It’s a scientific fact—the right visuals can enliven a discussion of otherwise dense financial data and increase audience comprehension. It’s simply hardwired into the human brain. Read on to learn how to identify your key performance indicators (KPIs) and match them with the right visualizations to convey their impact on your company’s financial well-being.
Your Brain on Graphics
Our brains are more adept at processing images than processing words, according to leading neuropsychologists. Words are abstract and difficult to retain as compared to visuals, which the brain processes as concrete, and therefore easier to remember.
This is important when it’s time to discuss KPIs—the financial numbers and indicators that identify the most important areas of your business and reflect its overall health. As you review your KPIs at the recommended monthly or quarterly intervals, the right visualizations can present data in a way that’s easier to grasp and factor into decision-making.
Keep Your Eyes on These KPIs
Here are some examples of KPIs that savvy companies measure consistently. There are hundreds of different indicators, so be sure to pick those that most interest you and your business.
1. Sales initiatives and sales-driven organizations may focus on:
- Book to Close – Once your team identifies a potential sale, what is your success rate for quickly closing that sale and bringing the dollars/funding inhouse?
- Monthly Sales/Revenue Growth – Are you achieving the growth needed to maintain your spending?
- Revenue Growth Targets for Key Stakeholders – Are your key stakeholders (division leads/product leads) achieving their targets?
- Funnel Conversion – Once you identify the overall company pipeline, how quickly/effectively are sales leads qualified and/or generated? What does your win rate say about future deals?
2. Cash flow and pulling the right strings to effect it…
The cash conversion cycle (CCC) is a metric that expresses the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cash flow from sales. Calculate the metric using the following formula:
CCC = DIO + DSO – DPO
DIO = Days Inventory Outstanding
DSO = Days Sales Outstanding
DPO = Days Payables Outstanding
3. Indirect pool contributions
- Expressed as a percentage of revenue, is your indirect spending in line with your revenue/sales growth (+/-)?
- Expressed as a dollar amount, is each indirect pool contributing the necessary dollars to achieve the anticipated wrap rate or maintain growth objectives? These variances show managers where to focus on growth or minimize expenses.
4. Other KPIs to watch
- Cost of Goods Sold and Gross Margin – Are direct expenses in line with proposed/baselined amounts? Is gross profit (prior to indirect expenses) high enough to fund other areas of the business (administration, bid & proposal/independent research & development, business development, marketing, etc.)?
- Funded/Unfunded Backlog – How long will current contracts/opportunities keep the organization afloat?
- Monthly Recurring Revenue (MRR) – What is your predictable revenue stream?
- Employee Head Count/Retention Rate – How many people work for you and how well does your organization retain them?
- Job Requisitions and Fill Ratios – Once you have requested hires, how many positions are filled and how quickly?
Choose the Right Tool for the Task
Once you’ve identified your KPIs, make sure you portray these metrics effectively to gain the most out of every visualization.
Bar/Column and Line Graphs – effectively show both month-over-month numbers against expectations as well as cumulative amounts. Adding a trend line can quickly identify a metric’s trajectory. An example is revenue or gross profit by month against plan/forecast.
Pie and Sunburst effectively show the composition of your organization or the makeup of a key metric; e.g., sales by division.
Waterfall, Area, Radar, Surface, and Box & Whisker graphics can combine the composition along with the trend and range of a specific metric. Box & whisker can identify the highs and lows along with the ending figure (upside/downside tables come to mind?); e.g., funded and unfunded backlog, accounts receivable, or headcount.
Adding Text to Graphics
Every visualization should include a summary of the data. This allows the viewer to quickly grasp the key points and pick them up in the visual. Present your summary in outline/bullet form. Avoid paragraphs of text.
In some cases, tables and text are the best way to present a metric. If you use them, do so in summary form, including only key talking points (KTPs). Crowd dense displays of word and numbers onto a slide deck, and you’ll lose your audience’s attention. Expand on your KTPs during your verbal presentation to stimulate discussion.
Paint a Pretty Picture
Final flourishes can enhance or detract from your message. Follow these guidelines to capture and keep viewer attention:
When applied effectively, color can keep boredom at bay. Bright colors typically distract viewers from taking in a visualization’s main message. Lighter shades of greens, blues, and greys are easier on the eyes. Viewers associate yellow and red with cautionary alerts. Use these colors sparingly and only to indicate material issues with the data.
As with bright colors, bold lines draw viewers’ attention and make the visualization more difficult to view. Light grey or light blue borders enhance rather than detract from information included within a graphic.
Times New Roman, Arial, and Calibri are the standard fonts for financial graphic displays. Most other fonts are difficult to read, especially when sizing a graphic. Keep bold and italicized fonts to a minimum, using them primarily for headings or totals.
Well-crafted visualizations are your secret weapon for presenting KPIs in an easy-to-understand format that supports clear decision-making.
If you have questions about how to incorporate KPIs into your company’s regular review process, reach out to CAVU’s accounting experts to help you strategize for more government contracting wins.