation’s health?
Metrics are tools we utilise to evaluate the health of an organisation. It lets us improve overall results and align your people with your organisation’s objectives.
Your business can be measured on 4 core health metric themes, supported by some which may be more specific to your industry or strategy. We describe them as:
- Team Health: How happy and engaged is your team?
- Customer Health: Are your customers happy with your service as an offering?
- Process Health: Is your business running like a well-oiled machine?
- Financial Health: Do you have the right cash flow to meet obligations and maximise capital investment?
- Industry-specific,: Which metrics are critical to measuring the effectiveness of businesses in your industry?
Top Core Health Metric Examples
Let’s explore some of the best examples for each of the core health metrics:
- Team Health: Employee Happiness (Regular pulse check)
- Customer Health: Net Promoter Score / Customer Satisfaction
- Process Health: : Cycle time, Failure Demand, Mean Time to Resolve
- Financial Health: Monthly Recurring Revenue, Sales Revenue, Margin (Net Profit Margin / Gross Margin), Capital burn rate
- Industry-specific,: Which metrics are critical to measuring the effectiveness of businesses in your industry?
1. Team Health: Employee Happiness
Checking the health of the team helps improve the way they work together to produce greater outcomes. This can be quickly doing regular informal pulse checks. Atlasssian have a fantastic format to run rapid health checks with your team. The benefits include:
- It increases confidence within the team that results in better relationships,
- Establish a feedback culture where they can raise issues and fix it quick
- It creates a safe space to share their feelings more easily and frequently.
2. Customer Health: What is ,Net Promoter Score (NPS) & Customer Satisfaction (CSAT)
There are a lot of factors to see whether a company is successful or not and measuring customer satisfaction is one of those. As a business, for us to get and keep customers, we need to put in the time and energy to create positive experiences, one poor service, it can negatively impact the business and can cost us a lot of money. That is the reason why measuring customer satisfaction is crucial.
But how can we know if our customers are satisfied?
The best way? It would be to ask them. And there are two ways we can measure
customer satisfaction and loyalty:
A. Net Promoter Score or NPS
The Net Promoter Score is the world’s leading metric for measuring customer satisfaction and loyalty. It goes beyond measuring how satisfied a customer is with a company; the Net Promoter Score system is designed to gauge their willingness to recommend it to others.
To determine the NPS score we should subtract the number of detractors from the number of promoters and divide by the total number of respondents and then multiply by 100. (Note: Although the NPS score is technically a percentage, it is always shown as an integer.)
NPS responses are classified into three categories:
Net Promoter Score Formula:
((# Promoters – # Detractors)) / # total respondents X 100
= # Net Promoter Score
If we have 100 responses from the survey where
20 responses range from 0-6
20 responses range from 7-8
60 responses range from 9-10
[60 Promoters – 20 Detractors] / 100 respondents x 100 = NPS score of 40
B. Customer Satisfaction (CSAT)
The CSAT metric is short for Customer Satisfaction. It asks the customers “How would you rate your overall satisfaction?” using a five-point scale. CSAT and NPS are both complementary for measuring overall customer health but they have differences:
- Customer Satisfaction survey is usually used to measure for a short-term while , Net Promoter Score is used to measure long-term customer satisfaction.
- Customer Satisfaction survey allows us to ask different types of questions whereas NPS is limited to a single question type.
- Customer Satisfaction survey identifies key specific areas for improvement, while the Net Promoter Score helps us to evaluate the business as a whole which gives us a bird’s-eye view of customer satisfaction and loyalty.
CSAT Responses are measured on a five-point scale of 0-5 or through these five points – Very unsatisfied, Unsatisfied, Neutral, Satisfied, and Very satisfied.
Customer Satisfaction Formula:
Positive responses / # Total responses X 100 = (%) CSAT
If we have 48 positive responses and a total of 80 responses, our CSAT score would be 60%.
48 / 80 x 100 = 60%
3. Process health: Cycle time, Failure Demand, Mean Time to Resolve
Assessing the effectiveness of your business is critical to driving success. Far too often process metrics look at utilisation over the outcome. If you’ve ever seen a freeway at full utilisation, you should know how much of a dangerous metric full utilisation is.
We instead look at how well our processes are running by balancing speed with effectiveness.
A. Cycle time
A powerful metric used in lean manufacturing can also be applied to knowledge work. This captures how long it takes to complete certain core processes within the business.
B. Failure Demand
When a job is worth doing, it’s worth doing right. Failure demand tracks how often additional effort is required once an activity has been completed because we didn’t do it right the first time.
C. Mean Time to Resolve
This is often not used by executive teams, however, for support teams and product teams, this can be a real game-changer. It measures the average time taken to solve problems. The faster we can solve something without disrupting the business the better!
