My key KPI: Monthly revenue growth and RoS
Welcome to ‘My key KPI’, a new weekly content series where we ask CFOs and FDs what metrics and measures they use to drive their businesses forward.
The aim is to understand how different finance professionals, across a broad array of industries and sectors, use data to inform their decision making.
This week, we speak to Jeremy Hunt, the CFO and co-founder of InvestorConnected.
My key KPI: monthly revenue growth and trend of return on sales (RoS)
Jeremy Hunt -- the CFO, not the politician -- is an investor at heart. He is the co-founder of InvestorConnected and he also acts as the business’s CFO.
The company provides an analytics platform for startups and scaleups to help them present their information to investors. Our goal is to help small and scaling businesses grow by providing them with the tools to develop investment ready business plans,” said Hunt.
Much like the businesses they work with, InvestorConnected is itself a startup. Hunt’s job as CFO is to keep the InvestorConnected’s growth on track. His key KPIs are with this focus in mind: monthly revenue growth and trend of return on sales (RoS).
Monthly revenue growth is their top KPI, Hunt explained. “It shows the trend of total revenue generated by the business month-on-month.” When a company goes through a growth phase, profits are generally reinvested back into the business, meaning the more revenue generated, the faster a business can grow.
“Revenue growth provides InvestorConnected with a simple and easy to understand metric for us to predict how fast we can grow our business. Couple this with the cost burn rate and you have something very powerful in predicting how a business is likely to grow – it is something we advise our start-up clients to pay particular attention to.”
The second KPI, Trend of Return on Sales (RoS), is more useful for an established but growing business. “RoS is one of the classic investor ratios, which if looked at in isolation will tell you how well a business is turning its revenue into profit.
“By analysing how this ratio grows or falls as a business grows, we are able to determine if the business is structured to be more profitable the bigger it becomes, and provide indications of how it will perform when scaling up.
“A well-structured business should maintain or increase its RoS as revenue grows; whereas one that sees a diminishing RoS with revenue growth may indicate future problems ahead if it continues to grow without changing the way it operates.”
Hunt believes that the value of a KPI is determined by your follow through. “A KPI is only useful if action can be taken off the back of it, and action should be taken when a KPI moves in a certain direction or hits an important threshold.
“Without understanding the importance of what a KPI is telling you, and therefore the evolution of the business, you face the risk of not being able to take decisive action at the right time.”