The KPI Cheatsheet: Measuring What Matters (Project X)
Key Performance Indicators (KPIs) are the numbers that matter.
And if you set them up correctly, they’ll tell you EXACTLY where’s happening with your business.
(Note I said “where’s happening” rather than “what’s happening”. It’s a crucial distinction. A good KPI system will demonstrate where your growth efforts are succeeding, where they’re breaking down, and critically, where they need reinforcement — but it won’t tell you what to do about the issues.)
The “what” will come from experience, intuition, and iteration. Once you identify the place your business is breaking (or succeeding), you’ll form a hypothesis about why, create an experiment for rectifying the situation, and measure your success or failure.
Here’s the grand overview:
Set up your KPI system, the numbers that matter (guide to follow).
If possible, backfill historical data, and then track KPIs over relevant time domains (typically monthly) to identify trends in the data.
Identify where the data indicates success or failure in your business processes.
Rank order those success and “failures” (if augmented or rectified, respectively) along three dimensions — potential positive impact, difficulty of execution, and timeline to execution.
Choose a single KPI, design a tactical experiment around it (or if you’re felling froggy AND it’s important enough, a full strategic initiative), and execute.
Prior to (Step 5), have a plan for measuring the success or failure of your intervention. Did it move the selected KPI? What direction and magnitude indicates success?
Loop steps 3 through 6, iterating your way to excellence.
Of course, this is simplistic. Within this schema, you’ll need a host of strong abilities — acquiring and filtering the relevant data, doggedly recording your KPIs, having the intuition and patience to identify trends, and having the forbearance to only execute a few experiments (maximum) at a time.
A Note on Being An Excellent Boss (Or less optimistically, how not to be an Asshole)
It’s tempting, upon assembling your first set of KPIs, to go through a rapid managerial descent.
It looks like this — (1) seeing every where that’s wrong with your business for the first time, (2) wanting to correct everything simultaneously, (3) under-designing, under-thinking, and under-discovering your corrective experiments in the name of rapid action, and (4) laying a neutron bomb of “do all this now” on your staff.
That way lies failure (and perhaps, mutiny). I know, because I used to do this in a land long-ago and far away, usually when I’d had too much airplane coffee and the Gogo inflight internet was working (sorry to everyone that worked at Again Faster from 2011 through 2013).
Instead, be patient. Calm. A Zen locus of managerial excellence.
Pick ONE area of correction. Take your time in thinking through what is actually causing the data to trend. And don’t decide what you’re going to do about it right away. Instead, ask your staff what they think is happening and how they might fix it (and don’t discount their ideas because they make less than you). Ask your mentors and advisors if they’ve seen similar patterns. Discover a handful of possible causes, a handful of possible solutions, and choose one of each to act upon.
By demonstrating this kind of patience (and scientific rigor), you’ll avoid overloading your staff — a practice that’s key to getting excellent results. They’ll see you as rational, logical, temperate, and safe, and by giving them the space and patience to actually execute your experiment, they’ll see you as an excellent boss — while running through walls on your behalf.
Three Phases of Business Performance
As you set up your KPIs, you’ll want to keep in mind three phases of business performance — client acquisition, client retention, and overall profitability. Your KPIs should correspond to these phases and make intuitive sense.
Client acquisition goes by several names. In this article, we’ll refer to it as either “acquisition” or “the sales funnel”. To determine which KPIs we’ll use to measure acquisition, we begin by mapping the sales process. For instance:
Preliminary Step : Contact business via digital signup, call, email, or IRL drop in.
Second Step: Attend (free class, lecture, video chat, intro session, discussion, etc.)
