KPI Selection Guide

Sixteen measures, each with its formula

The guide gives each measure a page: the formula, where the figures come from, a worked example, how to set its level, what to watch for and the decision it asks for.

Revenue against budget and last yearAre we on plan?

Gap to budget = revenue − budget, in euro and as a share of budget. Growth = revenue ÷ revenue in the same period last year − 1.

Use it when. Always: every pack starts here. Pair it with retention, so the board can see whether growth comes from customers who stay or from replacing those who leave.

Operating profit against budgetAre we on plan?

Gap to budget = operating profit − budgeted operating profit, split into causes: volume (the revenue gap at the budgeted margin), margin (actual revenue × the change in margin) and each cost line that moved.

Use it when. Always. If your lender tests earnings before depreciation (EBITDA), show that too, and say which of the two the plan is measured on.

Gross revenue retentionHow safe is the revenue?

Gross revenue retention = this year's revenue from last year's customers, counting each at no more than it spent last year, ÷ last year's revenue. Net revenue retention also counts their growth.

Use it when. Any business that sells to the same customers more than once. It needs no subscriptions: invoices by customer are enough.

Customer concentrationHow safe is the revenue?

Largest customer's share = its revenue in the last twelve months ÷ total revenue; the top five likewise. Effective number of customers = 1 ÷ the sum of every customer's squared share.

Use it when. Any business where one customer, or one buyer behind several accounts, could change the year. Add supplier concentration when one supplier provides a third of purchases.

Gross marginDo we make money on what we sell?

Gross margin = (revenue − cost of sales) ÷ revenue.

Use it when. Any business that sells products or materials. Firms that sell time read the net multiplier instead.

Sales mixDo we make money on what we sell?

Mix effect = gross margin at last year's mix − gross margin at this year's mix, both at this year's margin for each line. Its cost = the mix effect × this year's revenue.

Use it when. Two or more lines whose margins differ by five points or more.

Contribution by lineDo we make money on what we sell?

Contribution = a line's gross profit − the costs tagged to it, such as its people, carriage and commission. Share reaching profit = operating profit ÷ total contribution.

Use it when. Two or more lines, sites or customer groups with costs of their own. Most accounting systems can tag costs by line with a tracking category or a class.

Cash conversionWill the cash be there?

Cash conversion = cash generated from operations ÷ EBITDA, over the last twelve months. Cash from operations = EBITDA − the increase in debtors and stock + the increase in creditors.

Use it when. Any business that holds stock or gives credit. It is often the first sign that reported profit and the bank balance are drifting apart.

Debtor daysWill the cash be there?

Debtor days = trade debtors ÷ revenue × 365, using the last three months' revenue at a yearly rate. Creditor days = trade creditors ÷ cost of sales × 365, on the same basis.

Use it when. Any business that invoices on credit. Add creditor days when suppliers fund a large part of working capital, and stock days when stock is more than a month of sales.

Cash headroomWill the cash be there?

Cash headroom = the lowest forecast balance in the next 13 weeks − the floor. If you have an undrawn overdraft or facility, add it and say so.

Use it when. Always, in place of month-end cash, once you keep a 13-week forecast. Report it weekly while headroom is less than a month of costs.

Current ratioCan we carry what we owe?

Current ratio = current assets ÷ current liabilities. The quick ratio leaves stock out of the assets.

Use it when. When a lender, a supplier's credit insurer or a tender asks for it, and quarterly if you borrow. Rarely a monthly board measure.

Interest coverCan we carry what we owe?

Interest cover = operating profit ÷ interest payable, over the last twelve months. Some facilities use EBITDA; use the definition in your facility letter.

Use it when. Any business with borrowing. Quarterly, on the dates the lender tests it, unless cover is close to the covenant.

Net debt to EBITDACan we carry what we owe?

Net debt to EBITDA = (borrowing − cash) ÷ EBITDA over the last twelve months.

Use it when. When you borrow, or plan to. Quarterly.

UtilisationIf you sell time, are the hours paying?

Utilisation = chargeable salary cost ÷ total salary cost, or chargeable hours ÷ hours available. One point is worth total salaries × 1% × the net multiplier.

Use it when. Any firm that sells time: accountants, engineers, architects, consultants and agencies.

Net multiplierIf you sell time, are the hours paying?

Net multiplier = net revenue ÷ direct labour, the salary cost of chargeable time. Break-even multiplier = 1 + overhead rate, where overhead rate = all other costs ÷ direct labour.

Use it when. With utilisation, in any firm that sells time.

Lock-upIf you sell time, are the hours paying?

Lock-up = work in progress days + debtor days. Work in progress days = unbilled work ÷ net revenue × 365.

Use it when. Any firm that sells time and bills after the work. It replaces debtor days on the scorecard.

Work the measures out on your own numbers

• Board pack template

  The pack the guide's scorecard comes from: fourteen pages, each with one finding and one decision.

• Revenue retention calculator

  Gross and net revenue retention from five figures in your own invoice ledger.

• Customer concentration checker

  Your largest customer's share, the top five's and the effective number of customers.