What's a KPI, and Why Does It Matter?

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Don't you hate industry jargon? KPI stands for Key Performance Indicator, and is more or less the bedrock for measuring the success (or health) of a (tech) company. A KPI is any metric that's an important piece in a company's analysis and direction. Without KPIs, you don't know how well (or poorly) you're doing, nor where you should head (or avoid) next. Here's a couple of KPI examples, as relate to the tech sphere, to help you better get the idea.

Cost Per Acquisition (CPA)

Cost Per Acquisition is the sum total of everything it costs you to bring in one new customer. With a scalable product or service, CPA comes down to your marketing budget. How much do we have to spend in marketing (whatever marketing software, advertising, etc. looks like for you) to acquire one new customer? Where the lines are blurred - where your product or service isn't perfectly scalable, you might also include time spent and salaries.

You can see why this is important. If you know you can spend $X to get Y customers, then 10X will equal 10Y, and your projections just got a whole lot easier. You can also make decisions with more confidence. The size of a company's CPA is a central determining factor in the success of that company. It's a KPI. Compare your CPA to your revenue per account (or lifetime value of a customer), and now you know how profitable you're going to be.

Churn Rate, or Churn 

Churn is a fancy term for the rate at which you lose paying customers, particularly for a subscription or ongoing service. Churn can be calculated monthly and/or annually, using dollar revenue and/or number of customers. It makes sense why this would be a KPI, right? You might be bringing in 100 customers a month, but if you're also losing 50 a month, you've just cut your growth in half. Who's that good for?

Churn is a depiction of how healthy your customer life cycle is. If you're continually losing a ton of people, there's clearly something unreliable about your business or setup. Churn is a KPI because it gives you a snapshot of your customer cycle, and can help you to pinpoint whatever holes are in it. It's also good for projections as you grow or need to make changes.

KPI stands for key performance indicator, and can be any important metric for your organization. The goal of a KPI is to measure the health, reliability, and probability of success for a company. Along with cost per acquisition and churn, other common KPIs include monthly recurring revenue (MRR - how much you're bringing in each month from subscriptions and such), lead conversion rate (how good are you at turning interested prospects into paying customers), and return on investment (ROI - if you spend X, what you will get back).

Overall, there are dozens of KPIs, and a new one pops up every other month. Sometimes it can get confusing, but you only need to pay attention to what matters for you. What's important for your company?