KPIs in the Software Industry

Keeping track of key performance indicators (KPIs) is crucial for any business striving to stay ahead of the competition, but this is particularly the case in the dynamic and fast-moving software industry.

KPIs are measurable goals which allow a company’s management to assess performance, identify areas for improvement, and make better business decisions.

In this blog, we will look at the important role KPIs play in the software industry, examples of these, and information on how they can drive real improvements.

Why are KPIs so important for software companies?

KPIs play a vital role in the software industry because they provide significant insights into the performance of software development, customer behaviours, product performance and usage, all of which are central to the success of any software company.

Monitoring and improving performance

KPIs provide software companies with a reliable way to monitor performance accurately and evaluate their progress towards strategic goals. By making sure these KPIs are SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) company leadership can take proactive action to improve overall performance, efficiency and, ultimately, profitability.

Better decision making

Properly considered KPIs enable businesses to routinely assess how effective their ongoing strategies are and adjust their approaches accordingly with the support of reliable data. Data-driven decision-making means leadership can minimise risk and boost the likelihood of their plans coming to fruition.

Identifying growth opportunities

Through the analysis of KPI data, software companies can gain valuable insights into important market trends, shifting customer preferences, and other emerging opportunities. It allows companies to adjust approaches proactively and ensure their products and services stay ahead of the competition when it comes to customer demands.

Example KPIs for software companies

By focusing on the right KPIs, businesses can gain valuable insights across all areas of operations, sales, customer service and more. Here are some of the most useful KPIs to consider for companies in the software industry.

Customer Acquisition Cost (CAC)

As the name suggests, the Customer Acquisition Cost of a business is the total cost incurred in acquiring a new customer. This cost usually accounts for a variety of expenses like marketing and advertising. Ultimately, CAC is essential to determine how cost-effective the customer acquisition strategy of a business is.

Customer Acquisition Cost = (cost of sales and marketing) ÷ (number of new customers)

Monthly Recurring Revenue (MRR)

When analysing revenue streams, it is essential to understand and measure predictable revenue generated by recurring services, such as subscriptions. This is measured as Monthly Recurring Revenue. A subscription-based model is commonplace in software; for these companies, MRR is a vital KPI to include in reporting.

Monthly Recurring Revenue = (number of customers) x (average monthly revenue per customer)

Churn Rate

For businesses with subscription-based services, their churn rate is the percentage of customers who cancel or discontinue their subscription within a specified time period. By closely monitoring the churn rate, a business can more quickly identify issues that are causing customers to cancel, and ultimately improve customer retention.

Churn Rate = (lost customers ÷ total customers at the start of time period) x 100

Customer Lifetime Value (CLTV)

Customer Lifetime Value quantifies the total revenue generated by an individual customer over the entire length of time that they are engaged with the company. Understanding which customers have a higher lifetime value can help in multiple ways, such as tailored marketing and strategies to maximise revenue from high-value customers.

Customer value = Sales price – cost of goods sold

If you have repeat customers, this will need to be for average order value per timespan less average cost of goods over the same time span.

Customer lifetime value = (customer value x average customer lifespan)

Get in touch with Genus

Leveraging the right KPIs is essential for achieving success in the software industry. The Genus team at Shorts have worked with some of the region’s best software firms, helping them identify the right KPIs and optimise their management information to make better business decisions. If you would like to find out how KPIs can help deliver success, contact us today.