4. Financial Health: Monthly Recurring Revenue, Sales Revenue, Margin (Net Profit Margin / Gross Margin), Capital burn rate
Assessing Financial health helps us to know the long-term longevity of a company. This gives a better understanding of whether the company’s financial health is improving or declining thus helps us analyse how can we allocate the resources and make better decisions for the organisation going forward. These are the following metrics that we should look into:
A. Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is the amount of income that the company can expect to receive on a monthly basis. Measuring MRR is vital especially in
SaaS Companies, because it helps them to understand the overall growth and profitability of their business.
To calculate the Monthly Recurring Revenue, take your Average Revenue per User / ARPU on a monthly basis (this is the number of customers we have by the average of their monthly fees) and then multiply it by the total number of monthly users.
Monthly Recurring Revenue Formula:
Monthly Average Revenue per User x Total # of Monthly Users
= Monthly Recurring Revenue
If we have one hundred customers paying an average of $50/month, we would have an MRR of $5,000.
$50/average per month x 100 customers = MRR $5,000
B. Sales Revenue
Sales revenue refers to the total sales from goods and services made by the business whether in cash or in credit without deducting any expenses. Sales revenue can be listed on the income statement as either the gross sales or total revenue.
Sales Revenue Formula:
# number of units sold x the average unit price = Sales Revenue or
# number of customers x the average service price = Sales Revenue
Margin (Gross Profit Margin & Net Profit Margin)
To assess the profitability of the business, we use Gross margin and net margin where both are expressed in percentage.
C. Gross Profit Margin
Represented by net sales minus the cost of goods sold (COGS). COGS are the total cost spent by the business in acquiring the goods that are sold to the customer. This section shows the beginning inventory, purchases made, and ending inventory.
Gross Profit Margin Formula:
((Total Revenue – COGS) / Total Revenue) x 100 = (%) Gross Profit Margin
D. Net Profit Margin
Net profit margin shows the amount earned by the business for the period.
It is the difference between the gross profit and operating expenses and all other expenses, such as taxes.
Net Profit Margin Formula:
Net Profit / Total Revenue x 100 = (%) Net Profit Margin
E. Burn Rate
The burn rate is used to describe the rate at which a business spends its venture capital to cover all the expenses needed before generating a positive cash flow from its operations.
Burn Rate Formula:
(Starting Cash – Ending Cash) / Number of Months = Monthly Burn Rate
Which metrics are critical to measuring the effectiveness of businesses in your industry? The range of metrics that businesses can utilise vary on the industries, though it has a similar goal – grow and improve overall results and align the team with the organisation’s objectives.
By clearly establishing and measuring the right metric in your industry, we can see and refine the process to produce our desired outcome.
“If you can’t measure it, you can’t improve it.” – Peter Drucker
Here are a few ideas of which metrics you use based on your industry:
Software as a Service:
- Product Engagement
- Monthly Recurring Revenue
- Time to Value
- Sales Growth
- Customer Acquisition Cost
- Cost Per Lead
- NPS Customer Service
- Average Handling Time
- Average Speed of Answer
- Keyword Performance
- Website Traffic Lead Ratio
- Conversion Rate
Retail & eCommerce:
- Stock Turnover
- Total Transaction Value (TTV)
- Inventory to Sales Ratio
Other useful health metrics examples:
If we haven’t given you enough examples yet, here’s more for you to explore:
- Customer service times
- Sales Growth Year-to-date
- Cost of Customer Acquisition
- Customer Loyalty and Retention
- Qualified Leads Per Month
- Lead to Client Conversion Rate
- Monthly Website Traffic
- Met and Overdue Milestones
- Pirate Metrics (not really a metric on its own, but it’s damn good for SaaS businesses)
1. Customer Service Times
Regardless of the industry, you are in, it’s no doubt that customers are the most vital part of the business. Their needs and wants impact every aspect of the business, but most importantly, without them, the business would not progress.
According to Michael LeBoeuf, an American business author “A satisfied customer is the best business strategy of all.” That’s why as a business, we need to consistently provide positive experiences that will result in happy and repeat customers.
But what is the most important attribute of a good customer experience for customers? According to a joint ,study by SAP Hybris (SAP) and the CMO Council, it’s fast response time.
Customers want to feel valued and know their concerns are appreciated. If the business has poor response time, especially if done consistently, it will definitely leave a bad impression on them or will result in a loss of customers and revenue. The key to having loyal customers is to provide them with efficient service within a reasonable time frame.
2. Cost of Customer Acquisition
Cost of Customer Acquisition (CAC) is one of the crucial business metrics used. It helps to determine the approximate cost of acquiring a new customer. The Cost of Customer Acquisition is calculated by the Cost of Sales and Marketing (advertising costs, employee salaries, creative costs, etc.) divided by the number of new customers acquired.
