Measuring business growth: The how, when and why of KPIs

Measuring business growth is a vital part of any innovation business’s strategy.

Tracking performance can help you to understand where your business is on its journey, mitigate risks and secure the funding and expertise needed to reach the next stage of growth.

We spoke to Eileen Modral, a Senior Innovation and Growth Specialist at Innovate UK EDGE with a background in investment management, for insight into the types of key performance indicators (KPIs) to consider, how to track them and why they’re important for growth.

Key indicators of business growth

Many of Eileen’s clients are unsure of which metrics to track, how to measure them, who to benchmark against and how to analyse the information. While the development of specific internal KPIs will vary for each business, there are some overarching considerations.

According to Eileen, the key areas to consider when it comes to measuring growth are;

• Revenue growth
• Employee growth
• Market share

An Innovate UK EDGE specialist can help to analyse the risks, identify where value can be added and support the strategic thinking needed to define the right KPIs to help an innovation business reach its goals.

Why is measuring growth important?

For smaller businesses and start-ups, being able to demonstrate growth to investors and backers is essential. Most businesses relying on grants and investors will have an obligation to report on performance in order to validate the investment and justify further finance.

For any innovation business, the ability to demonstrate a history of progress will make it much easier to secure future funding, as it shows capability to potential investors.

For those looking to expand, it’s important to put robust systems and processes in place early on. The more people involved in a business, the stronger these processes will need to be. As a business grows, it may find itself having less control over employees, which is where effective tracking systems become vital. These systems can show businesses where they are lacking, where progress should be made and which KPIs aren’t being hit.

What is a good growth rate?

Annual growth rate is largely dependent on the business sector a company is operating in. For example, MedTech innovations can take much longer to get to market and require a much larger investment than a simple app. The expectations of the market will play a big part in this too.

For these reasons, it’s hard to put a number on a good growth rate for all businesses. However, as a general guide, you should expect to see an average of around 15% to 45% year-on-year growth.

The impact of COVID-19 on growth

The global pandemic has impacted businesses in different ways. While presenting vast opportunities for some, for others, customer bases and markets have all but disappeared.

It’s all about being in the right place, at the right time and with the right product. However, many businesses have seized the opportunity to pivot their offering, developing sideline products and collaborating with other businesses to diversify their products and services to fit the current market.

For example, Innovate UK EDGE helped third-generation blueberry farmer David Trehane secure extended impact funding for a prototype app called Seasonal Jobs. The solution works like a dating app for farmers and workers to solve the challenge of finding seasonal farmworkers during the UK lockdown and beyond.

Government coronavirus business support has been vital in helping SMEs address complex challenges and continue to build and grow.

Innovate UK EDGE also helped sensor technology innovator Ionix Advanced Technologies find funding and support for prototype development of an exciting new product for a Covid world. Offering real-time, remote monitoring capability for detecting cracks or defects in power generation facilities, the prototype prevents engineers from having to carry out inspections on increasingly socially distanced sites.

How to track business growth

While every business is different when it comes to internal KPIs, it’s important to follow a process for defining, measuring and analysing your goals.

Define long term and short term goals

Firstly, you need to define your long term and short term goals for the business. Whether it’s an increase in sales revenue, customer growth or entering new markets, this will form a starting point for deciding which metrics to track. Goals should be specific, achievable and measurable.

Identify meaningful business metrics

Again, this will be dependent on the sector and market you operate in, the type of product or service you offer and your business goals.

As well as thinking about internal KPIs such as revenue and expenses, it’s important to also consider external factors and competitor benchmarking to get a full picture of the business growth landscape.

Some KPIs to consider;

• Sales revenue
• Expenses
• Margins
• Profit and loss
• Employee numbers
• Marketing expenses and impact
• Customer loyalty
• Customer retention
• Customer acquisition cost
• Productivity (could include employee, marketing or manufacturing productivity etc.)
• Hours worked
• Business management
• Inventory size

This list is by no means exhaustive and meaningful KPIs should be derived from your future goals as a business. Where do you want to be in three years? Work backwards and think about the markets, customers and strategy that will get you there. An Innovate UK EDGE specialist can help with value propositions, understanding how to align with the right customers and provide expert advice on sourcing funding and finance.

Collect and organise data

Once you have refined your KPIs, you need to put a process in place for tracking, collecting and presenting data. Consistent yet flexible reporting is an important part of demonstrating value to current and potential investors.

The frequency of reporting will depend on the size and stage of your business. If you have a finance director on the team, you may benefit from monthly reports, however, an early-stage business without a finance team in place may have less time to dedicate to reporting.

The frequency of reporting will also depend on the agreement you have with your investor. You may need to work with them or with a specialist to identify the best format for communicating the progression they want to see.

Apply your findings

Monthly, quarterly or annual reports should provide a wealth of data and insights to draw on for continued growth. This data should allow you to identify weaknesses and areas of potential.

Re-evaluate, refine and repeat

Implementing these processes will allow you to see if you’re reaching the milestones set out in your business plan. If not, you have an opportunity to stop, think and re-evaluate your strategy.

A final word of advice from Eileen – don’t brush off KPIs, they are a vital part of business growth and play a key role in how the government reviews and justifies further funding. The same applies to private investment. The better you can show you’re hitting your KPIs, the more likely you’ll secure funding for the future.

At Innovate UK EDGE, our specialists draw on the diverse strengths of colleagues and the wider network to find you the right support to innovate and grow.