Stop tracking everything – performance metrics that actually matter

🛠 THE CFO EFFECT PLAYBOOK (Part I)

Step 1: Start With Purpose

Every finance professional should have one obsession: creating value.

A few weeks back, we discussed the concept of becoming your CEO’s co-pilot. Remember that?

The idea is simpler than most people think.

Your CEO has one primary job: creating value for shareholders.

All your dashboards, reports, and insights should directly align with this objective.

But here’s the thing…

Value creation means different things to different companies:

• Is it revenue growth?

• Market share expansion?

• Growing your user base?

• Number of successful acquisitions and integrations?

• Free cash flow targets?

• EBITDA growth?

• Scalability?

At my company, our mission is crystal clear: grow revenue by expanding our product line, market reach, and channel mix.

But focusing solely on your North Star can be dangerous.

Let's see why.

Step 2: Balancing Your KPIs

Let me share a quick story from my banking days to illustrate this point.

I once had a client who proudly doubled his business in just three years.

But something felt off.

It was what I would call a lifestyle business.

The owner had a flashy house, an extravagant chalet, and a Porsche parked outside.

He was not trying to build a legacy or a business for an eventual exit.

When you glanced at his financial statements, two things immediately stood out:

• Revenue was rapidly climbing.

• Net profit was consistently declining.

The margin loss happened right at the top. At the gross margin level.

If you put all the pieces together, here’s the untold story.

The owner had a fancy house, a fancy chalet, and a fancy car.

He was in the business to impress.

Digging deeper, the problem was clear.

He was buying market share by heavily discounting products, destroying gross margins in the process.

He was chasing the vanity of top-line growth, forgetting profitability and long-term sustainability.

His financials were quietly screaming a story of misplaced priorities.

His business had become a trophy in a game of status among friends.

This scenario highlights a critical truth:

Focusing on just one KPI is risky. No KPI exists in isolation.

For instance, at my company, our North Star is top-line growth.

But to ensure healthy growth, we balance it with a supporting KPI: EBITDA margin.

But even that is not enough because we could still decrease prices, and lower quality to keep our margins.

While this might lead to hitting our EBITDA goals short-term, it would severely harm the business in the long run.

KPIs are like medicine. The dose and combination matter.

You must balance and understand how they interact to avoid unintended consequences.

Seek tension between your KPIs.

For example: for the customer service reps, if you ask them to reduce time on the phone with customers, you need to couple that with number of satisfactory tickets closed.

This will ensure they don’t just hang up on customers to increase the numbers of calls taken in a day.

With this in mind, let’s unpack a practical framework to guide your KPI selection.

Step 3:  The Roots and Fruits KPI Framework

I like to call this framework the "Roots and Fruits" model:

• Fruits: Lagging outcomes like revenue and EBITDA.

• Branches: Immediate levers you control directly, such as traffic, conversions, and inventory management.

• Roots: Foundational elements like product innovation, staff quality, and financial health that sustain and feed your business growth.

Here's how it breaks down:

🌱 ROOTS (Foundational Inputs)

These are your leading indicators. Your investment areas critical for long-term health:

1. Product Pipeline & Innovation

• New product introductions (% of revenue from new products)

• R&D spend as % of revenue

• Product success rate (products hitting sales/margin targets)

• Customer feedback loop (NPS, reviews, customer-driven ideas)

• Time-to-market (concept to commercialization)

2. Product Quality

• Return rate (% returns due to quality)

• Warranty claims/defect rate

• Customer satisfaction scores (CSAT, product reviews)

• Supplier defect rate (for B2B)

3. Quality of Staff & Culture

• Employee engagement (eNPS)

• Staff retention rate

• Talent density (high performers ratio)

• Training spends per employee

4. Financial & Operational Health

• Operating cash flow (% of revenue)

• Debt-to-EBITDA ratio

• Liquidity metrics (Current Ratio, Quick Ratio)

• Capital efficiency (Revenue per $ invested)

🌿 BRANCHES (Immediate Inputs)

These are direct levers your team controls day-to-day:

• Traffic & Acquisition Efficiency

• Conversion Optimization

• Customer Lifetime Value

• Inventory & Supply Chain Management

• Sales Productivity & B2B Account Management

🍎 FRUITS (Lagging Outputs)

These are your North Star metrics and financial outcomes:

• Revenue Growth

• EBITDA Margin

• Gross Margin

• Contribution Margin

• Working Capital Efficiency

Why do Roots KPIs matter so deeply?

• Innovation & Product Pipeline: Without constant innovation, your revenue growth stalls.

• Product Quality: Quality issues destroy customer trust and profitability.

• Staff Quality & Culture: Strong teams drive superior execution.

• Financial Health: Without cash and financial stability, your growth initiatives collapse.

To sustainably hit your North Star metrics (like Revenue & EBITDA growth), you must nurture your Roots consistently:

Great KPIs start with strong Roots.
Strong Roots feed fruitful Branches.
Fruitful Branches produce abundant Fruits.