Third Step: Sign up for service offering
Client retention also has several components — retention, churn rate, repeat purchase rate, etc. For our purposes, we’ll simply focus on “retention proper”, the number of previously acquired clients you keep for any unit time. To determine which KPIs we’ll use to measure retention, we map the (very general) post-acquisition customer journey. For instance:
Preliminary Step: Sign up for service offering
Second Step: Maintain (or abandon) participation in service offering
Third Step: Upgrade to higher tiers of service offering
Fourth Step: Purchase ancillary services related (or unrelated) to primary service offering
Profitability is determined at the business level (see your bookkeeper/accountant), but can (and should) be measured at the product/service level as well. To determine which KPIs we’ll use to measure profitability (and quality of profitability), we map the primary levers driving revenue, expenses, and durability of profit. For instance:
Revenue Lever: Number of Clients
Revenue Lever: Number of Clients in each service offering
Revenue Lever: Average amount paid by Clients per unit time
Revenue Lever: Average amount paid by Clients per unit time (in each service offering)
Expense Lever: Fixed cost per Client
Expense Lever: Variable cost per Client
Durability Lever: Average time elapsed since Client signup
Durability Lever: Average time elapsed since Client signup (in each service offering)
Once we’ve mapped the three phases of business performance, we determine which direction we want each KPI to move. For the vast majority of KPIs, this directionality is self-evident — number of leads/contacts up, number who interact with the preliminary “hook” offer up, number who convert up, number who upgrade service up, etc.
Still, you’ll want to avoid KPI myopia.
KPI Myopia
This happens when you become overly focused on a single metric. For instance, I’m worried so much about upgrading clients to a higher service tier that I neglect to notice that although my upgrade conversion percentage is high, my absolute client count has been falling at a higher-than-normal rate throughout my heavy-handed upgrade campaign.
This danger is very real — I’ve experienced it several times in my career. For instance, we were crushing revenue forecasts at Again Faster throughout 2013 and 2014, but failed to notice that our international accounts receivable metric (days sales outstanding) was growing at an unsustainable clip, leading to a cash crunch. In another example, we were absolutely trouncing our growth forecasts at Whole Life Challenge using email marketing as our primary toolset, but began to see a rise in email unsubscribes far beyond normal, indicating that we were sacrificing future “firepower” for right-now revenue driven by too-frequent emails.
Inevitably, when you pull on a lever in your business there will be knock-on effects, the unintended consequences of your actions. You’ll want to keep a keen eye out for these things, developing a second set of KPIs around resources like email list size, social media following, cash in the bank, etcetera.
The art here is knowing which KPIs matter (without monitoring the irrelevant) while maintaining a wide enough view to detect the unintended consequences of your (necessary, important, must-do) experiments. It’s no easy task, but being good a this; will separate your management prowess from the also-rans in a hurry.
Key Performance Indicators for CrossFit Gyms
Of course, the point of Project X is to grow our anonymous gym.
In that vein, here are the preliminary KPIs I recommend (and the ones I’ll be assembling into our preliminary lightweight Google Sheets dashboard at CrossFit X). Yours may vary based on your business type, your processes, and your personal judgement as to which levers matter most, but the principle ideas below should help.
Note that none of the KPIs below are being transformed via algorithm/mathematics yet — these are building blocks rather than the actual numbers we’ll use to detect areas of out- or under-performance.
Acquisition KPIs
Client Contacts by Month (Digital, Email, Call, Drop In)
Client Intros Scheduled by Month
Intros Converted to any type of Membership
Acquisition Sub KPIs
New Client Contacts by Contact Type (Digital, Email, Call, Drop In)
New Client Intros Scheduled by Date, Day, Time
Total Intros Converted for each type of Membership
Retention KPIs
Membership Total at Month Begin
Membership Total at Month End
New Clients Acquired
Clients Lost
Retention Sub KPIs
Membership Total at Month Begin for each type of Membership
Membership Total at Month End for each type of Membership
New Clients Acquired for each type of Membership
Clients Lost for each type of Membership
Profitability KPIs
Total Revenue by Month
Total Expenses by Month
Total Profit by Month
Count of Payments Received by Month
Profitability Sub KPIs
Revenue by Month for each type of Membership/product
Fixed Expenses by Month
Variable Expenses by Month
Count of Payments Received for each type of Membership/product
Durability KPIs
Cash balance at Month Begin
Cash balance at Month End
Debt Level at Month Begin
Debt Level at Month End
Once we’ve got these building blocks in place (and determined where in our member management software and/or financial statements we’ll find these KPIs), we can embark on the real mission — transforming these numbers into insight.
Transforming KPIs into Insight
Here we introduce some simple math. The idea is to get numbers that mean something in context — signals that our business processes are going well, badly, or somewhere in-between.