Customer Acquisition Formula:
(Cost of Sales + Marketing) / # of New Customers Acquired = CAC
The Cost of Customer Acquisition should always be assessed in relation to Customer Lifetime Value which is the predicted total revenue you can expect to generate in your customer.
3. Customer loyalty and retention
Our customers are the lifeblood of business. Having happy and loyal customers helps the business in generating continuing revenue. For us to know if we are keeping our customers happy and retaining them, we can determine this by Customer Retention Rate or CRR.
Customer Retention Rate Formula:
((CE-CN) / CS)) X 100 = (%) Retention Rate
CE = the number of customers at the end of a period
CN = the number of new customers acquired during the same period
CS = the number of clients at the start of the time period
4. Sales Growth Year-to-date
Sales Growth determines the increase in revenue over a period of time. It is an essential and strategic factor that gives the executive a better understanding of where does the company stand. We can monitor the growth of sales over various time periods – monthly, yearly, and long-term.
Sales Growth Rate Formula:
((Current Period Sales — Prior Period Sales) / Prior Period Sales) x 100
= (%) Sales Growth Rate
5. Qualified Leads Per Month
As the business grows, you’re going to have hundreds of new prospects each month, but not all of these leads have the potential to become a customer.
This gives us a reason why we need to evaluate the number of qualified leads per month that the business has.
There are different types of leads based on how they are qualified and what lifecycle stage they’re in. You can categorise these leads into three categories:
- Marketing Qualified Leads (MQL) – these are leads that express an interest in your product or service and are captured through your marketing efforts or assets but aren’t ready to purchase.
- Sales Accepted Leads (SAL) – these are leads that are forwarded to the sales team to be qualified.
- Sales Qualified Leads (SQL) – these are leads that are qualified by the sales team into becoming a paying customer in your product and service.
6. Lead to Client Conversion Rate
The Lead-to-Conversion or simply conversion rate is a business metric rate that shows which leads convert into paying customers. This metric is typically used by the business’ sales team that determines if the business marketing efforts and channels are effective.
Conversion Rate Formula:
# of Qualified Leads that Resulted in Sales /
Total Number of Qualified Leads x 100 = (%) Conversion Rate
7. Monthly website traffic
One of the factors that show your business is growing its reach is through your website traffic. The more people know about the product or service through various marketing efforts, the more likely they are to check your website. Measuring your website traffic gives you insights into what works best and what doesn’t – whether it’s through content or your offers.
How to measure:
You can use Google Analytics to track your website’s performance. It’s free and all you have to do is put the Google Analytics code on your website to start tracking.
8. Met and Overdue Milestones
Whether it’s getting more sales revenue or hiring your first employee, every business has goals and milestones they want to achieve. Milestones are commonly used as KPIs or performance measures. This divides your big goals into project milestones which helps you to make progress and be able to track projects whether they’re met or already overdue.
How to measure:
You can track milestones using a paper better yet an online management system.
9. Pirate Metrics
Pirate Metrics is a framework used for online startups created by Dave McClure — the successful entrepreneur and co-founder of 500 Startups. These metrics help the business determine what they should focus on when optimising their marketing funnel so that they can make the most of their time.
This of course has a lot of cross-over of the themes above, but we wanted to explore it on its own given it’s a powerful framework in its own right. Consider how this framework can help you understand the health of your business.
Pirate Metrics can be broken into the following 6 sequential steps from customer acquisition and retention follows:
- Awareness – “Do your ,potential customers know about your product or service?” This stage is focused on building your brand by introducing your product and offering to potential customers through various channels.
- Acquisition – “,Where do our customers come from? From what channels?” This would be your first transaction with your customer that has resulted in success with your awareness or marketing offers.
- Activation – “How satisfied are the customers with their, initial experience?” This is the stage in which your customers actually try your product or service.
- Retention – “Will they stick around?” This stage main goal is to retain customers locked into your product or service.
- Referral – “Do they enjoy or like the product or service enough to recommend it to their friends?” This stage is focused on the number of people who are likely to recommend the product or service to their friends and drive growth.
- Revenue – “Can we monetise the product?” This stage starts when a customer buys your product or service.
Taking this forward
There are far too many metrics here to track and manage. Your ability to maximise business health comes down to your ability to measure what really matters. That’s simply a case of prioritisation.
- Identify metrics – Make sure you have a wide understanding of the key Heath Metrics you need to track by asking your team.
- Choose metrics – Vote on which metrics are most valuable based on how much of an impact they have on your business and how quickly they enable you to course-correct issues.
- Track weekly – Check in on your health metrics on a weekly basis. We like to embed them in our leadership team meeting, called the Weekly Impact Meeting. If a metric is heading in the wrong direction, take action to course correct it.
- Review quarterly – Each quarter spend a few minutes reviewing the Health Metrics you have chosen, based on impact and relevance to the business.
Now, over to you!