Step 4:   The 5Ws KPI Framework: Turn Metrics into Strategic Action

The Roots, Branches, and Fruits framework helps you identify what’s critical.

Now, the 5Ws Framework gives you a structured way to clearly define how KPIs become actionable.

Each KPI you create should go through this simple yet powerful checklist:

1. What (Measure clearly)

2. Who (Accountable audience)

3. When (Timing and frequency)

4. Why (Purpose and impact)

5. What next (Action and accountability)

Let’s explore each element, with clear examples to ensure practical execution.

What to Measure? (Clarity and Tangibility)

Define precisely what your KPI measures. Eliminate ambiguity by specifying:

• Metric definition: Explain clearly how it's calculated.

• Clear targets: Define exact numbers, percentages, or ranges to aim for.

• Timeframes: Specify when targets should be achieved.

Example of Ambiguous KPI:

• "Increase Customer Satisfaction"

Transformed into Clear KPI:

• "Achieve an NPS (Net Promoter Score) of 70+ within the next 90 days. NPS = (% Promoters – % Detractors)."

Practical tip:
Include KPI definitions directly in dashboards, accessible by hovering or linking to a glossary.

Who Receives the Report? (Accountability and Relevance)

Choose recipients thoughtfully. Too many recipients dilute accountability; too few miss critical stakeholders.

• Relevant audience: Only those who can take direct action.

• Accountable owners: Assign a clear owner for each metric.

Example:

• EBITDA Margin: CFO, CEO, Head of Operations

• Inventory Turnover Rate: Supply Chain Director, Inventory Manager

Practical tip:
Avoid universal distribution.

Limit the audience to those whose decisions directly affect the metric. A good test is: "Who can act immediately on this?"

When Do They Receive the Report? (Actionable Timing)

Set reporting cadence based on how frequently decisions need to be made or adjustments executed.

• Daily Reports: High-volatility or critical metrics (cash position, sales productivity).

• Weekly Reports: Operational performance metrics (inventory levels, pipeline health).

• Monthly Reports: Strategic overview metrics (EBITDA margin, revenue growth).

• Quarterly Reports: Long-term indicators (market share, employee engagement).

Example:

• Daily: Sales conversion rate

• Weekly: Inventory days outstanding

• Monthly: EBITDA margin, customer lifetime value

• Quarterly: Employee engagement (eNPS)

Practical tip:
Set automated reminders and calendar triggers.

Ensure timing matches key decision-making meetings.

Why Do They Receive the Report? (Purpose and Impact)

Clearly articulate why the stakeholder receives this KPI. Explicitly state how the KPI connects to their role and responsibilities.

• Define the role of each recipient explicitly.

• Clarify how this KPI helps achieve larger strategic goals.

Example:

• "Inventory Days Outstanding (to Supply Chain Manager): You receive this KPI to ensure cash isn’t unnecessarily tied up in stock, directly impacting working capital efficiency."

Practical tip:
Incorporate brief narrative explanations with dashboards to remind stakeholders why the KPI matters strategically.

This consistently reinforces the purpose.

What Should They Do Next? (Clear Next Steps and Accountability)

Each KPI report must come with clear instructions on immediate next steps when targets are off track:

• Immediate Actions: Explicitly define what should happen.

• Escalation Criteria: Define clearly when higher-level intervention is required.

• Action Plan Requirement: Define if the recipient must present corrective plans or act independently based on guidance provided.

• Cure timeline: Define a target date by which the owner of the KPI must present corrective plans.

Example:

• "Traffic Acquisition Efficiency below target by 15%: Marketing Director to present a corrective plan within 5 days outlining actionable improvements."

• "EBITDA Margin below 18% for two months: CFO must deliver a detailed margin recovery strategy at next executive meeting."

Practical tip:
Use explicit action-oriented language.

Avoid vague directives like “address” or “investigate.”

Be precise: "Present," "Fix," "Initiate," "Report."

Your dashboards should never just present information.

They must provoke decisions.

The 5Ws Framework ensures every metric leads to clear, immediate, and strategic action.

And my friend, this is how you transform finance from a reporting function into a core strategic partner driving the future of your business.

You just have to start right now.

Next Week’s Episode:

🔜 Investor mindset – thinking like private equity inside your org

The best finance leaders don’t just run numbers. They think like investors.

Private equity firms consistently drive exceptional returns because they relentlessly ask:
"How do we maximize value?"

Next Sunday, I'll show you exactly how to adopt this investor mindset within your company:

✅ How to spot hidden value opportunities others overlook
✅ How to build financial discipline that drives ROI-focused decisions
✅ How to apply the private equity playbook to your internal resource allocation and strategic planning

Because top finance leaders don't just report performance; they proactively shape it.

If you're ready to shift your team's mindset from accountants to investors and elevate finance into a strategic powerhouse, you can’t afford to miss this episode.

Talk soon,