My favorite techniques:
Within the Acquisition KPIs, we calculate conversion ratios for each step in the sales funnel. What percentage of contacts turn into scheduled intros? What percentage of scheduled intros turn into paying clients, i.e. convert? What services do they purchase as a percentage of conversions? The insight here is obvious — if you understand where your funnel is working (or performing poorly) you’ll be able to detect where your sales processes (the actual actions your staff is taking) could be improved.
Within the Retention KPIs, the most important metrics to calculate are (1) Churn Rate — how many clients quit each month as a percentage of total membership and (2) Net Gain — how many clients do we acquire net after subtracting losses from additions? Again, the insight is obvious; over time, we want to reduce churn, creating the knock-on effect of enhancing net gain. If you see churn and net gain/loss having an outsized impact on your member counts (and therefore profitability), you’ll want to address those holes peremptorily.
Within the Acquisition and Retention KPIs, I’m extremely interested in the relative percentage of high-tier memberships being sold, both to new clients and existing members. What percentage of new clients opt into each membership type? What percentage of existing clients are in each membership type? In both cases, is this changing over time? The insight comes in understanding that the more clients we have in the highest tiers of membership, either through initial purchase or upgrade, the more we’ll be positively influencing profitability (assuming that servicing the highest tiers of membership does not entail non-proportional increases in variable expenses). After examining the proportions, we may choose to enact sales tactic(s) that enhance initial high-ticket purchases and/or cause existing members to upgrade.
My foundational profitability metric is ARCM (average revenue per client per month). This is calculated by dividing total monthly revenue by count of monthly payments received for client memberships (and excluding payments for additional services such as seminar, retail, foodstuffs, etc.), equaling the revenue-generating yield of each client during that month. We want to see this value increase alongside client count, and all told, we’d prefer to see an extremely high ARCM with a relatively low client count — indicating that the business offers high-ticket services without concomitant increases in expenses, i.e. it likely has “high margins”.
Of course, from just the lists above, we could continue to calculate and transform second-level KPIs for additional insight, but the vast majority of businesses will have their hands full after identifying just a few essential KPIs.
My recommendations for your first KPI Set?
Track sales funnel conversion performance step-by-step.
Measure net client gain/loss by month, percentage of new clients opting into each membership type/service by month, and percentage of existing clients in each membership type/service by month.
Track overall ARCM and ARCM by membership type.
Look at your profit & loss statement and balance sheet across time — inspecting three to six months in a single view to see how things are trending.
These measures, along with the foundational KPIs above, will give you an excellent view of how your business is performing.
As you gather experience and steam, looking at your KPIs each and every month, you’ll begin to develop intuitions about what else you’d like to know — and the calculations to learn those things will become self-evident once you’ve put in the hours.
Patience and Trends
You’ll likely need to acquire 3 to 6 months of data to derive any real insight, as the trends in the KPIs over time are where the story is truly told (and opportunity detected). You can acquire your KPIs from this day forward, or if you’re truly motivated, excavate historical data to get a backward view of your KPIs (recommended).
Once you’ve detected opportunities, rank them along three dimensions — potential positive impact, difficulty of execution, and timeline to execution. Find the opportunities that rank highest in impact and lowest in difficulty/timeline, and then work with your staff to ideate on solutions.
Treat these solutions as experiments to be executed with rigor — what precise tactics will you use to influence the KPI in the correct direction? How will you train everyone to execute these tactics in the same way? How will you measure success/failure?
By choosing just one or two KPIs to influence, and just one tactic (or tactic cluster) for influencing them, you’ll avoid creating confusion — both within your staff and within your own mind.
Once you’ve seen success, you can either double down on your efforts or choose a more “needy” KPI to influence. Either way, you’ll be engaging in true data-driven growth — the whole point of the exercise.
Next Steps (and the CrossFit X Survey)
We’re wrapping up the CrossFit X member survey in the next few days (see: Kickass Surveying), and will be presenting the results to gym staff and ownership in the next few days.
Upcoming posts will be about that survey — how we’ll use the insights garnered to develop new products and drive digital marketing. Then, we’ll begin the process of combining our Membership Management Software deep dive with survey results to elucidate tactics for (1) creating a member referral system and (2) developing a natural upgrade funnel for current clients.
In the meantime, if you have any questions at all feel free to shoot me an email at jon@jongilson.com. I’d be stoked to hear from you (including any ideas you’d like to see me explore in future posts).
